KEDARNATH JUTE MFG. CO. LTD. versus COMMISSIONER OF INCOME TAX, CENTRAL CALCUTTA

Citation: [1972] 1 S.C.R. 277 · Decided: 17-08-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
KEDARNATH JUTE MFG. CO. LTD. 
v. 
277 
COMMISSIONER OF INCOME TAX, CENTRAL 
CALCUTTA 
August 17, 1971 
[K. S. HEGDE AND A. N. GROVER, JJ.] 
Income-tax Act, 1922, ss. 10(1) and 10(2)(xv)-Disputed and unpaid 
sales tax whether a permissible deduction-Liability accrues in year of" 
sale and not when sales tax demand is quantified or finally determined-"-
Where mercantile system ~f accouming is adopted amount is deductible 
when liability accrues and the time when liability is discharged is 
irrelevant-Position is not changed even when entries in books of account 
are made at a later date. 
The appellant was a public limited company doing the business of 
jute and manufacturing of jute goods. It followed the mercantile system 
of accounting. Before the Income-tax Officer in connection with the 
assessment year 1955-56 the appellant claimed a deduction on account 
of assessed sales-tax. The demand of sales-tax was contested by the appel-
lant before the higher. sales-tax authorities but before the matter 
was finalised the Income-tax 
Officer 
completed 
the 
assessment, 
He disallowed appellant's claim for deduction of sales tax on the ground 
that the liability, to pay sales tax had not been accepted by the appellant 
and no provision had been made in its books with regard to payment 
of the assessed amount. The authorities under the Act dismissed 
the appeals. The High Court in reference was of the opinion that unpaid 
and disputed sales tax liability could not form the basis of a claim for 
deduction. In appeal by special leave to this Court the appellant sub-
mitted that sales tax paid or unpaid would be admissible deduction 
under s.10(2)(xv) as well as s. 10(1) of the Income-tax Act, 1922, and 
that where the mercantile system 
of accounting was observed 
the 
deduction would be permissible in the year to which the liability relates 
irrespective of the point of time when the liability has been actually 
discharged. 
HELD: Under all sales tax laws including the statute applicable to 
the present case the moment a dealer makes either purchases or sales 
which are subject to taxation, the obligation to pay tax arises and taxability 
is 
attracted. 
Although 
that liability cannot be enforced till the 
quantification is effected by assessment proceedings, the liability for 
payment of tax is independent of the assessment. Jn the present 
case the liability had even been quantified. The liability could not cease 
to· be one merely because the assessee had taken 
proceedings before 
·higher authorities. An assessee that follows the mercantile system of 
accounting is entitled to deduct from the profits and gains of the business 
·.such liability which had accrued during the period for which the profits 
and gains were being computed even though it had to be discharged at 
a future date. [281B-F] 
Commissioner of Income-tax West Bengal II v. Royal Boot House, 
75· l.T.R. 507 and Pope The King Match Factory v . . Commissioner ~f 
lnaome-tax Madras, 50 l.T.R. 495, applied. 
278 
SUPREME COURT REPORTS 
[1972] l S.C.R. 
The contention that since the assessee had failed to 
debit the 
A 
.liability in its books of accounts, it was debarred from claiming the same 
as deduction either under s.10(1) or s.10(2)(xv) of the Act could not be 
accepted. Whether the assessee is entitled to a particular deduction 
or not will depend on the provision of law relating thereto and not 
on the view which the assessee might take of his rights nor can existence 
or absence of entries in the books of accounts be decisive or conclu-
sive in the matter. [282 C-E] 
B 
Th' appeal must accordingly be allowed. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1899 
of 1967. 
Appeal by special leave from the judgment and order c 
dated August 24, 1966 of the Calcutta High Court in 
Income-tax Reference No. 91 of 1962. 
G. C. Sharma, ff. Kumaria, B. R. Diwan and P. K. 
Mukherjee, for the appellant. 
Jagadish 
Swarup, 
Solicitor-Generql, 
P. L. Juneja, 
D 
R. N. Sachthey 11.nd B. D. Sharma, for the respondent. 
The Judgment of the Court was delivered by 
Grover, J.-This is an appeal by special leave from the 
judgment of the Calcutta High Court iri an Jncome-.tax 
Reference. 
E 
The assessee who is the appellant is a public limited 
company doing the business of jute and manufacturing 
of jute goods. The method of accounting followed by the 
assessee is the mercantile system. During the assessment 
year 1955-56 (the previous year 

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