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1985 Supreme(P&H) 602
PUNJAB & HARYANA HIGH COURT
S.P.Goyal and D.V.Sehgal JJ.
Commissioner Of Income-tax
Versus
Guranditta Mal Shanti Parkash Zira
Income tax Reference No. 12 of 1978,
Decided On : NOVEMBER 21, 1985
An assessee following a mixed system of accounting is entitled to deduct purchase tax liability in the year in which it is actually paid.
Headnote:
INCOME TAX - Deduction of purchase tax liability - Assessee following mixed system of accounting - Entitled to deduction of purchase tax liability relating to assessment year 1969-70 - Not entitled to deduction of purchase tax liability relating to assessment year 1970-71.
Fact of the Case:
The assessee, a partnership firm engaged in the business of purchase and sale of rice and paddy, claimed deduction of purchase tax liability relating to assessment years 1969-70 and 1970-71 from the income of the assessment year 1971-72. The assessing authority disallowed the deductions, but its order was reversed on appeal by the Appellate Assistant Commissioner. The Revenue approached the Tribunal but failed.
Finding of the Court:
The Tribunal was right in law in holding that the assessee was entitled to the deduction of purchase tax liability relating to the assessment year 1969-70. However, the Tribunal was not right in law in allowing the deduction of Rs. 1,11,453.42 on account of purchase tax in the assessment year 1971-72.
Issues: Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was entitled to the deduction of purchase tax liability relating to. the assessment years 1969-70 and 1970-71 from the income of the assessment year 1971-72.
Ratio Decidendi: The assessee was following a mixed system of accounting depending on the exigencies of the situation, so far as his tax liability was concerned. The assessee was bound to claim the deduction in the assessment year 1970-71, as the amount had actually been paid in the accounting year relating to the said assessment year.
Final Decision: The question is answered in the affirmative, i.e., in favour of the assessee and against the Revenue, as regards the deduction of the purchase tax liability relating to the assessment year 1969-70. The question is answered in the negative, i.e., in favour of the Revenue and against the assessee, as regards the deduction of the purchase tax liability relating to the assessment year 1970-71.
S.P.Goyal, J.
1. The assessee, a partnership firm engaged in the business of purchase and sale of rice and paddy, was required to file quarterly returns of its turnover under the Punjab General Sales Tax Act, 1948 (for short called "the Act"). The firm filed the return for the financial year 1968-69 and claimed exemption under Section 5(2)(a)(vi) of the Act from the payment of purchase tax on the purchase of paddy amounting to Rs. 28,13,801.41 which was rejected and the District Excise and Taxation Officer, by his order dated July 2, 1969, assessed the purchase tax payable at Rs. 84,765.44. On appeal, the realisation of the tax was stayed on the assessees depositing Rs. 10,000, vide order dated September 9, 1969. When they were served with a notice for payment of the remaining amount of Rs. 74,765.44, they filed a petition under article 226 of the Constitution of India for quashing the assessment order, but the same was dismissed on January 19, 1970. The letters patent appeal filed by them was dismissed on October 28, 1970, and the special leave petition in the Supreme Court on March 25, 1971.
2. The amount of Rs. 10,000 referred to above was deposited on September 15, 1969, and the remaining amount on November 9, 1970. The entry in the account books of the assessee regarding these amounts was made on November 16, 1970. In respect of the purchase tax liability for the financial year 1969-70, they deposited an amount of Rs. 1,11,453.42 on January 30, 1970, but did not claim its deduction in the profit and loss account relating to the assessment year 1970-71. It was in the assessment year 1971-72, for which the relevant accounting period was the financial year 1970-71, that the assessee claimed the deduction of both the amounts apart from the purchase tax paid during this financial year. The assessing authority disallowed the deductions, but its order was reversed on appeal by the Appellate Assistant Commissioner. Aggrieved thereby, the Revenue approached the Tribunal but failed.
3. On an application moved under Section 256(1) of the Income-tax Act, the following question has been referred to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was entitled to the deduction of purchase tax liability relating to. the assessment years 1969-70 and 1970-71 from the income of the assessment year 1971-72."
4. At the outset, learned counsel for the Revenue contended that, according to the finding recorded in the statement of the case, the assessee was by and large following the mercantile system of accounting and, as such, the Tribunal had erred in law in observing in the latter part of its order that the assessee was following a mixed system depending on the exigencies of the situation. According to learned counsel, the assessee is not entitled unilaterally to change the system of accounting usually followed by him. Reliance, for this contention, was placed on a decision of the Allahabad High Court in Shiv Prasad Ram Sahai v. CIT [1966] 61 1TR 124, wherein it was observed that if the assessee has once chosen the mercantile system for a transaction and has regularly employed that system, it is not open to him unilaterally at any time during a subsequent accounting year to change that system. With due respect to the learned judges, we are unable to subscribe to this view. All that Section 145 of the Act provides is that the income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee, and it nowhere provides that if an assesses followed a particular system of accounting during any year, he cannot change the same for any subsequent year unilaterally. So far as this court is concerned, in Salig Ram Kanhaya Lal v. CIT [1982] 133 ITR 915, a Division Bench not only recognised the right of a trader to adopt either
