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PETITIONER: M/S HAJI LAL MOHD. BIRI WORKS

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, LUCKNOW II

DATE OF JUDGMENT:       19/02/1997

BENCH: S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      This appeal  by the  assessee arise  out of a reference made by  the  Income  Tax  Appellate  Tribunal  (hereinafter referred to  as "the  Tribunal’) to the Allahabad High Court wherein two  question were  referred for  opinion. Both  the questions have  been answered  against the  assessee and  in favour of  the Revenue.  In the  present appeal  we are only concerned with  question no.  2 which  is in  the  following terms:      "Whether on  the facts  and in  the      circumstances  of   the  case   the      payment of  Sales  Tax  composition      fee  of   Rs.  1,91,887/-   was  an      allowable   expenditure   for   the      assessment year 1968-69?"      The matter  relates to the assessment year 1968-69. The assessee deals  in the  business of  manufacture an  sale of biris. By  notification publish  in the  U.P. Gazette  dated December 14,  1957 it  was prescribed  that no sales tax was payable with  effect from  December 14,  1957 in  respect of biris provided  that the  additional central  excise  duties leviable thereon  from the close of business on December 13, 1957 had been paid. By another notification published in the same Gazette  it was  provided that no tax under the General Sale tax  was payable by any dealer registered under Section 7, (3)  of the  Central sales  Tax and  having his  place of business in U.P. in respect of the sales made by it of biris in the  course of  inter-state trade  and provided they were sales to  a dealer  who had  moved business outside U.P. The assessee claimed  that it was not liable to pay and sale tax on sales  effected from December 14, 1957. But the Sales Tax Department took the view that sales tax was leviable for the period from  December 14,  1957 to June 30, 1958. The matter was  raised   by  the   biri  manufacturing  Association  of Allahabad before  the Government  of Utter  Pradesh  praying that the  Government may  pass orders for exemption of sales tax on  biris for  the period from December 14, 1957 to June 30, 1958.  The assessee also made an application for stay of recovery of  the tax  and such  recovery was stayed. On June 10, 1959  the assessment  was made for the period from April

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1, 1957 to March 31, 1958 and assessment for the period from April 1,  1958 to  March 31,  1959 was  made on February 12, 1963. An  amount of Rs. 1,14,357/- was determined as payable on sale  of biris  for the period from December 14, 1957 (to March 31,  1958 and  a sum of Rs. 81,994/- was found payable for the  period from  April 1,  1958 to  June 30,  1958. The total mount  of tax come to Rs, 1,96,351/-. The stay against recovery of sales tax that was granted in the years 1959 was vacated on  October 16, 1967. Thereafter the assessee paid a sum of  Rs. 1,96,887/- out of the aforesaid tax liability of Rs. 1,96,351/-. The assessee claimed deduction of the amount tax paid  in the  assessment year 1968-69 on the ground that the actual  payment was  made in  previous year  relevant to that assessment year.  The said claim was not allowed by the Income Tax  Officer  as  well  as  the  Appellate  Assistant Commissioner and  the Tribunal.  The question aforementioned was referred  by the  Tribunal to  the High  Court which has been answered against the assessee by the High Court.      Placing reliance  on the  decision  of  this  court  in Kedarnath Jute  Mfg. Con  Ltd. v. Commissioner of Income Tax (Central), Calcutta,  (1971) 82  ITR 363, the High Court has held that  since the  assessee was  following the mercantile system of  accounting the  case was  governed  by  the  said decision and  the assessee  would not claim deduction of the tax liability  which accrued  in the  year  1957-58  in  the assessment year 1968-69.      Shri Rajiv Datta, the learned counsel for the appellant assessee, has submitted that since the tax was actually paid in the previously year relevant to the assessment year 1968- 69, the  High Court was in error in not permitting deduction of tax  in  the  assessment  year  1968-69  and  has  placed reliance on  the observations  of this  Court in Chowringhee Sales Bureau  P. Ltd.  V. Commissioner  of Income  Tax, West Bengal, (1973)  87 ITR 542, wherein, in the context of sales tax liability,  this Court has held that the amount received on account  of sales  tax on  good sold has to be treated as trading receipt  in the  year in  which it  was received  on account of  sales tax  on goods  sold has  to be  treated as trading receipt  in the year in which it was received and it has been  observed that  the assessee  would be  entitled to claim deduction  of the  amount as  and when  it pays to the State Government.  The said  decision  in  Chowringhee  Sale Bureau P.  Ltd. (supra) was also relied upon by the assessee before the  High Court  and it was distinguished by the High Court by  pointing out that it did not relate to an assessee following the  mercantile system  of accounting.  Since then the matter  has been  considered by this Court in the recent judgment   in Commissioner  of Income  Tax V.  Kalinga Tubes Ltd. (1996)  218  ITR  164,  wherein,  following  mercantile system of  accounting, in  case of  sales tax payable by the assessee the  liablility to  pay sale  tax would  accrue the moment the  dealer made sales which are subject to sales tax and, at  that stage,  the obligation  to pay  the sales  tax arises and  the raising  of the  dispute in  this connection before the  higher  authorities  would  be  irrelevant.  The preset case  is thus fully covered by the aforesaid decision of this Court.      We, therefore,  do not  find ay merit in the appeal and the same  is accordingly dismissed. But in the circumstances there will not order as to costs.