Satish Chandra, J. - (1.) THE assessee is a registered firm carrying on business in cloth at Bareilly. Up to the assessment year 1960-61, the assessment was completed in the status of the Hindu undivided family, which consisted of seven members, including its karta, Banwari Lal. On 31st March, 1960, there was a partial partition in regard to the family business which was taken over by three members only, namely, Banwari Lal, karta, Madan Mohan and Ghanshyam. A partnership firm consisting of these three as partners continued the business.
(2.) THE balance-sheet of the Hindu undivided family as drawn on 31st March, 1960, consisted of a number of assets and liabilities including a credit balance of Rs. 25,230 in respect of provision of sales tax liability of the Hindu undivided family. The assessment of the business of the partnership firm was completed in the status of a registered firm in the years 1961-62 onwards. In respect of the assessment year 1962-63 the firm claimed deduction of Rs. 11,484 on account of payment of sales tax dues. The relevant facts in this respect were that assessment orders under the Sales Tax Act in respect of the assessment years 1954-55 to 1957-58 were completed by the Sales Tax Officer by an order dated 31st March, 1961. The sales tax liability for all these years was computed at Rs. 1,23,518.
(3.) THE partnership firm went up in appeal. THE appellate authority reduced the amount of tax by Rs. 39,110. THEreafter, the firm prayed for and was granted instalments to pay the amount of sales tax. An amount of Rs. 36,714 was paid by the firm in the financial year 1961-62, relevant to the assessment year 1962-63. Since there was already provision in the account books of the firm of Rs. 25,230 in respect of sales tax liability the firm claimed a deduction of Rs. 11,484 in income-tax proceedings for the assessment year 1962-63. THE claim was ultimately allowed by the Tribunal, against which the department came in reference to this court in Commissioner of Income-tax v. Banwari Lal Madan Mohan [1977] 110 ITR 868 (All). It was found that both the Hindu undivided family as well as the partnership firm were carrying on business in the mercantile system of accounting. It was further found that the quantification of the sales tax liability was made in the year relevant to the assessment year in question in that case, namely, 1962-63. It was further found that the partnership firm had taken over all the assets and liabilities of the Hindu undivided family, and, therefore, it also took over the liability to pay the sales tax. THE Bench observed (page 870): "THE liability for sales tax was quantified when the order was passed in appeal as a result of which the assessee made payment of Rs. 36,714 in the financial year in question." ' The crux of the finding was that the quantification, which was ultimately done by the order in appeal, was in fact made in the financial year relevant to the assessment year 1962-63.;