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CASE NO.:

Appeal (civil) 1581 of 2001

PETITIONER:

THE CHIEF COMMISSIONER OF INCOME TAX, COCHIN

Vs.

RESPONDENT:

M/S. KESARIA TEA CO. LTD.

DATE OF JUDGMENT: 19/03/2002

BENCH:

S. Rajendra Babu, K.G. Balakrishnan & P. Venkatarama Reddi.

JUDGMENT:

P.VENKATARAMA REDDI, J.

The opinion recorded by the Kerala High Court in ITR

No. 16 of 1997 has given rise to this appeal filed by the Chief

Commissioner of Income-tax. The dispute relates to the

assessment year 1985-86. At the instance of the Revenue the

following question was referred under Section 256(1) of the

Income-tax Act for the opinion of the High Court:

"Whether on the facts and in the

circumstances of the case, the Tribunal

is right in law and fact in holding that

Rs.3,02,758/- cannot be brought to tax

and in deleting the addition of

Rs.3,02,758/- sustained by CIT

(Appeals)?"

The High Court accepted the view of the Tribunal which partly

allowed the appeal of the assessee and answered the question in

favour of the assessee.

The facts in brief are: The respondent-assessee is

engaged in the business of tea, spices etc. During the assessment

year 1985-86 (previous year ending on 31.3.1985) the assessee

’wrote-back’ in its accounts a sum of Rs.14,65,997/- representing

the provision made during earlier years (1978-1981) towards its

purchase tax liability. It appears that the liability to pay purchase

tax on certain goods was in dispute and, therefore, the provision

was made. Further, it appears that the assessee, in support of its

claim for purchase tax relief, inter alia, relied on the decision of the

Kerala High Court in Neroth Oil Mills’ case . The SLP filed by the

Kerala State against the decision of the High Court in the said case

was rejected by this Court in November, 1984. Apparently, for that

reason, the assessee thought it fit to reverse the provision made

earlier towards purchase tax and therefore made the entries in the

books of account during the year ending on 31.3.1985. The

assessing officer added the sum of Rs.14,65,997/- which

represents the provision made towards purchase tax during the

assessment years 1978-79, 1979-80 and 1980-81, treating the

same as the income of the previous year ending on 31.3.1985. In

the first appeal, the CIT (Appeals) held that there was no

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justification to include the sums which were already included in the

course of reassessments made for the years 1979-80 and 1980-81.

However, he upheld the addition of Rs.3,02,758 pertaining to the

assessment year 1978-79. The Appellate Commissioner held that

the liability of the assessee finally ceased during the year 1985-86

in view of the rejection of SLP in Neroth Oil Mills’ case in

November 1984. Certain observations were also made as regards

the includiblity of the sums pertaining to assessment years 1980-

81 and 1981-82 in respect of which reassessments were made.

However, in this appeal, we need not go into the details thereof.

On further appeal by the assessee, the Tribunal set

aside the addition of Rs.3,02,758/- which was upheld by the

Appellate Commissioner. The Tribunal did not agree with the view

taken by the first Appellate Authority that there was no cessation of

liability within the meaning of Section 41(1) of the Income-tax Act

during the relevant year on account of dismissal of SLP in another

case. The Tribunal observed that for claiming exemption from

purchase tax on the ground that transaction was in the course of

export, two conditions were required to be fulfilled: (1) things

purchased and exported are one and the same and (2) the

purchases were against firm orders for export. Neroth Oil Mills’

case was concerned only with the first aspect and not the second

aspect. Therefore, the Tribunal observed that the judgment in

Neroth Oil Mills’ case, even if it had attained finality does not