COMMISSIONER OF INCOME TAX Vs. MARIKAR MOTORS LIMITED

JUDGEMENT

(1.) The Judgment of the court was delivered by Bhaskaran, J.- These reference arising out of the order of the Income Tax Appellate Tribunal, Cochin Bench, disposing of I. T. A. Nos. 354 and 371 (Coch) / 74-75, relate to the assessment year 1971-72. I. T. R. Nos. 16 and 17 of 1977 are under S.256(1), and I. T. R. Nos. 34 and 35 of 1980 are under S.256 (2) of the Income Tax Act, 1961 (the Act).

(2.) The assessee is a dealer in automobiles and automobile spare parts. Sale of motor lorry chasis on hire purchase system is one of the business activities carried on by the assessee. Under that system the assessee enters into an agreement with the customer who makes an initial deposit, and makes payment of the balance consideration in instalments over a number of months. When all the instalments are paid off, the customer gets an option for buying the vehicle. On his exercising that option the sale becomes completed and the property passes to him. Though the taxable event accrues only when the last instalment is paid and the sale is completed as aforesaid, in practice the assessee collects from the customer an amount equal to the sales tax liability on the entire price of the lorry as though the property passes to the customer even at the time when the agreement is entered into. During the accounting years 1958-59 to 1964-65 the Sales Tax Department had assessed the assessee on such transactions to sales tax to the tune of Rs. 13,04,025; and against those assessments, the assessee had paid a sum of Rs. 8,85,355 to the Government. This Court, however, on challenge by the assessee in writ petitions, set aside those assessment orders, directing a fresh assessment to be made according to law, consequently an amount of Rs. 8,52,686 was received by the assessee by way of refund during the period relevant for the assessment year 1971-72.

(3.) The practice of the assessee during the material time was to credit the amount equal to sales tax liability collected from the customers as aforesaid to an account called "deposit against contingent liability without it bang credited to the profit and loss account. So also, the payment to Sales Tax Department was not effected by debiting it to the profit and loss account; instead, what was done was to debit an account styled "general sales tax account". The result, therefore, was that neither the receipts nor the payments figured in the profit and loss account. The payments were also not claimed by the assessee as a deduction in the assessment years, relevant to the accounting years 1958-59 to 1964-65.