SUTLEJ COTTON MILLS LTD., OKARA Versus COMMISSIONER OF "INCOME TAX
1. MUSHTAQ HUSSAIN, J.‑-- --Messrs Sutlej Cotton Mills Limited, Okara, were assessed to sales tax for the years 1948 to 1951 on 31‑7‑1952. On this assessment the amount already paid by the Mills as sales tax was enhanced by Rs. 1,50,643. Out of this the assessee paid Re. 71,673 in the assessment year 1953‑54 and Rs. 68,969 in the assessment Scar 1954.55. When the accounts for the relevant years were being gone into by the Income‑tax Officer for the purpose of assessing the taxable income, he disallowed both the amounts for the years 1953‑54 and 1954‑55.
2. The assessee felt aggrieved and appealed to the Appellate Assistant Commissioner of Income‑tax who accepted the same for the year 1953‑54 and took into account the amount paid that year, but he refused to treat the amount of Rs. 78,969 paid in the year 1954‑55 likewise. The learned Appellate Assistant Commissioner relied upon 1960 P T D (Trib.) 496 for coming to the conclusion that the liability of sales tax can be related to the relevant year. He fond that in the year 1954‑55 the liabilities were neither created nor did they relate to that year.
3. The assessee filed an appeal before the income‑tax Appellate Tribunal in respect of the balance of Rs. 78,969 and urged that the entire amount should have been accounted for in the year 1953‑54 in which the liability was created. The Tribunal, however, held the position to be untenable‑ because no such claim was made before the Income‑tax Authorities and they could not, therefore, allow the amount in that year.
4. On an application presented by Messrs Sutlej Cotton Mills Ltd., Okara, under section 66(1) of the Income‑tax Act, the Income‑tax Appellate Tribunal has referred the following question to us for opinion :‑--
5. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 78,969 representing sales tax relating to earlier years could not be admitted to reduction in that assessment year 1954‑55.
6. There can be no doubt that since the amount in dispute ha been paid by the assessee it has to be accounted for in some yea fur the purpose of calculating taxable income. Section 1 provides for the levy of tax in respect of the profits or gains of any business, profession or vocation carried on by an assessee. Subsection (2) provides that such profits or gains shall be computed after making the allowances detailed in that sub section. Clause (16) of this subsection relates to‑
7. Any expenditure not being in the nature of capital expenditure or personal expenses of the assessee let out or expended wholly and exclusively for the purpose of such business, profession or vocation.
8. Expenditure of the nature provided in clause (xvi) has, therefore, to be excluded from the profits and gains of business, profession or vocation for which the tax is payable by an assessee.
9. It can hardly be doubted that this amount of Rs. 78,969 Is an expenditure exclusively for the purpose of the business carried on by the assessee in this case because the amount of money was paid as sales tax during the course of business in respect of which he was being assessed to tax.
10. Subsection (5) of section 10 defines the expression "paid" as used in subsection (2) and provides that it‑ means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed in this section;
11. The aforesaid amount "paid" by the assessee as sales tax has, therefore, to be related to a year "according to the method of accounting upon the basis of which the profits or gains are computed". In the case reported as 1960 P T D (Trib.) 496, the Tribunal was dealing with a matter where the appellant was a registered firm carrying on business in pressing and ginning of cotton. A sum of Rs. 32,388 was claimed on 3‑4‑1954 as an admissible deduction on account of sales tax liability. The amount was neither debited to the accounts not paid in point of fact during the yeas in question. Since the assessee in that case, as in the present one, maintained the account on the Mercantile system it was not debited to the account of the year In qaes6av because the sales tax assessment was completed some time in April 1954. The point that arose for determination by the tribunal was w4etber the claim for sales tax could be related back to the proper year or nay be considered only when the payment of soles tax was actually made. The Tribunal came to the conclusion that the claim for sales tax may be allowed in the relevant year, Le. 1952‑53.
12. The Tribunal relied upon the following observation In re Bernhard v. Gahan ((1927) 28 T C 741).
13. I would only add a word or two in answer to that argument. He has said, and quoted authorities to show the Newcastle Lrewery case, the Woolcomber's case, and other well -known cases that if there is a liability which is subsequently determined, but which is nonetheless to be a liability existing a particular date, the fact that it is, subsequently to that date, determined and ascertained, does not prevent that liability belonging historically to its right place in the accounts. The quantum of it is ascertained at a later date, but the payment is to be made as at the date when it rightly occurs in the accounts, ever if the, quantum of it cannot be fixed at that moment. That was so held in the Newcastle Brewery case and in the other cases.
14. We wholeheartedly agree with this view of the law and find that the amount of Rs. 78,969 representing sales tax paid by the assessee has to he related back to the proper year acid not to the year when the payment of sales tax was actually made.
15. We answer the question accordingly.