COMMISSIONER OF INCOME TAX Vs. ARVIND INDUSTRIES

JUDGEMENT

(1.) AT the instance of the Revenue, the following two questions have been referred for our opinion by the Income -tax Appellate Tribunal Ahmedabad :

(2.) IN order to appreciate the background in which these questions have been referred for our opinion, certain relevant facts will have to be noted at this stage. 1973 -74 is the assessment year. The assessee, a registered firm, carried on the business of running a solvent extraction plant. Samvat year 2028 constitutes the previous year. The total income was assessed by the Income -tax Officer on April 15, 1976, at Rs. 6,71,357. The assessee, with a view to getting the benefit of exemption from payment of sales tax for five years under the incentive scheme pronounced by the government of Gujarat, set up a new solvent extraction plant at Junagadh in Junagadh district. After obtaining the necessary certificate from the industries officer, Junagadh, as regards the setting up of the said plant, the assessee obtained sales tax exemption certificate dated March 3, 1971. The result was that the assessee's sales in connection with the products of the new solvent extraction plant got exemption from payment of sales tax during time the certificate was in force. On September 2, 1972, i.e., during the previous year relevant to the assessment year 1973 -74, however, the assessee -firm was informed by the sales tax authorities that the said exemption certificate had ceased to be effective from July 17, 1971. The result was that the assessee -firm became liable to pay sales tax amounting to Rs. 98,884 for the period from July 17, 1971 to October 19, 1971 (forming part of Samvat year 2027 relevant to income -tax assessment year (1972 -73) and Rs. 4,64,403 for the period from October 20, 1971, to November 15, 1972 (corresponding to Samvat year 2028 relevant to income -tax assessment year 1973 -74). The assessee claimed in the income -tax assessment under consideration deduction of the said two amounts totalling Rs. 5,63,287 as sales tax liability contending that the said liability for sales tax arose for the first time in September, 1972. The Income -tax Officer rejected the said claim.

(3.) THE assessee carried the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, by his order dated March 29, 1976, took the view that the assessee's liability to pay sales tax of Rs. 5,63,287 arose for the first time in September, 1972, when the sales tax authorities withdrew the exemption as aforesaid. The appellate Assistant Commissioner system of accounting and, consequently, on accrual basis, the aforesaid full amount covering the sales tax liability be deducted from the income returned by the assessee for the year in question as a permissible deduction.