# TAX, HYDERABAD v. M/S. S. R. V. G. PRESS COMPANY, KURNOOL

- **Citation:** [1962] 1 S.C.R. 232
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeal No. 270 of 1960
- **Bench:** J. L. Kapur, J. C. Brah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tax-hyderabad-v-m-s-s-r-v-g-press-company-kurnool-2002
- **Pages:** 7

## Headnote

Excess Profits Tax-Sales Tax-Provisional payment in
advance, if permissible deduction-Excess Profits Tax Act, r940
(XV of r940), r. I2, Sch. I.
,1
•
•
The respondents were entitled to a rebate of sales tax on
'.
goods purchased by them and used,in their manufacturing process.
They had adopted the system which was permissible under law,
"
·\
1 S.C.R. SUPREME COURT REPORTS
233
'
I96I
of paying sales tax provisionally assessed by the Sales Tax
Officer on the basis of turnover of the previous year, the liability Tl
Connnissioner
being adjusted at the end of the year of account in the light of
"
I
f
h. h .
of Excrss Profits
the actual turnover of that year, as a resu t o w 1c , m some
d
·
Taz, Hyderabad
years the respondents were assesse to pay tax in excess of the
v.
amount provisionally assessed, in others they obtained refund of
the excess tax paid under ·the provisional assessment.
The M/s. 5 · R. v. G.
ffi
. d h
d
.
d d d
Press Co1npany,
Income Tax 0 cer recognise t e system an perm1tte
e ucJ( urnool
tion of sales tax actually paid under the provisional assessment.
The Excess Profits Tax Officer had in assessing liability to excess profits tax for previous periods adopted the same method of
computation, but for the chargeable accounting period, he did
not allow the deduction of the full amount of tax provisionally
debited to the sales tax, because in his vie\V it \Vas not reasonable and necessary expenditure and thus not a permissible
deduction.
·The question was whether the sales tax payments were
unreasonable and unne<essary having due regard to the requirements of the business and consequently not deductible under
r. 12 Sch. 1 of the Excess Profits Tax Act.
Held, that it.is for the Excess Profits Tax Officer to decide
whether the deductions claimed are reasonable and necessary
having regard to the requirements of the business. But the
reasonableness and necessity of the expenditure sought to be
deducted under r. 12 Sch. 1 of the Excess Profits Tax Act in
assessing excess profits tax liability must be adfudged in the
light of commercial expediency, and not on any legalistic consideration. Payments made in satisfaction of liability which
arises by virtue of assessment made by the Sales Tax Officer
cannot be called unreasonable. Payment of sales tax as assessed
being obligatory and necessary for the purpose of carrying on the
business, it must be deemed to satisfy the requirements of r. 12
of Sch. 1 of the Excess Profits Tax Act.
In re M. P. Kumaraswami Raja, (1955) 6 Sales Tax Cases
n3, referred to.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 270 of 1960.
Appeal from the judgment and order dated February 21, 1956, of the Andhra Pradesh High Court in
Case Reference No. 4 of 1955.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
H.J. Umrigar, Thiyagaraja and G. Gopalakrishnan,
for the respondents.
1961. March 10. The Judgment of the Court was
delivered by
30
234
SUPREME COURT REPORTS
[1962]
z96z
SHAH, J.-The assessees are a firm carrying on
Th
C -. .
business at Kurnool, of manufacturing ground-nut oil
e
ommission"
d
k
U d
h M d
G
1 S 1
of Excess p,.ofits an
ca e.
n er t e
a ras enera
a es Tax Act
ra., Hydcrnbad IX of 1939, the assessees were entitled to a rebate of
v.
sales tax paid on goods purchased by them and used
M /s. s. 11. v. G. in the manufacturing process. The assessees maintain-
.Press Company, ed their books of account according to the Samvat
Kurnool
Shah].
Year ending with Diwali. The system of accounting
was a mixture of mercantile and cash. Purchases and
sales of goods on credit were duly entered in the books
of account. The sales tax actually recovered by the
tax authorities was debited when paid and amounts if
any refunded were credited when received. The
assessees had adopted the system which was premitted by the Act of paying tax calculated on the turnover
of the previous year of account. Under this system,
tax was provisionally assessed by the Sales Tax Officer
on the basis of the turnover of the

## Text

232.
SUPREME COURT REPORTS
[1962]
'96'
orders that had become final before tho Act came into
Dafeda-;;iranjan force.
Singh & Another
Nor do we find any force in the argument of learned
v.
counsel for the State that under s. 27 of the Act, the
Custodian,
Custodian-General may at any time revise the order
Evacuee Property of any Custodian and, therefore, the Custodian-Gene'
(Pb.) 6- Anoth"
1
·
'th t
l' 't f t'
d
ra can revise w1 ou any im1 o
ime any or er
Subba Rao J. made by any Custodian under any previous law. Section 27 of the Act can be given retrospective operation only to the extent permitted by s. 58(3) of the
Act. We have held thats. 58(3) does not affect the previous operation of the Jaw and therefore cannot affect
the finality of the orders made under the Ordinance.
So the words in the section "any time" or "any Custodian" must necessarily be confined only to orders of
any one of the Custodians defined in the Act and to
orders of Custodians deemed to have been made under
the Act but had not become final before the Act came
into force.
Marek zo.
No other point was raised. In the result, the order
of the Custodian-General is set aside and that of the
Custodian dated June 6, 1949, is restored. The respondents will pay the costs to the appellants.
Appeal allowed.
THE COMMISSIONER OF EXCESS PROFITS
TAX, HYDERABAD
v.
M/S. S. R. V. G. PRESS COMPANY, KURNOOL
(J. L. KAPUR and J. C. BRAH, JJ.)
Excess Profits Tax-Sales Tax-Provisional payment in
advance, if permissible deduction-Excess Profits Tax Act, r940
(XV of r940), r. I2, Sch. I.
,1
•
•
The respondents were entitled to a rebate of sales tax on
'.
goods purchased by them and used,in their manufacturing process.
They had adopted the system which was permissible under law,
"
·\
1 S.C.R. SUPREME COURT REPORTS
233
'
I96I
of paying sales tax provisionally assessed by the Sales Tax
Officer on the basis of turnover of the previous year, the liability Tl
Connnissioner
being adjusted at the end of the year of account in the light of
"
I
f
h. h .
of Excrss Profits
the actual turnover of that year, as a resu t o w 1c , m some
d
·
Taz, Hyderabad
years the respondents were assesse to pay tax in excess of the
v.
amount provisionally assessed, in others they obtained refund of
the excess tax paid under ·the provisional assessment.
The M/s. 5 · R. v. G.
ffi
. d h
d
.
d d d
Press Co1npany,
Income Tax 0 cer recognise t e system an perm1tte
e ucJ( urnool
tion of sales tax actually paid under the provisional assessment.
The Excess Profits Tax Officer had in assessing liability to excess profits tax for previous periods adopted the same method of
computation, but for the chargeable accounting period, he did
not allow the deduction of the full amount of tax provisionally
debited to the sales tax, because in his vie\V it \Vas not reasonable and necessary expenditure and thus not a permissible
deduction.
·The question was whether the sales tax payments were
unreasonable and unne<essary having due regard to the requirements of the business and consequently not deductible under
r. 12 Sch. 1 of the Excess Profits Tax Act.
Held, that it.is for the Excess Profits Tax Officer to decide
whether the deductions claimed are reasonable and necessary
having regard to the requirements of the business. But the
reasonableness and necessity of the expenditure sought to be
deducted under r. 12 Sch. 1 of the Excess Profits Tax Act in
assessing excess profits tax liability must be adfudged in the
light of commercial expediency, and not on any legalistic consideration. Payments made in satisfaction of liability which
arises by virtue of assessment made by the Sales Tax Officer
cannot be called unreasonable. Payment of sales tax as assessed
being obligatory and necessary for the purpose of carrying on the
business, it must be deemed to satisfy the requirements of r. 12
of Sch. 1 of the Excess Profits Tax Act.
In re M. P. Kumaraswami Raja, (1955) 6 Sales Tax Cases
n3, referred to.
CIVIL
APPELLATE
JURISDICTION:
Civil
Appeal
No. 270 of 1960.
Appeal from the judgment and order dated February 21, 1956, of the Andhra Pradesh High Court in
Case Reference No. 4 of 1955.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
H.J. Umrigar, Thiyagaraja and G. Gopalakrishnan,
for the respondents.
1961. March 10. The Judgment of the Court was
delivered by
30
234
SUPREME COURT REPORTS
[1962]
z96z
SHAH, J.-The assessees are a firm carrying on
Th
C -. .
business at Kurnool, of manufacturing ground-nut oil
e
ommission"
d
k
U d
h M d
G
1 S 1
of Excess p,.ofits an
ca e.
n er t e
a ras enera
a es Tax Act
ra., Hydcrnbad IX of 1939, the assessees were entitled to a rebate of
v.
sales tax paid on goods purchased by them and used
M /s. s. 11. v. G. in the manufacturing process. The assessees maintain-
.Press Company, ed their books of account according to the Samvat
Kurnool
Shah].
Year ending with Diwali. The system of accounting
was a mixture of mercantile and cash. Purchases and
sales of goods on credit were duly entered in the books
of account. The sales tax actually recovered by the
tax authorities was debited when paid and amounts if
any refunded were credited when received. The
assessees had adopted the system which was premitted by the Act of paying tax calculated on the turnover
of the previous year of account. Under this system,
tax was provisionally assessed by the Sales Tax Officer
on the basis of the turnover of the previous year, and
thereafter the liability was adjusted at the end of the
year of account in the light of the actual turnover of
that year, and of rebate allowed in respect of groundnuts pressed into oil.
As a result of the final adjustment made by the sales tax authorities, in some years
the assessees were assessed to pay tax in excess of the
amount provisionally assessed and in others they
obtained refund of the excess tax paid under the provisional assessment. The following tabular statement
shows the official years for sales tax, provisional
demands made by the sales tax authorities, the final
demands and the adjustments made in that behalf:
Official
ProviFinal
Adjustment
Year
sional
Refund/Addiended.
demand.
demand.
tional levy.
Rs.
Rs.
Rs.
Rs.
31-3-1942
2,679
1,872
807
31-3-1943
3,046
2,863
183
31-3-1944
14,509
18,402
3,893
31-3-1945
47,276
20,037
27,239
31-3-1946
45,315
13,379
31,936
For the assessment year 1946-4 7 (corresponding to
the year of account October 18, 1944 to November
4, 1945), the assessees claimed in their assessment to
...
•
-
..
/
)
1 S.C.R. SUPREME COURT REPORTS
235
income-tax to deduct Rs. 49,633 being the amount of
sales-tax paid under a provisional assessment. In the The Commission"
year ending 31-3-1945, the assessees had paid of Excsss Profits
Rs. 47,276 as sales-tax provisionally assessed. They Tax, Hyderabad
also had paid in that year Rs. 3,894 in adjustment of
v.
the liability for the previous year towards s~les-tax ~;;;;
5
c:;.;~.~:
due. After giving credit for Rs. 1,537 received as
Kurnool
rebate, the total sales-tax liability under the provisional assessment was Rs. 49,633. The Income-tax
Officer accepted this claim, and debited it from the
income in the assessment year 1946-4 7 in assessing the
taxable income of the assessees.
Deduction of salestax actually paid under provisional assessment less
rebates was permitted by the Income-tax Officer not
only in the assessment year 1946-47 but also in the
earlier years. The Excess Profits Tax Officer had also
adopted for the chargeable accounting period prior to
October 18, 1944 the same method of computation, but
for the chargeable accounting period October 18, 1944
to November 4, 1945, the Excess Profits Tax Officer
allowed out of the amount of H,s. 47,276 debited to
sales tax only Rs. 17,055 as properly attributable to
that period in computing the Excess Profits Tax
liability. According to the Excess Profits Tax Officer,
the excess amount paid under the provisional assessment i.e., Rs. 30,221 could not be taken into account,
because under r. 12 of Sch. 1 of the Excess Profits
Tax Act, expenditure in excess of the amount reasonable and necessary for the business was not a permissible deduction. In appeal against the order of the
Excess Profits Tax Officer, the Tribunal affirmed the
order. Against the order passed by the Tribunal confirming the order of the Excess Profits Tax Officer,
the assessees applied for and obtained an order referring the following question to the High Court of
· Judicature of Andhra Pradesh,
"Whether there are materials for the Tribunal to
hold that the aforesaid sales-tax payments of
Rs. 30,221 were unreasonable and unnecessary having
due regard to the requirements of the business and not
consequently deductible under r. 12 of Sch. 1 of the
Excess Profits Tax Act?"
Shah j.
236
SUPREME COURT REPORTS
[1962]
1961
The High Court answered the question in the nega-
-. .
tive and against the order of the High Court, this
The Commission"
1 ·
£
d
· h 1
d
66A(2}
tl (3)
of Excess P•ofits appea IS pre erre wit
eave un er s.
an
Tax, Hyderabad of the Income-Tax Act read with s. 21 of the Excess
v.
Profits Tax Act.
M /s. s. R. v. G.
It is manifest that the assessees had not altered
P.ess Company, the method according to which their accounts were
Kurnool
maintained. Year after year, they were paying tax
Shah J.
provisionally assessed by the Sales-tax Officer 011 the
turnover of the previous year subject to adjustment at
the close of the year of account. This system of payment of tax under provisional assessments was not
adopted with a view to evade tax liability. Nor was
recovery of the amounts ordered to be refunded to the
assessees delayed because of any deliberate inaction
on the part of the assessees. It is not found that
excess tax on inflated returns was paid in anticipation
of the repeal of the Excess Profits Tax Act.
The
assessees for reasons of convenience adopted, as they
were entitled under the Madras General Sales Tax
Act, a system of payment of tax on provisional assessment based on the turnover of the previous year subject to final adjustment to be made at the end of the
year. The assessees could opt for the system of paying sales-tax on provisional assessment, but the
liability to pay tax imposed was on that account not
voluntarily incurred. This system produced no direct
benefit to the business and adjudged in retrospect, it
undoubtedly reduced the taxable income; but if otherwise the payment was reasonable and necessary having regard to the requirements of the business, it was
not liable to be ignored in assessing the Excess Profits Tax liability of the assessecs.
By r. 12 of Sch. I
of the Excess Profits Tax Act, it is provided that "in
computing the profits of any chargeable accounting
period, no deduction shall be allowed in respect of
expenses in excess of the amount which the Excess
Profits Tax Officer considers reasonable and necessary
having regard to the requirements of the business; ... ".
It is for the Excess Profits Tax Officer to decide
whether the deductions claimed are reasonable and
necessary having regard to the requirements of the
•
•
)
1 S.C.R. SUPREME COURT REPORTS
237
business. But the reasonableness and necessity of
r96r
the expenditure sought to be deducted in assessing Th
..
Excess Profits Tax liability must be adjudged in the 0; £~;:,;"~'.;:;:;'
light of commercial expediency.
The payments made Tax. Hyderabad
by the assessees were in discharge of obligation imposv.
ed lawfully and were necessary for the proper conduct M /s. s. R. v. G.
of the business.
By s. 10 of the Madras General Sales Pms Company,
Kurnool
Tax Act, the assessees were obliged within 15 clays
from the date of service of the notice of assessment to
pay tax and in default, the amount was liable to be
recovered as if it were an arrear of land revenue.
Again, by s. 15, if the assessees failed to submit the
return as required by the provisions of the Act or the
rules made thereunder or failed to pay the tax within
the time prescribed, they were liable to be penalised.
Payments made in satisfaction of liability which
arises by virtue of the assessment made by the Sales
Tax Officer cannot be called unreasonable. Payment
of sales-tax as assessed being obligatory and necessary
for the purpose of carrying on the business, it must in
our opinion be deemed to satisfy the requirements of
r. 12 of Sch. 1 of the Excess Profits Tax Act .
The Excess Profits Tax Officer was, in our opinion,
in error in thinking that the tax paid was in excess of
the requirements of the business. We are also of the
view that the Tribunal was in error in holding that
by seeking to deduct only the tax properly attributable to the actual turnover during the chargeable
accounting period, the Excess Profits Tax Officer was
not seeking to disturb the method of accounting which
was followed by the assessees and was accepted by
the taxing authorities for many years.
Counsel for the Commissioner submitted that the
rules relating to advance provisional assessment and
levy of tax framed under the Madras General Sales
Tax Act, 1939 were inconsistent with the provisions of
the Act and the assessees should have raised this contention and have obtained a decision from the court
before paying tax on provisional assessment and not
having clone so, payments made cannot be regarded as
either reasonable or necessary. Counsel says that in
In re M. P. Kumaraswami Raja (1), the Madras High
(1) [1955] 6 Sales Tax Cases 113.
Shah j.
238
SUPREME COURT REPORTS
[1962]
'96'
Court has declared this scheme of taxation on proviTh
C --. .
sional assessment ultra vires.
But the reasonableness
e ,ommissioner
,
of Excess Profits or the necessity of payments under r. 12 Sch. 1 of the
Tax, Hyderabad Excess Profits Tax Act must be ascertained in the
v.
light of what may be regarded as commercially
M/s. s. R. v. G. expedient and not on any legalistic considerations. It
Press Company, would not be expected of a businessman to start a
Kurnool
litigation in respect of a tax which the Legislature of
Shah J.
the State was competent to levy on the ground that
the method devised for computing the tax liability
was ultra vires. The tax was duly assessed and paid
and the reasonableness and necessity must be adjudged in the light of the circumstances then prevailing
and not in the light of subsequent developments. It
may also be noticed that since the Madras High Court's
decision in In re Kumaraswami Raja's case (1), the
Madras Legislature by the Madras General Sales Tax
Amendment Act VIII of 1955 retrospectively validated the levy. By virtue of this Act, assessments made
provisionally and the levy of the tax were to be
regarded as valid notwithstanding any initial inconsistency between the provisions of the Act and the
Rules framed thereunder. It may also be pointed
out that no such question was referred to the High
Court and not even an argument appears to have been
raised in the High Court on this question. We are of
the view that the High Court was right in answering
the question in the negative.
The appeal therefore fails and is dismissed with
costs.
Appeal dismissed.
(1) [1955] 6 Sales Tax Cases 118.
•