Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1987-88 - Assessing Officer brought to tax provision for purchase tax liability shown in balance sheet for relevant year as deemed profit under section 41(1), relying on decision of Supreme Court in Sterling Foods v. State of Karnataka [1986] 63 STC 239 - Whether unless assessment under Sales Tax Act was completed allowing assessee's claim for exemption from payment of purchase tax, it could not be said that there was cessation of liability - Held, yes FACTS The assessee-firm was engaged in the export of marine products. During the course of assessment, for the year 1987-88, the Assessing Officer found that in the balance sheet of the assessee there was a provision of purchase tax liability part of which had been brought to tax in earlier years. Relying on the Supreme Court's decision in Sterling Foods v. State of Karnataka [1986] 63 STC 239, the Assessing Officer held that said provision was nothing but deemed profit of the assessee as there was cessation of purchase tax liability in relevant previous year and, therefore, he brought it to tax under section 41(1). On appeal, the Commissioner (Appeals) reversed the action of the Assessing Officer, which was later confirmed by the Tribunal holding that cessation of said liability was dependent on sales tax assessment of assessee for relevant period and there was no material brought on record to show whether same had since been closed granting exemption to assessee from payment of purchase tax. On revenue's appeal : HELD The Tribunal had rightly noted that the question regarding the purchase tax liability was not solely dependent on the question decided by the Supreme Court in Sterling Foods' case (supra) and, therefore, unless the assessment under the Sales Tax Act is completed allowing the claim, it cannot be said that there is cessation of liability to purchase tax which is a condition precedent for invocation of section 41(1). The Tribunal had stated in the appellate order that there was no material brought on record by the department to show whether the sales tax assessment had since been closed. That was…

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