THE COMMISSIONER OF EXCESS PROFITS TAX, HYDERABAD vs. M/S. S. R. V. G. PRESS COMPANY, KURNOOL

CIVIL APPEAL No. 270/1960Supreme Court[1962] 1 S.C.R. 23210 March 1961Bench: 2 JudgesAuthor: J.L. KAPUR, J.C. SHAH7 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the sales tax payments of Rs. 30,221 were reasonable and necessary. The Court reasoned that the payments were made in discharge of a statutory obligation imposed by the Madras General Sales Tax Act, 1939, and were necessary for the proper conduct of the business. The system of provisional assessment, while it might reduce taxable income in retrospect, was adopted for convenience and was permissible under the law. The reasonableness and necessity of expenditure must be adjudged in the light of commercial expediency, not legalistic considerations. A businessman is not expected to litigate a tax levy on the ground of an ultra vires method of computation when the tax is duly assessed and paid. The subsequent validation of the provisional assessment scheme by the Madras Legislature further supported the assessee's position. The Court found the Excess Profits Tax Officer and the Tribunal in error for disallowing the deduction. The appeal was dismissed, upholding the High Court's decision.

What were the facts?

The assessee, M/s. S. R. V. G. Press Company, Kurnool, was engaged in manufacturing ground-nut oil. Under the Madras General Sales Tax Act, they were entitled to a rebate of sales tax on goods used in manufacturing. The assessee followed a system of paying sales tax provisionally assessed by the Sales Tax Officer based on the previous year's turnover, with adjustments made at the end of the year. For the chargeable accounting period October 18, 1944, to November 4, 1945, the Excess Profits Tax Officer allowed a deduction of Rs. 17,055 out of Rs. 47,276 debited as sales tax, deeming the excess Rs. 30,221 as unreasonable and unnecessary expenditure under Rule 12 of Schedule 1 of the Excess Profits Tax Act. The Tribunal affirmed this order. The assessee appealed to the High Court on a reference.

What were the issues?

1. Whether the sales tax payments of Rs. 30,221 were unreasonable and unnecessary having due regard to the requirements of the business, as per Rule 12 of Schedule 1 of the Excess Profits Tax Act, 1940? Assessee's contentions: The assessee argued that the system of paying sales tax on provisional assessment was permissible under law and adopted for convenience. The payments were made in discharge of a statutory liability and were necessary for carrying on the business. They relied on the fact that the Income Tax Officer had allowed such deductions in earlier years. They also pointed out that the Madras High Court's decision in 'In re M. P. Kumaraswami Raja' (1955) 6 Sales Tax Cases 113, which declared the provisional assessment scheme ultra vires, was later retrospectively validated by the Madras General Sales Tax Amendment Act VIII of 1955. Revenue's contentions: The Revenue contended that the Excess Profits Tax Officer had the discretion to determine the reasonableness and necessity of expenses. They argued that the excess amount paid under provisional assessment (Rs. 30,221) was not a reasonable or necessary expenditure for the business. They also raised the point that the provisional assessment scheme was declared ultra vires by the Madras High Court, and therefore, payments made under it could not be considered reasonable or necessary.

Which sections of the Income-tax Act were involved?

Section 10,Section 15

AI-generated summary — verify with the full judgment below

232.

SUPREME COURT REPORTS [1962] '96' orders that had become final before tho Act came into Dafeda-;;iranjan force.

Singh & Another Nor do we find any force in the argument of learned v. counsel for the State that under s. 27 of the Act, the Custodian, Custodian-General may at any time revise the order Evacuee Property of any Custodian and, therefore, the Custodian-Gene' (Pb.) 6- Anoth" 1 · 'th t l' 't f t' d ra can revise w1 ou any im1 o ime any or er Subba Rao J. made by any Custodian under any previous law. Sec- tion 27 of the Act can be given retrospective opera- tion only to the extent permitted by s. 58(3) of the Act. We have held thats. 58(3) does not affect the pre- vious operation of the Jaw and therefore cannot affect the finality of the orders made under the Ordinance.

So the words in the section "any time" or "any Custo- dian" must necessarily be confined only to orders of any one of the Custodians defined in the Act and to orders of Custodians deemed to have been made under the Act but had not become final before the Act came into force.

Marek zo.

No other point was raised. In the result, the order of the Custodian-General is set aside a

The order continues below.

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