MERCK LTD Vs. DY. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This pertains to Assessment Year 1988-89. Appellant had claimed a sum of Rs.7,06,590/- being sales tax set off as deduction under Section 43B of the Income Tax Act, 1961 (the Act). According to appellant, the sales tax set off represents that part of the purchase tax paid by appellant on purchase of raw materials and packing materials, which is allowed to be retained by it as the materials purchased are consumed in the manufacture of finished goods which are again liable to sales tax. This means that the said amount is not payable to the sales tax authorities at the time of paying the sales tax on the sale of finished goods by appellant. According to appellant, the fact that they are entitled to claim the set off would mean that a legal fiction is created to the effect that this amount of Rs.7,06,590/- be treated to have been paid as a tax liability deductible under Section 43B of the Act.

(2.) The fact that appellant was entitled to a set off or adjustment made on the sales tax amount, is not disputed. According to Mr. Suresh Kumar, this amount of Rs.7,06,590/- was never paid but was retained by appellant and even if any adjustment or set off is claimed, there was no actual payment and unless there is actual payment, Section 43B of the Act does not come into play and, therefore, appellant cannot claim any benefit thereof.

(3.) By an order dated 7th October 2004, this court was pleased to admit the appeal as it was satisfied that the case involved a substantial question of law. The court was pleased to frame the following two questions of law: