Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee's claim towards sales tax liability on sales of skimmed milk powder in pursuance of State notification whose validity had been challenged before High Court and order of stay of recovery of tax was obtained from High Court, was allowed by Tribunal - Whether in view of decision of Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and fact that operation of notification in question was not stayed, assessee was liable to pay tax in question and deduction had to be allowed even though appeal might be pending and challenge might be made to assessment in question - Held, yes Section 256(2) of the Income-tax Act, 1961 - Reference to High Court - Powers of High Court - Whether since prayer for calling for any reference of question of taxability of interest on fixed deposits on maturity basis and not on accrual basis had already been declined by this court in case of CIT v. Dalmia Dairy Industries Ltd. [1991] 188 ITR 611 , petition on said point had to be dismissed - Held, yes FACTS It appeared that, by a notification in force in 1973, sales tax was sought to be levied by the State of West Bengal on skimmed milk powder. This notification was challenged by filing a writ petition in the Calcutta High Court. The Calcutta High Court admitted the writ petition and stayed the recovery of the sales tax. The respondent nevertheless continued to make entries in the books of account regarding the sales tax -payable on sale of skimmed milk powder as a liability. Deduction was claimed which was initially disallowed but subsequently allowed by the Tribunal. The Department's application for reference was rejected by the Tribunal. Thus, instant petition was filed wherein the petitioner sought reference of the following two questions to this court : Firstly whether the Tribunal was right in holding that the accrued sales tax liability was an allowable deduction. Secondly whether the tribunal was right in allowing the assessee's contention that the interest on the fixed deposits should be taxed on maturity basis and not on accrual basis. On application : HELD As…

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