Law: Income Tax Act, 1961

Section: 37

Income-tax---Business expenditure---Mercantile system of accounting---Sales tax--­Sales made in accounting period---Sales tax paid in later year---Not deductible in assessment for later year---Indian Income Tax Act, 1961, S.37. The appellant carried on the business of manufacture and sale of biris and followed the mercantile system of accounting. By two notifications published in the U. P. Gazette, dated December 14, 1957, the Government of U. P. provided for exemption with effect from December 14, 1957, from payment of sales tax and Central sales tax on sales of biris, subject to certain conditions. The appellant claimed that it was not liable to pay any sales tax on sales effected from December 14,1957, but the Sales Tax Department took the view that sales tax was leviable for the period from December 14, 1957 to June 30, 1958. Representations were made to the State Government seeking exemption. The appellant also made an application for stay of recovery of sales tax and recovery was stayed. Orders of assessment of sales tax for the period April 1, 1957 to March 31, 1958, and April 1, 1958 to June 30, 1958, were passed determining a total sum of Rs.1.96,351 as payable as sales tax. The stay against recovery that was granted in the year 1959 was vacated on October 16, 1967. Thereafter, the appellant paid a sum of Rs. 1,91,887 out of the sales tax liability of Rs.1,96,351 and claimed deduction of the sum paid, in its assessment for the assessment year 1968-69, on the ground that the actual payment was made in the previous year relevant to that assessment year. The claim was rejected by the Income­tax Officer as well as the Appellate Assistant Commissioner, on appeal, and the Tribunal, on further appeal. On a reference, the High Court held against the appellant. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that the payment of sales tax composition fee of Rs.1,91,887 was not an allowable expenditure for the assessment year 1968-69. CIT v. Kalinga Tubes Ltd. (1996) 218 ITR 164 (SC) fol. Haji Lal Muhammad Biri Works v. CIT (1982) 134 ITR 718 affirmed. . Chowringhee Sales Bureau (P.) Ltd. v. CIT (1973) 87 ITR 542; (1973) 31 STC 254…

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