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1991 Supreme(Cal) 48
High Court Of Calcutta
Ajit Kumar Sengupta, Shyamal Kumar Sen
PUSPA PERFUMERY PRODUCTS PVT.LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 67 Of 1990
Decided On : 02/04/1991
Murarka
Income-tax liability of the vendor-firm borne by the assessee-company is not a trading liability and not entitled to revenue deduction as it is a capital expenditure.
Headnote:
INCOME TAX - Income-tax liability of the vendor-firm borne by the assessee-company is not a trading liability and not entitled to revenue deduction as it is a capital expenditure.
Fact of the Case:
The assessee-company took over the running business of a firm, including its assets, liabilities, and income-tax liability. The assessee claimed the excess income-tax paid over the liability taken over as a revenue deduction, but the deduction was disallowed by the Income-tax Officer and Commissioner of Income-tax (Appeals).
Finding of the Court:
The Tribunal held that the income-tax liability of the vendor-firm was not its trading liability and could not be allowed as a deduction while computing the assessee's total income as a revenue liability.
Issues: 1. Whether the excess income-tax borne over the liability taken over by the assessee-company is a capital expenditure and not entitled to revenue deduction?2. Whether the income-tax liability of the vendor-firm borne by the assessee-company is not a trading liability and not entitled to revenue deduction?
Ratio Decidendi: The court held that the income-tax liability of the vendor-firm was not its trading liability but a debt due to the Government, and its payment by the assessee-company did not become a trading liability merely because it was paid under an agreement of takeover of the business. The liability was clearly of a capital nature and could not be allowed as a deduction while computing the assessee's total income as a revenue liability.
Final Decision: The court answered all the questions in the reference in the affirmative and in favor of the Revenue and against the assessee.
( 1 ) IN this reference under Section 256 (2) of the Income-tax Act, 1961, for the assessment years 1981-82 and 1983-84, the following questions of law have been referred to this court :"1. Whether the excess income-tax of Rs. 11,949 borne over the liability for income-tax taken over by the assessee-company is a capital expenditure and not entitled to revenue deduction in the nature and circumstances of the case ?2. Whether the income-tax liability of the vendor-firm amounting to Rs. 11,949 and borne by the assessee-company is not a trading liability and not entitled to revenue deduction in the nature and circumstances of the case ?3. Whether the excess income-tax of Rs. 29,000 borne over the liability for income-tax taken over by the assessee-company is a capital expenditure and not entitled to revenue deduction in the nature and circumstances of the case ?4. Whether the income-tax liability of the vendor-firm amounting to Rs. 29,000 and borne by the assessee-company is not a trading liability and not entitled to revenue deduction in the nature and circumstances of the case ?"
( 2 ) SHORTLY stated, the facts are that the assessee is a private limited company which was incorporated to take over the running business of the firm of similar name, namely, Puspa Perfumery Products. The agreement in pursuance of which the business of the firm was taken over by the aforementioned company was drawn up on November 8, 1979. It provides, inter alia, as follows :"1. The vendors do hereby transfer, sell and assign unto the purchaser-company all that running business with all its assets including goodwill, plant and machinery, furniture and fixtures, stock-in-trade, stores and implements, book debts and cash and bank balances, rights and titles including trade licence, sales tax registration numbers and all quota rights and all other entitlements to which the said running concern has or is entitled to either movable or immovable or whatsoever including all pending contracts and engagements thereto which the said running concern has been entitled in connection with the said business. 2. The purchaser-company also takes over all liabilities including loans, overdrafts from bank, trade creditors and all other business liabilities relating to expenditure, sales tax, all such amounts which the vendors are liable to pay to its creditors, employees and others in connection with the said running of the business including income-tax liabilities of the vendors' firm but not its partners. 3. The consideration for sale is Rs. 12,20,216 (Rupees twelve lakhs twenty thousand and two hundred sixteen only) which shall be satisfied within three months of this agreement. If, for any reason, the purchaser-company is unable to pay the amount of consideration, the unpaid amount shall be treated as loan which shall carry interest at 15 per cent. per annum. 4. The vendors do hereby agree to execute and sign all such documents and to do all such acts and things as may be required for the company to have the occupation and realisation of the assets and to help in all such proceedings as may be required to settle the liabilities.
(Rs.) (Rs.)
Assets :
Goodwill 5,00,000. 00
Fixed assets 1,32,652. 00
Current assets, loans and advances and deposits (including stocks, debts, cash and bank balances)
16,64,068. 00
22,96,720. 00
Less : Liabilities
Secured and unsecured loans (including Dena Bank O/d)
1,30,841. 00
Liabilities for goods, expenses, sates tax, P. F. , etc. , and others.
7,85,663. 00
Provision for income-tax 1,60,000. 00
10,76,504. 00
12,20,216. 00
( 3 ) FOR the assessment year 1981-82, the accounting period of the assessee-company ended on November 7, 1980. After the company took over the business, it had to pay a sum of Rs. 1,89,000 towards income tax, i. e. , Rs. 29,000, in excess of the liabilities for income-tax of Rs. 1,60,000 taken over by the company from the vendor-firm. The
