Commissioner of Income Tax vs Sea Pearl Industries

Sujata V. Manohar, C.J.—The Department has filed this petition u/s 256(2) of the Income Tax Act, 1961, for a direction that the Tribunal should frame a statement of the case and refer the following questions to us for determination :

"1. Whether, on the facts and in the circumstances of the case, and also in the light of Sterling Foods'' case, the Tribunal is right in law and fact in interfering with the Income Tax Officer''s action in bringing to tax u/s 41(1) of the Income Tax Act, 1961, the sum of Rs. 15,54,325 on the ground that such a right is not available to the Income Tax Officer because the Revenue is itself a litigant in the realm of deducibility of purchase tax liability for the assessment year 1982-83 ?

Whether, on the facts and in the circumstances of the case and also in the light of Sterling Foods'' case, the Tribunal is justified in law in interfering with the assessment of Rs. 7,42,950 u/s 41(1)?

Whether, on the facts and in the circumstances of the case and the decision of the Kerala High Court in Deputy CST v. Neroth Oil Mills Co. Ltd. [1982] 49 STC 249, being similar to the decision of the Supreme Court in Sterling Foods'' case [1986] 63 STC 239, the Tribunal is justified in relying on K.V. Moosa Koya and Co. Vs. Income Tax Officer and Another, , where the assessee''s (K.V. Moosa Koya and Co.) own case is pending before the Supreme Court ?

Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction u/s 80HHC in regard to exports routed through export houses ?"

As far as question No. 4 is concerned, it is clearly a question of law which requires to be raised. A similar question has been directed to be raised and referred to us in Original Petition No. 1588 of 1990. Accordingly, the Tribunal is directed to frame a statement of the case and refer the aforesaid question No. 4 to us for determination.

Questions Nos. 1 to 3 relate to the provision made by the assessee in the relevant assessment years for payment of anticipated purchase tax liability. In respect of the purchase tax liability for the assessment year 1982-83, the Income Tax Officer had initially disallowed the provision. The Commissioner of Income Tax (Appeals), however, decided the issue in favour of the assessee. As a result, the Income Tax Officer passed consequential orders granting deduction of purchase tax liability of Rs. 15,54,325 for the assessment year 1982-83. The Department has filed an appeal before the Tribunal from this order, which is pending.

In respect of the assessment year 1980-81, the purchase tax liability amounting to Rs. 7,42,950 was allowed as a deduction by the Income Tax Officer himself. No dispute is pending on that score. The Tribunal has held that in view of the fact that the question relating to the deduction of purchase tax liability for the assessment year 1982-83 is still pending before the Tribunal, the provisions of Section 41(1) of the Income Tax Act, 1961, are not attracted at this stage. The only reason why, according to the Department, the assessee is not liable to pay purchase tax for these two assessment years, is the decision of the Supreme Court in Sterling Foods v. State of Karnataka [1986] 63 STC 239. We do not see how this decision concludes the question of the assessee''s liability to pay purchase tax for the two assessment years in question. In order to claim exemption from payment of purchase tax the assessee has to establish all relevant facts which would attract the application of Section 5 of the Central Sales Tax Act, 1956. It is not the case of the Department that the assessee has automatically become entitled to exemption from payment of purchase tax by reason of the above decision of the Supreme Court. The Tribunal has, therefore, rightly come to the conclusion that the assessee''s liability to pay purchase tax in the State of Kerala has not ceased.

In order to attract the provisions of Section 41(1)(a), the assessee should have obtained any amount or any benefit in respect of his trading liability, inter alia, by way of remission or cessation thereof. Such is not the case here. The Tribunal has rightly declined to frame a statement of the case and refer questions Nos. 1 to 3 to us. No useful purpose will be served by directing the Tribunal to refer the above questions Nos. 1 to 3 to us.

In the premises, the petition is partly allowed as above.