Rc/47/2001 Of Commissioner Of Income Tax Ap Hyd v. M/S Vijaya Beer And Wine Stores Secu Bad

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMR.C.No.47 of 2001 JUDGMENT: (Per LNR,J) This reference is made by the Banglore Bench ofthe Income Tax Appellate Tribunal, by framing thefollowing questions: For Assessment year 1987-88: “ Whether on the facts and in the circumstances of thecase, the ITAT was correct in law in holding that thesum of Rs.2,29,533/- being the sales-tax liability of thedissolved firm, discharged by the assessee, wasallowable as deduction in computing the income of theassessee for the asst. year 1987-88?” For Assessment year 1985-86: “Whether, on the facts and in the circumstances of thecase, the ITAT was correct in law in holding that thesum of Rs.12,55,525/- being the sales-tax liability ofthe dissolved firm, discharged by the assessee, wasallowable as deduction in computing the income of theassessee for the asst. year 1985-86?” The respondent was a partner of M/s. Vijaya Beerand Wine Stores, Secunderabad with 40% share therein. The firm was dissolved with effect from 30.09.1993. Therespondent took over the entire firm, together with itsassets and liabilities. By the time it was dissolved, the firmwas in arrears of sales tax. For the assessment year1987-88, it was Rs.2,29,553/- and for the assessmentyear 1985-86, it was Rs.12,55,525/-. Stating that hecleared the arrears of sales tax, the respondent claimeddeduction thereof from the income for the assessmentyears 1987-88 and 1985-86 respectively in his returnsfiled under the Income Tax Act (for short ‘the Act’). Theconcerned Income Tax Officer disallowed the same, on the ground that the liability to pay the sales tax was notthat of the assessee and at the most, it would constitutethe liability along with the assets of the taken over firm. The appeal preferred by the respondent before theCommissioner of Income Tax (Appeals) was allowed. Aggrieved by that, the Department preferredI.T.A.No.1495/BANG/90. The appeal was dismissedthrough order, dated 20.03.1998 and the view taken bythe Commissioner was upheld. On an application filed bythe respondent under Section 256(1) of the Act, thequestions were referred to this Court. Heard learned senior Standing Counsel for theIncome Tax and learned counsel for the respondent. Section 43-B of the Act provides for deduction of theamount paid by an assessee towards taxes and otherenactments. The respondent claimed deduction for thetaxes that have been paid by him. The Act does notmaintain any distinction between the taxes that are paidas an initial assessee or as the one who has taken overthe business of another firm. Though in a way it can besaid to be a contractual obligation, from the point of viewof the respondent, the item of expenditure does notchange. What was payable as a sales tax continues tobe so, even after it becomes the subject matter of acontract. The Tribunal has taken correct view of thematter and both the questions referred to us deserve to beanswered in favour of the assessee and against theDepartment. Accordingly, the reference is answered. ____________________ L.NARASIMHA REDDY, J ______________________ CHALLA KODANDA RAM, J Date: 01.07.2014JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C.No.47 of 2001 JSU Date: 01.07.2014