N.V. Balasubramanian , J. - (1.) THE question of law referred for the opinion of this court at the instance of the Revenue relating to the assessment of the income of the assessee for its assessment year 1976-77 is as hereunder : "Whether, the finding of the Appellate Tribunal that admittedly the assessee was maintaining the account, viz., the sales tax account, on mercantile basis, is sustainable in law in view of the corrigendum issued by the Appellate Tribunal ?"
(2.) THOUGH the question of law framed at the instance of the Revenue seems to suggest that the finding of the Appellate Tribunal that the assessee was maintaining the sales tax account on mercantile basis is not sustainable in law in view of the corrigendum issued by it, the real issue that arises for consideration is, whether the assessee is entitled to get deduction of certain, amount of the sales tax liability. The assessee was following the mercantile system of accounting. But, according to the Income-tax Officer, the assessee has not adopted the mercantile system of accounting in the matter of receipt and payment of sales tax alone. According to the Income-tax Officer, as and when the assessee collected sales tax, it credited the same in a separate ledger folio and the payments of sales tax were being debited in the same ledger folio, as and when they were actually paid. The Income-tax Officer, therefore, held that the sales tax receipts have to be taken as part of trading receipts, but rejected the claim of the assessee to deduct the entire sales tax liability that had accrued during the relevant accounting year on the ground that the assessee was maintaining accounts on cash basis for the purpose of sales tax over the payments should be treated as part of the taxable receipts. Accordingly, he brought to tax a sum of Rs. 26,192 as part of the excess collection of sales tax over the payment. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), who held that liability to pay sales tax amounting to Rs. 46,169 for the month of March had accrued and the assessee was entitled to deduction of sales tax liability, whether he was deducting the amount or not. He, therefore, deleted the addition made by the Income-tax Officer and allowed the appeal preferred by the assessee. The Revenue filed an appeal before the Income-tax Appellate Tribunal against the order of the Commissioner of Income-tax (Appeals). The Appellate Tribunal recorded the following findings as regards the method of accounts followed by the assessee : "In the present case though a separate ledger was maintained for the collections and payment, the sales tax liabilities on accrual basis was brought into the trading account under 'sundry creditors' while also taking into account the sales tax collections as part of trading receipts. Therefore, on the facts, the only question that can arise is whether the liability for sales tax should be limited to the actual payment instead of the accrued liability provided in the trading account." On the basis of the above finding, the Appellate Tribunal came to the conclusion that liability towards sales tax accrued at the time of sales and was deductible on accrual basis even if the payment was postponed. The Tribunal has arrived at the above conclusion following the decision of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT . In this view of the matter, the Appellate Tribunal dismissed the appeal preferred by the Revenue.
(3.) THE Appellate Tribunal subsequently issued a corrigendum on April 30, 1982, to its earlier order wherein it passed the following order : "In para. 4 (page 2) in the sentence 'in the present case though a separate ledger was maintained for the collections and payments, the sales tax liabilities on accrual basis was brought into the trading account under 'sundry creditors' while also taking into account the sales tax collections as part of trading receipts as well as in the next sentence starting 'therefore, on the facts . . . .' the word 'trading' shall be omitted." When the corrigendum was issued by the Appellate Tribunal, the Revenue has challenged the order of the Appellate Tribunal on the ground that the Appellate Tribunal was not correct in holding that the assessee was maintaining its accounts on mercantile basis and the Appellate Tribunal was not correct in allowing the entire liability of sales tax, though not paid. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that it is clear from the corrigendum issued by the Appellate Tribunal that sales tax liability was not provided in the trading account of the assessee and, therefore, on the basis of the decision of this court in the case of CIT v. E. A. E.T. Sundararaj [1975] 99 ITR 226, the assessee would be entitled to deduction of its liability towards sales tax when the assessee actually paid the same to the Government. ;