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1993 Supreme(Raj) 386
High Court Of Rajasthan
Judgename : N.C. Kochhar,V.K. Singhal
Commissioner of Income-tax - Appellant
Versus
Shah Engineering Pvt.Ltd. - Respondent
D.B. Income-tax Reference No. 84 of 1982
Decided On : 10/28/1993
Appearance :
G.S. Bapna, for the Appellant
A statutory liability for land and building tax under the Rajasthan Land and Building Tax Act, 1961, is a liability in praesenti and can be claimed as a deduction in the year in which the demand is made.
Headnote:
INCOME TAX - Deduction - Land and building tax - Liability in praesenti - Allowable deduction - Rajasthan Land and Building Tax Act, 1961.
Fact of the Case:
The assessee claimed a deduction of Rs. 11,900 for land and building tax liability under the Rajasthan Land and Building Tax Act, 1961. The Income-tax Officer disallowed the deduction as the assessee maintained accounts on a mercantile basis and the liability related to earlier years.
Finding of the Court:
The Income-tax Appellate Tribunal allowed the deduction, holding that the liability was statutory and in praesenti, and the assessee could not have made any provision for it until the demand was made.
Issues: Whether the liability of Rs. 11,900 pertaining to earlier years and demanded by the assessing authority under the Rajasthan Land and Building Tax Act, 1961, on May 23, 1978, being a statutory one is a liability in praesenti and, therefore, the same merits to be allowed as a deduction in computing the total income of the assessee for the year under consideration?
Ratio Decidendi: The liability to pay land and building tax under the Rajasthan Land and Building Tax Act, 1961, is a statutory liability that arises in each year. The assessee had paid the tax that was due according to him, and the additional liability created by the assessment order was not ascertained before the date of assessment. Therefore, the liability of Rs. 11,900 was allowable as a deduction in computing the total income of the assessee for the year under consideration.
Final Decision: The reference is accordingly answered in favor of the assessee and against the Revenue.
V.K. Singhal, J.-The Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 26, 1981, in respect of the assessment year 1979-80 under Section 256(1) of the Income-tax Act, 1961
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the liability of Rs. 11,900 pertaining to earlier years and demanded by the assessing authority under the Rajasthan Land and Building Tax Act, 1961, on May 23, 1978, being a statutory one is a liability in praesenti and, therefore, the same merits to be allowed as a deduction in computing the total income of the assessee for the year under consideration?” The brief facts of the case are that the assessee claimed a sum of Rs. 11,900 in respect of liability of tax under the Rajasthan Land and Building Tax Act, 1961. The Income-tax Officer found that the assessee is maintaining his account on the mercantile basis and the amount relates to the years earlier to the assessment year. The deduction was accordingly disallowed.
2. In the appeal before the Commissioner of Income-tax (Appeals), Rajasthan, it was found that the demand relates to financial year 1977-78 and out of the total demand of Rs. 14,562, Rs. 2,662 were in respect of the year relevant to the assessment year and as such the balance amount of Rs. 11,900, which was disallowed by the Income-tax Officer was held justified. Before the Commissioner of Income-tax (Appeals) it was admitted that the demand has not been paid and the assessee is maintaining the accounts on the mercantile system. The appellate authority, following the decision of CIT vs. V. Krishnan [1980] 121 11R 859 (Mad), upheld the order of the Income-tax Officer.
3. In thesecond appeal before the Income-tax Appellate Tribunal, it was found that the liability is a statutory liability and therefore this liability is in praesenti, and till the demand was made the assessee could not have made any provision of the said liability. The appeal was accordingly allowed.
4. TheMadras High Court in the case of CIT vs. Woodlands Hotel [1981] 128 ITR 603 has held that the Tamil Nadu Urban Land Tax Act contemplates the payment of urban land tax every year and a separate notice of demand has to be served on the assessee in respect thereof It is only after the service of such notice that the assessee can be proceeded for arrears of land revenue and, therefore, there is no question of any accrual of the liability to pay tax every year by it. The amount becomes payable as and when it is demanded and assessment is made in respect thereof .
5. TheMadras High Court in the case of CIT vs. East India Industries (M.) Pvt. Ltd. [1983] 139 ITR 1059 has held that the deduction in respect of urban land tax for several years which has been paid during the relevant accounting year has to be allowed while computing the income from house property under Section 24(1)(vii) of the Income-tax Act, 1961. In CIT vs. V. Krishnan [1980] 121 ITR 859, the Madras High Court has held that the liability to sales tax could be allowed in the year of transactions or the year in which it has been paid and not in the year in which the demand has been raised. The law in this regard is settled by the decision of the apex Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT [1971] 82 ITR 363, wherein it was observed : “it is not possible to comprehend how the liability can cease to be one because the assessee has taken proceedings before the higher authority for getting it reduced or wiped off It can again not be disputed that the liability to pay the sales tax which accrued during the assessment year even though it has been discharged at a future date”.
6. In the present case, the matter pertains to the land and building tax liability for financial years 1973-74 to 1977-78. The assessee had paid a sum of Rs. 190 in respect of each of the financial years 1973-74 to 1976-77 and no amount was paid for 1977-78. The assessmen
