V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated May 26, 1981, in respect of the assessment year 1979-80 under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the liability of Rs. 11,900 pertaining to earlier years and demanded by the assessing authority under the Rajasthan Land and Building Tax Act, 1961, on May 23, 1978, being a statutory one is a liability in praesenti and, therefore, the same merits to be allowed as a deduction in computing the total income of the assessee for the year under consideration ?" THE brief facts of the case are that the assessee claimed a sum of Rs. 11,900 in respect of liability of tax under the Rajasthan Land and Building Tax Act, 1961. THE Income-tax Officer found that the assessee is maintaining his account on the mercantile basis and the amount relates to the years earlier to the assessment year. THE deduction was accordingly disallowed.
(2.) IN the appeal before the Commissioner of INcome-tax (Appeals), Rajasthan, it was found that the demand relates to financial year 1977-78 and out of the total demand of Rs. 14,562, Rs. 2,662 were in respect of the year relevant to the assessment year and as such the balance amount of Rs. 11,900, which was disallowed by the INcome-tax Officer was held justified. Before the Commissioner of INcome-tax (Appeals) it was admitted that the demand has not been paid and the assessee is maintaining the accounts on the mercantile system. The appellate authority, following the decision of CIT v. V. Krishnan [1980] 121 ITR 859 (Mad), upheld the order of the INcome-tax Officer. In the second appeal before the Income-tax Appellate Tribunal, it was found that the liability is a statutory liability and therefore this liability is in praesenti, and till the demand was made the assessee could not have made any provision of the said liability. The appeal was accordingly allowed. The Madras High Court in the case of CIT v. Woodlands Hotel [1981] 128 ITR 603 has held that the Tamil Nadu Urban Land Tax Act contemplates the payment of urban land tax every year and a separate notice of demand has to be served on the assessee in respect thereof. It is only after the service of such notice that the assessee can be proceeded for arrears of land revenue and, therefore, there is no question of any accrual of the liability to pay tax every year by it. The amount becomes payable as and when it is demanded and assessment is made in respect thereof. The Madras High Court in the case of CIT v. East India Industries (M.) Pvt. Ltd. [1983] 139 ITR 1059 has held that the deduction in respect of urban land tax for several years which has been paid during the relevant accounting year has to be allowed while computing the income from house property under Section 24(1)(vii) of the Income-tax Act, 1961. In CIT v. V. Krishnan [1980] 121 ITR 859, the Madras High Court has held that the liability to sales tax could be allowed in the year of transactions or the year in which it has been paid and not in the year in which the demand has been raised. The law in this regard is settled by the decision of the apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, wherein it was observed : "it is not possible to comprehend how the liability can cease to be one because the assessee has taken proceedings before the higher authority for getting it reduced or wiped off. It can again not be disputed that the liability to pay the sales tax which accrued during the assessment year even though it has been discharged at a future date". In the present case, the matter pertains to the land and building tax liability for financial years 1973-74 to 1977-78. The assessee had paid a sum of Rs. 190 in respect of each of the financial years 1973-74 to 1976-77 and no amount was paid for 1977-78. The assessment was made by the Assistant Director, Land and Building Tax, wherein out of the liability of Rs. 14,562, Rs. 2,662 were considered as pertaining to the relevant assessment year and the balance amount of Rs. 11,900 was disallowed because the assessee was maintaining the books on the mercantile basis. The assessee has a statutory liability which was discharged in part, i.e., a sum of Rs. 190 for each year was paid. It appears that when the assessment was finalised, the tax liability was created at the rate of Rs. 4,917.50 in each of the years. It was not the ascertained liability which could be said to be known to the assessee at the time when the payment of tax was made during the preceding years and the additional liability which has been created in the assessment year was crystallised by issuance of a notice of demand in respect of each of the years. Under the Land and Building Tax Act, it is no doubt true that the tax is to be paid in each of the years and the assessee has paid the tax which was due according to him. The order which had been passed on May 23, 1978, created the additional liability which cannot be compared with those cases where the tax liability has accrued in a year and has not been claimed in that year. The assessee had paid the tax that was due according to him. The tax which was admitted by the assessee had already been paid and it is only the excess additional tax liability which has been created by the assessment order and the demand notices issued. Before such assessment order, there was no quantification and it could not be said that the additional liability which has been created by virtue of the assessment order was ascertained even before the finalisation of the assessment. We are, therefore, of the view that the additional liability which has been created in the present case in the assessment order was not the ascertained one before the date of assessment and, therefore, the Income-tax Appellate Tribunal was justified in holding that the liability of Rs. 11,900 pertaining to the earlier years and demanded by the assessing authority under the Rajasthan Land and Building Tax Act on May 23, 1978, being a statutory liability is allowable for computing the total income of the assessee in the year under consideration.
(3.) THE reference is accordingly answered in favour of the assessee and against the Revenue.;