Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing deduction of Rs. 1,13,16,644 on account of royalty cess and cess surcharge by holding that it represented accrued liability ?

Counsel AppearedRajendra with R. N., Verma, for the Petitioner : Hari Har Lal with R. K. Maheshwari, for the Respondent

DR. M. K. SHARMA J.:

This petition under s. 256(2) of the IT Act, 1961 (hereinafter referred to as “the Act”), is at the instance of the Revenue, relevant to the asst. yr. 1983-84. By this petition, the Revenue seeks for a direction to the Tribunal to refer the following four questions, stated to be questions of law, to this Court for its opinion :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing deduction of Rs. 1,13,16,644 on account of royalty cess and cess surcharge by holding that it represented accrued liability ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing deduction at Rs. 2,05,511 on account of distribution of utensils in the absence of supporting evidence produced by the assessee ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that sales tax refund at Rs. 6,99,947 could not be taxed as income under s. 41(1) of the IT Act ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing deduction of bad debts at Rs. 43,907 and Rs. 34,482 in respect of Paragon International and M/s Treasure Tour Ltd.?”

We have heard Mr. Rajendra, learned counsel representing the Revenue and also Mr. Hari Har Lal, senior counsel representing the assessee. So far as question No. 1 is concerned, we are told that so far as the question relates to deduction in respect of cess and cess surcharge, this Court has already rejected a similar application filed by the Revenue in respect of such a question relating to cess and cess surcharge in the case of CIT vs. Dalmia Cement Ltd. (No. 1) (1988) 173 ITR 87 (Delhi). Subsequently, the said decision of this Court appears to have been followed in two decisions of this Court in CIT vs. Dalmia Cement (Bharat) Ltd. (No. 2) (1988) 67 CTR (Del) 15 : (1988) 173 ITR 89 and CIT vs. Dalmia Cement Ltd. (No. 3) (1988) 173 ITR 91. In view of the aforesaid position, we reject the prayer of the Revenue to call for a statement on the aforesaid aspect, i.e., relating to deduction in respect of cess and cess surcharge. However, in respect of deduction on account of royalty in respect of moisture content in limestone and also levy of royalty concerning the patta land at the full prescribed rate instead of levying royalty at 50 per cent., Mr. Rajendra submitted that a question of law does arise out of the said part of the question. We, however, could not persuade ourselves to accept the contention of Mr. Rajendra as this part of the question relating to deduction in respect of levy of royalty appears to be directly governed by the principles laid down by the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 and, therefore, the said part of the question also does not call for a reference.

We have carefully considered questions Nos. 2 and 4 proposed by the Revenue. In this context, we have also been taken through the appellate order of the Tribunal and also the order passed by the Tribunal under s. 256(1) of the Act. On a careful scrutiny of the said two questions, we are of the firm opinion that the said questions are questions of fact and do not call for reference at our hand.

This leaves us to deal with question No. 3 proposed by the Revenue stating the same to be a question of law. Mr. Hari Har Lal, learned counsel appearing for the assessee, drew our attention to a decision of the Supreme Court in Union of India vs. J. K. Synthetics Ltd. (1993) 199 ITR 14, wherein the Supreme Court has held that as and when the liability to tax under s. 41 of the Act are live issues pending either before the High Court or the Supreme Court or before a Tribunal there could be no cessation of liability until the said Court or the Tribunal has decided the matter giving finality to the proceedings. In the said case, the Supreme Court has held that the liability to tax under s. 41 of the Act would depend on the outcome of the appeal pending before the Supreme Court. It was further held that as regards another part of the liability, the issue having been pending before the Tribunal, no cessation of liability could be postulated until the Tribunal has decided the matter. It was also held that there is no prejudice to the Department if the assessment is modified depending upon the outcome of the decision of the Court as well as the final outcome of the proceedings which are pending before the Tribunal.

Mr. Hari Har Lal, appearing for the assessee, stated before us that the sales tax refund amounting to Rs. 6,99,947 was directed to be refunded to the assessee in pursuance of a decision passed by the Madras High Court as against which an appeal was preferred before the Supreme Court, which was pending at the relevant time. Mr. Lal stated before us that the said appeal has since been disposed of by the Supreme Court in Ramco Cement Distribution Co. Pvt. Ltd. vs. State of Tamil Nadu (1993) 88 STC 151. In the said appeal, the Supreme Court has allowed the appeals filed by the State of Tamil Nadu holding that the freight charges should be included in arriving at the taxable turnover for the purpose of Central sales tax and Tamil Nadu sales tax and that the packing charges and excise duty thereon should also be included in arriving at the taxable turnover for the purposes of both the Central sales tax and Tamil Nadu sales tax. In view of the aforesaid decision of the Supreme Court reversing the judgment of the Madras High Court, the possibility of levy of sales tax on the assessee on account of freight has revived. With the aforesaid decision, the liability to charge sales tax on the element of freight has not ceased. Subsequent to the said decision it is now open to the ST Department to modify the assessment in respect of the turnover of the assessee including the sales tax on account of freight.

In view of the aforesaid position and changed circumstances pursuant to the decision of the Supreme Court on the issue of levy of sales tax on freight element, in our opinion, no question of law arises out of the said question No. 3, and the same has more or less become academic at present. In that view of the matter, we do not propose to call for the said question for the opinion of this Court.

In the result, there is no merit in this petition and is accordingly dismissed.

[Citation: 218 ITR 187]