M .P.MEHROTRA,J. - (1.) This is an application u/s 256(2) of the IT Act, 1961 which has been moved by the CIT, Agra.
(2.) THE facts, in brief, are these. The opposite party M/s. Glorious Shoe Factory, Shoe Market, Agra, (herein -after described as the assessee) is a partnership carrying on business in the purchase and sale of shoes mostly on commission basis. In the course of the assessment proceedings for the asst. yr. 1976 -77, the ITO found an account in the name and style of O.H.C.C. Account. It showed a credit balance of Rs. 35,540. The said amount represented the collection made by the assessee from its customers on account of Purchase Tax. This amount was added by the ITO to the assessees income for the detailed reasons given by him in the assessment order for the asst. yr. 1975 -76. The ITO relied on the decision of the Supreme Court in the case of Sinclaire Murray and Co. (P) Ltd. v. CIT, Calcutta (1974) 97 ITR 615 (SC). The ITO further observed that if the assessee paid this amount to the Government or to the other parties in the future the such payment would be allowed as a deduction in the year in which it would be made. The assessee filed an appeal but did not succeed. Thereafter, a second appeal was filed before the IT Appl. Tribunal and the same succeeded. Before the Tribunal the assessee placed reliance on the decision of this Court in CIT, Lucknow v. Poonam Chand Trilok Chand (1976) 105 ITR 618 (All.) On behalf of the department reliance was placed on the decision of this Court reported in CIT v. Brijmohan Das Laxman Das (1979) 117 ITR 121 (All). The Tribunal in its order observed : "There is no dispute that the facts and circumstances relating to this addition of Rs. 35,540 are the same as considered by the Appl. Tribunal for the earlier asst. yr. 1975 -76 when a similar addition of the credit balance in O.H.C.C. account was deleted by the Appl. Tribunal accepting the assessees contentions. Apart from the above, the decision of the Allahabad High Court in CIT, Lucknow v. Poonam Chand Trilok Chand reported in (1976) 105 ITR 618 (All) supports the case of the assessee. In that case also the assessee, a commission agent, was following the mercantile system of accounting. The assessee in the said case had collected from customers Rs. 43,165 on account of Purchase Tax leviable on the sale of Rab under an account styled as Reserve for Purchase tax. It appears that the said assessee contested its liability to pay purchase tax; that when submitting the first quarterly return, it paid to the Sales -tax Department a sum of Rs. 11,534. Eventually purchase tax was levied and the assessee appealed. Meanwhile, the ITO treated the balance amount of Rs. 31,631 as the assessees income rejecting the assessees contention that the amount was payable to the Government for purchase tax and could not be included in its income. This claim of the assessee was upheld by the Appl. Tribunal on reference, at the instance of the Commissioner. Their Lordships of the Allahabad High Court held that the assessee, who followed the claim the deduction even though the expenditure was not actually incurred, that it was enough if the liability for such expenses accrued, that the fact that the assessee that did not pay any amount to the Government in the relevant accounting year did not alter the position and that similarly, the fact that the assessee did not make appropriate entries in its books of account, would also not alter the position. Their Lordships pointed out that the entries in the books of accounts are not in any way determinative of an item of income or expenditure, and that the assessee is entitled to a deduction when the liability accrues and that the liability accrues as soon as a transaction of sale or purchase takes place. Their Lordships further held that as an assessment under the U.P. Sales Tax Act had been made against the assessee, the liability to purchase tax had, therefore, already arisen, and that if the assessee should succeed in the appeal, action could be taken u/s 41 of the IT Act. Their Lordships, therefore, held that the assessee was entitled to claim the sum of Rs. 31,630 as an allowable deduction. In our view, this decision of the Allahabad High Court in the case of Poonam Chand Trilok Chand is more opposite than the decision relied on by the Revenue to the facts of the present case. In the case before us also, the assessee has collected purchase tax from his customers which was introduced by the U.P. Government with effect from 1 -9 -1974 u/s 3D of the U.P. Sales Tax Act, and credited such collections of Purchases Tax to O.H.C.C. A/c. There is no dispute that the assessee is following the mercantile system of accounting. We, therefore, respectfully follow the said decision of the Allahabad High Court and hold that the assessee is entitled to claim the sum of Rs. 35,540 as an allowable deduction in the computation of its business income, even if the collections of purchases tax are to be treated as part of the trading receipts of the assessee. Accordingly, this addition of Rs. 35,540 is deleted." The CIT, Agra felt aggrieved with the said decision of the Tribunal and filed an application u/s 256(1) of the IT Act, 1961 seeking a reference of certain question of law which were claimed to arise from the said order of Tribunal. The said application however, was rejected by the Tribunal by its order dated 28 -2 -1980. It was observed by the Tribunal that it had followed the aforesaid decision of this Court reported in 105 ITR 618 (supra) which was directly applicable to the facts of the instant case, and that "In view of this direct decision of the Allahabad High Court, the answers to the three questions posed by the Commr. are self evident and hence they are purely, academic. We are, therefore, unable to refer any of these three questions to the High Court." Thereafter, the instant application u/s 256(2) of the Act was moved by the CIT Agra, and a prayer is made that the Tribunal should be directed to refer to this court the following three questions alongwith the statement of the case : 1. Whether on the facts and in the circumstances of the case, the IT Appl. Tribunal was correct in law in holding that the assessee was entitled to the deduction of Rs. 35,540 in the computation of its business income, even if the collection of purchase tax was to be treated as part of the trading receipts of the assessee ? 2. Whether on the facts and in the circumstances of the case, the IT Appl. Tribunal was correct in law in deleting the addition of Rs. 35,540 made by the ITO to the assessees income, which represented collection made by the assessee from its customers and which was credited to an account named O.H.C.C. account ? 3. Whether on the facts and in the circumstances revenue receipts taxable in the hands of the assessee firm ? In support of the application, we have heard the ld. counsel for the Department and in opposition, the ld. counsel for the assessee had made his submissions.
(3.) THE ld. counsel for the department contended that in the previous year relevant to the asst. yr. 1976 -77 there was no liability for the payment of purchase tax under U.P. Sales Tax Act and, therefore, the assessee could not claim a deduction of any amount on the ground of liability to pay purchase tax. It was therefore, pressed that the aforesaid questions of law did arise in the instant case.;