COMMISSIONER OF INCOME TAX AP HYD V. M/S VIJAYA BEER AND WINE STORES SECU BAD

RC/47/2001

AI Insights

The case revolves around the respondent, a partner in M/s. Vijaya Beer and Wine Stores, who took over the entire firm upon its dissolution, including its assets and liabilities. The firm had outstanding sales tax liabilities for the assessment years 1985-86 and 1987-88, which the respondent cleared and subsequently claimed deductions for these payments in his income tax returns. The initial disallowance by the Income Tax Officer was overturned by the Commissioner of Income Tax (Appeals), leading to an appeal by the Department which was dismissed. The matter was referred to the High Court to determine the legality of the deductions claimed by the respondent under the Income Tax Act.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 737115 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 01-07-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment Year; Deduction; Dissolved firm; Income computation; Sales tax liability
• Section: 256(1); 43(B)

Judgement Text

"THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C.No.47 of 2001 JUDGMENT: (Per LNR,J) This reference is made by the Banglore Bench of the Income Tax Appellate Tribunal, by framing the following questions: For Assessment year 1987-88: “ Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the sum of Rs.2,29,533/- being the sales-tax liability of the dissolved firm, discharged by the assessee, was allowable as deduction in computing the income of the assessee for the asst. year 1987-88?” For Assessment year 1985-86: “Whether, on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the sum of Rs.12,55,525/- being the sales-tax liability of the dissolved firm, discharged by the assessee, was allowable as deduction in computing the income of the assessee for the asst. year 1985-86?” The respondent was a partner of M/s. Vijaya Beer and Wine Stores, Secunderabad with 40% share therein. The firm was dissolved with effect from 30.09.1993. The respondent took over the entire firm, together with its assets and liabilities. By the time it was dissolved, the firm was in arrears of sales tax. For the assessment year 1987-88, it was Rs.2,29,553/- and for the assessment year 1985-86, it was Rs.12,55,525/-. Stating that he cleared the arrears of sales tax, the respondent claimed deduction thereof from the income for the assessment years 1987-88 and 1985-86 respectively in his returns filed under the Income Tax Act (for short ‘the Act’). The concerned Income Tax Officer disallowed the same, on the ground that the liability to pay the sales tax was not that of the assessee and at the most, it would constitute the liability along with the assets of the taken over firm. The appeal preferred by the respondent before the Commissioner of Income Tax (Appeals) was allowed. Aggrieved by that, the Department preferred I.T.A.No.1495/BANG/90. The appeal was dismissed through order, dated 20.03.1998 and the view taken by the Commissioner was upheld. On an application filed by the respondent under Section 256(1) of the Act, the questions were referred to this Court. Heard learned senior Standing Counsel for the Income Tax and learned counsel for the respondent. Section 43-B of the Act provides for deduction of the amount paid by an assessee towards taxes and other enactments. The respondent claimed deduction for the taxes that have been paid by him. The Act does not maintain any distinction between the taxes that are paid as an initial assessee or as the one who has taken over the business of another firm. Though in a way it can be said to be a contractual obligation, from the point of view of the respondent, the item of expenditure does not change. What was payable as a sales tax continues to be so, even after it becomes the subject matter of a contract. The Tribunal has taken correct view of the matter and both the questions referred to us deserve to be answered in favour of the assessee and against the Department. Accordingly, the reference is answered. ____________________ L.NARASIMHA REDDY, J ______________________ CHALLA KODANDA RAM, J Date: 01.07.2014 JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C.No.47 of 2001 Date: 01.07.2014 JSU "