COMMISSIONER OF INCOME-TAX vs. SHAH CHIMANLAL PREMCHAND

ITR/135/1994HC GujaratGJHC24020212199403 October 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI3 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT) referred two questions of law to the Gujarat High Court concerning the assessment year 1984-85 (Samvant Year 2039). The Commissioner of Income-tax (Revenue) was the applicant, and Shah Chimanlal Premchand (Assessee) was the respondent. The dispute involved a disallowance of Rs. 47,073 made by the Income Tax Officer (ITO) on account of unpaid sales tax, which the ITAT had deleted. The Revenue challenged the ITAT's deletion of this disallowance, particularly in light of an amendment to Section 43B of the Income-tax Act, 1961, by the Finance Act, 1989. The High Court noted that the assessee did not appear despite being served.

What did the High Court hold?

The High Court held that the Appellate Tribunal was right in law in deleting the disallowance made by the Income Tax Officer on account of unpaid sales tax applying Section 43B of the Act. The Court applied the ratio of the decision in Allied Motors (P.) Ltd. Vs. Commissioner of Income-tax, [1997] 224 ITR 677 (S.C.) to the facts of the present case. The reasoning was that the Supreme Court's decision in Allied Motors clarified the position regarding the deductibility of statutory liabilities like sales tax, even if unpaid, provided they were accounted for as a liability in the profit and loss account. The ratio decidendi is that for the purpose of Section 43B, the crucial date for deductibility is the date of accrual or arising of the liability, and not necessarily the date of payment, especially when the liability is a statutory one. The questions referred to the Court were answered in the affirmative, meaning the deletion by the ITAT was upheld. The reference was disposed of accordingly, with no order as to costs.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the Appellate Tribunal was right in law and on facts in deleting the disallowance of Rs. 47,073 made by the Income-tax Officer on account of unpaid sales tax by applying Section 43B of the Income-tax Act, 1961. 2. Whether the Appellate Tribunal was right in law and on facts in deleting an amount of Rs. 47,073 being unpaid sales-tax liability disallowed under Section 43B, notwithstanding the amendment made in the said section by the Finance Act, 1989. Contentions: Assessee: No arguments were recorded for the assessee as they did not appear. Revenue: The Revenue, represented by Ms. M.M. Bhatt, argued that the ITAT was not right in deleting the disallowance. The Revenue's contention implicitly revolved around the applicability of Section 43B and its amendment by the Finance Act, 1989, to the unpaid sales tax liability. The Revenue relied on the decision of the Apex Court in Allied Motors (P.) Ltd. Vs. Commissioner of Income-tax, [1997] 224 ITR 677 (S.C.).

Which sections of the Income-tax Act were involved?

Section 43B,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/135/1994 1/3 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No.135 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ===================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ===================================================== COMMISSIONER OF INCOME-TAX - Applicant(s) Versus SHAH CHIMANLAL PREMCHAND - Respondent(s) ===================================================== Appearance : MS MM BHATT for Applicant(s) : 1, NOTICE SERVED for Respondent(s) : 1, ===================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 03/10/2005 ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI)

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