Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Year in which expenditure is deductible--Controversy regarding liability to entry tax in respect of commodity in which assessee was dealing---Clarification by Commissioner of Sales Tax on 2-11-1981, that entry tax was payable---Consequent payment of entry tax for assessment years 1977-78 and 1978-79 in December, 1981, and June, 1982---Amounts paid were deductible in assessment year 1983-84---Indian Income Tax Act, 1961,S.37. For the assessment year 1983-84, the assessee had claimed deduction of Rs.40,935 towards payment of entry tax. There was no dispute that the expenditure pertained to earlier years. However, the assessee claimed deduction during the year on two grounds. The first was that the clarification as to the liability of the assessee for payment of entry tax of gudaku was issued by the Commissioner of Sales Tax on November 2, 1981, which was the date falling during the accounting period relevant to the present assessment year. It was claimed that the entry tax pertained to Diwali years 1977-78 and 1978-79 and the assessments to entry tax in respect of these two years were made on December 30, 1981, and June 28, 1982. These two dates also fell during the accounting period relevant to the assessment year 1983-84. The Assessing Officer disallowed the claim because the assessee was maintaining accounts following the mercantile system and so, the liability was allowable in the year in which the liability accrued. The Commissioner of Income-tax, (Appeals) and the Tribunal allowed the assessees claim. On a reference: Held, that it was an admitted fact that the situation was whether gudaku which had been imported by the assessee was subject to entry tax or not, because what was subject to entry tax was tobacco and whether gudaku is tobacco or not, was a debatable question and it only came to be clarified by the Commissioner of Sales Tax by the communication, dated November 2, 1981, that gudaku is a manufactured product out of tobacco and, therefore, it is also subject to entry tax. The peculiar situation had arisen that the assessments for the years 1977-78 and 1978-79 had already been completed and this liability accrued…

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