GEORGE CHERIYAN, VICE-PRESIDENT This appeal by assessee which relates to asst. yr. 1982-83 has come up for hearing in terms of directions of Bench in its order dt. 19th Jan., 1987 in stay application. three specific grounds urged in appeal are as under: "1 On facts and circumstances of case, CIT (A) has legally erred in rejecting claim of appellant to be treated as "Industrial Company" within meaning of s. 2(7)(c) of Finance Act, 1982 for purpose of confessional rate of tax applicable to Industrial company. On facts and circumstances of case, CIT (A) has legally erred i n upholding addition of Rs. 84,95,504 made by IAC (Assessment) in respect of Hotel Receipts tax collected by assessee under provisions of Hotel Receipts Tax Act. On facts and circumstances of case, CIT (A) has legally erred in upholding order of IAC(Assessment) rejecting applicant s claim for deduction in respect of investment allowance under s. 32A of IT Act, 1961 amounting to Rs. 348,648." At hearing ld. counsel for assessee submitted that he was not pressing first ground since it is of academic interest. assessee will, therefore, not be entitled to any relief in respect of this ground. We now take up for consideration first third grounds which relates to non-allowance as deduction of investment allowance claim under s. 32A of IT Act, 1961. break up of items in respect of which investment allowance is claimed, is given in assessment order and is as under: "1. Sanitary installation Rs. 35,644 Air Conditioner plant Rs. 2,08,817 Kitchen Equipment Rs. 8,63,211 Misc. Plant & Machinery Rs. 1,72,583 Music instruments Rs. 1,14,335 Rs. 13,94,590 Investment allowance @ 25% Rs. 3, 48,648" IAC (Assessment) in assessment order has stated that Kerala High Court in case of Casino Private Ltd, (1973) 91 ITR 289 (Ker) had held that hotel is mainly trading concern. It would not be appropriate in ordinary sense to refer to production of food materials in hotel as manufacture and company which carried on such activity would not fall within definition of Industrial Company". Thereafter, IAC (Assessment) observed: ".........The main activity of assessee company is hiring of rooms which does not involve any manufacture or production of good. running of restaurant is only allied service to supplement main activity of letting out of rooms and hence it cannot change character of business activity to company into industrial company. representative of assessee has argued that food served in hotel amounted to at least "Processing of goods" if not manufacturing of goods and hence investment allowance should be allowed on various items of plant & machinery. This ground of representative of assessee is again not tenable as there is distinction between plant and machinery entitled for depreciation and that entitled for investment allowance. Investment allowance as per s. 32A is admissible on "any machinery or plant installed in any other industrial under taking for purpose of business of construction, manufacture or production of any article or thing, not being article or thing specified, in list in Eleventh Schedule. Thus for claiming investment allowance, plant and machinery should be used for manufacturing or production of goods. Here it is significant to point out that "processing of goods" has been excluded from entitlement of investment allowance. Further even for argument sake, if it is presumed that investment allowance is admissible to assessee company, non of items of which investment allowance has been claimed come within definition of plant and machinery. sanitary installation are part and parcel of hotel building. Similar is case with reference to air conditioning plant and mis. Plant and machinery. music instruments are not used for production or manufacturing any article or thing. kitchen equipments are used for allied services of serving food by processing raw food products and it cannot be said that such equipments are plant and machinery used for manufacturing or production of any article or thing. Hence investment allowance is not admissible to assessee company." assessee in appeal before CIT (A) had submitted that it owns n industrial undertaking which produces articles or things. submission of assessee was that IAC (Assessment) had relied upon decision of Kerala High Court in case of Kasibo Private Ltd. (supra) and rejected claim of assessee. assessee, however, submitted that there was decision of Supreme Court in case of 156 ITR (further citation not given)(sic) to effect that sanitary installations are also plant and further decision of Tribunal, Delhi Bench C in case of Orient Express Co. (P) Ltd. vs. IAC (1985) 23 TTJ (Del) 597: (1985) 14 ITD 506 (Del) supported its case. CIT (A) stated that assessee s claim had been considered by him at length in case of asst. yr. 1980-81 and for reasons given therein, claim was rejected. He, therefore, did not proceed to examine position from factual aspect. Annexure gives position relating to claim of investment allowance by assessee, that allowed by ITO, IAC (Assessment), by CIT (A), etc. It is seen that in asst. yr. 1979-80 investment allowance was allowed on some of assets by IAC (Assessment) and on balance by CIT (A) and thus for these two years assessee s claim stood allowed in full after first appellate decision. In asst. yr. 1980-81 ITO allowed investment allowance on air-conditioning plant and miscellaneous plant and machinery of Rs. 7,27,163 as against claim of Rs. 10,48,284. Before CIT (A) balance of claim as pressed. After referring to assets in respect of which investment allowance was allowed by ITO and after specifying those assets in respect of which ITO held investment allowance was not admissible, referred to contention of assessee that all items were integral parts of plant and machinery and none of items was part of office appliances or road transport vehicles. assessee had also contended that provisions of s. 32A(2) of Act could not be interpreted to mean that each item of plant and machinery should manufacture or produce articles or things. assessee had also urged that following decision in case of CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480: (1971) 83 ITR 44 (SC) sanitary installations were plant and machinery. assessee had contended that most of electrical installations were in kitchen and assessee had three restaurants and had relied on order of Tribunal where hotel was treated as industrial company. assessee stressed that articles in kitchen were not in nature of furniture. CIT (A) went on to observe that contentions of assessee were to be examined and that stated that even if sanitary fittings and electrical equipments and kitchen gadgets were parts of plant and machinery, assessee had to be industrial undertaking if investment allowance was to be allowed. After observing that decision of Supreme Court in case of CIT vs. Taj Mahal Hotel (supra) did not deal with case where hotel was held to be industrial undertaking and stating that decision of Tribunal in case of Berry s Hotel (P.) Ltd. was decided on different facts, CIT (A) referred to decision of Kerala High Court in case of Casino Private Ltd. (supra) already adverted to by us and finally stating that assessee had not brought any direct authority whereby it could be considered to be industrial undertaking. CIT (A) rejected claim of assessee in respect of investment allowance on those items on which investment allowance had not been allowed by ITO. assessee has filed appeal to Tribunal pleading for allowance of investment allowance on those items in respect of which CIT (A) declined to accede to assessee s claim. In relation to assessment year now under consideration, CIT (A) has based his decision on that for asst. yr. 1980-81. In that order as we have already stated on facts, assessee s claim stood allowed in part after decision of first appellate stage. For asst. yr. 1981-82 for sake of completeness, we may state that claim of assessee for allowance of investment allowance was to extend of Rs. 17,49,100 and ITO allowed investment allowance on air-conditioning plant to extent of Rs. 5,03,407 on miscellaneous plant and machinery to extent of Rs. 3,72,880, making aggregate allowance of Rs. 8,76,295, In first appeal relating to claim to extent disallowed, assessee did not succeed and filed further appeal before Tribunal. Administrative Commissioner, we find, had also passed order under s. 263 of Act, whereby he noticed that ITO had allowed assessee s claim to extent of Rs. 8,76,291. According to him, assessee was prima facie not entitled to such allowance. After stating that where judicial pronouncements inpliedly in favour of Department and, therefore ITO s action was erroneous on point, we find that CIT eventually, set aside assessment on point and directed IAC (Assessment ) who was having jurisdiction, to give assessee opportunity to argue its case both on facts and on law and pass fresh assessment under law. He also mentioned that out of abundant caution it was directed that IAC(Assessment) shall not adjudicate upon points grounds on which appellate order was already available. This order of CIT under s. 263 of Act which deals with order/points also is stated to be under approval before Tribunal. In current year, investment allowance has been disallowed on all items. For assessment year under consideration IAC(Assessment) apart from holding that assessee was not entitled to investment allowance had given certain reasons as to why investment allowance was not admissible in respect of various different assets on assumption for argument sake that there was no bar to grant of investment allowance looking to nature of business of assessee. We find in order dt. 3rd October 1986 in stay proceedings in We find in order dt. 3rd October 1986 in stay proceedings in present case there is reference to stay order obtained from Supreme Court in case of Indian Hotels Co. Ltd. on basis of which it was considered at that stage that present appeals perhaps could not be proceeded with straightway. We have looked into records of case referred to. questions specifically referred to in I.T.A. No. 911/Bom/1980 to Special Bench were as under: '1. Whether assessee who is running separate establishment which prepares food stuffs of standard required in international air flights could be considered as Industrial Under taking? and Whether such undertaking would be entitled to deduction under s. 80J(4) although there is separate provision for hotels in s. 80J(6)? It may be that in case where appeal is referred to Special Bench for some of earlier years which were before Division Bench in which also there was stay granted by Supreme Court, question of grant of investment allowance as such to hotel may be figuring. Such general issue figures in another case which was directed to be listed before Special Bench (ITA No. 6309/83). However, on detailed examination of facts in this case which we have set out we consider it both desirable and essential looking to treatment accorded to grant of investment allowance on different assets from year to year that there should be even at earliest stage, adjudication asset-wise as to whether investment allowance is admissible or nor on examination to be made assuming that there is no general bar to grant o f investment allowance to assessee based on solely nature of business carried on. In present case, there is no such adjudication by CIT (A) for assessment year under consideration since he only followed his order for asst. yr. 1980-81 where in respect of some of items investment allowance already stood allowed though there has been discussion in order of assessment this year why in respect of particular assets investment allowance was not admissible even assuming there was no general bar. We should, therefore, set aside finding of CIT (A) in relation to grant of investment allowance and restore matter to his file. He should consider submissions of assessee and Revenue with reference to various decision of Courts, Tribunal etc. on point and would decide issue afresh by first adjudications whether investment allowance is admissible or not with reference to each item on which said allowance is claimed, on assumption that there is no general bar to grant of investment allowance and thereafter pronounce on plea which may be canvassed for and on behalf of Revenue that in any event, investment allowance is not admissible at all in case of assessee looking to business and other activities carried on. At hearing before us on behalf of assessee ld. counsel has given specific under taking that assessee will not claim any refund in respect of amount of investment allowance which stands disallowed as at present and on which tax is said to have been paid, till matter is finally readjudicated upon by CIT (A) in terms of our aforesaid directions. We now come to ground relating to add back of amount of Rs. 84,95,504 which was collected by assessee as hotel receipts tax in assessment made as representing assessee s income for this assessment year. We would briefly advert to Hotel Receipts Tax Act, 1980. This Act (the statute appears in (1981) 127 ITR (St) 19 to 34) received assent of President on 9th December, 1980. There are certain definition incorporated in s. 2 of Act and where there are no specific definitions in said Act, s. 2(11) provides that all other words and expressions would have meaning defined in IT Act. Broadly under s. 3 Act was to apply to all hotels wherein room charges for residential accommodation provided to any person at any time, during previous year exceeded Rs. 75 or more per individual. tax authorities to administer Act were IT authorities. Sec. 5 related to charge of tax and first assessment year was asst. yr. 1981-82. tax was liveable at 15 per cent of chargeable receipts which broadly referred to all collections of hotel in terms of s. 6. Sec. 7 provides for certain deductions in computation of chargeable receipts and there was also rebate under other provisions of Act in percentage of tax to be levied in respect of receipts in form of foreign exchange. Under provisions of s. 7(3) chargeable receipts received before expiry of one month from end of month in which Act came into force was not to be taken into account. Thus only chargeable receipts from 1st February 1981 was to be taken into account. There are other provisions of Act relating to filing of returns making of assessments, advance payment of tax, penalties, etc. There is also in particular one provision, i.e., s. 21 which reads as under (1981) 127 ITR (ST) 29" "21. Hotel receipts tax deductible in computing total income under IT Act Notwithstanding anything contained in IT Act in computing income chargeable to income tax under said Profits and gains of business or profession in case of assessee carrying on business of hotel to which this Act applies, hotel receipts tax payable by assessee for any assessment year shall deductible from profits and gains of business of hotel assessable with assessment year." Explanatory Notes on this tax were contained in Board Circular No. 313 dt. 4th September 1981 which appears in Statutes portion pages 1 to 12 of (1982) 133 ITR. assessee in period 1st February 1981 to 31st March 1981 collected hotel receipts tax of Rs. 14,55,241. In period 1st April 1981 to 31st March 1982 collections came to Rs. 84,95,503 which was amount brought to tax by ITO in this year making aggregate of Rs. 99,40,744. If we go to printed accounts of year, we find that current liabilities as exhibited in Balance Sheet at page 17 of printed accounts is Rs. 2,33,41,692. Details have been given in Schedule G and one of components thereof is sundry creditors of Rs. 2,21,24,506. Again break up of sundry creditors has been furnished before us into trade creditors of Rs. 46,96,951 outstanding liabilities of Rs. 51,41,395 and other liabilities of Rs. 1,29,86,159. amount of Rs. 1,29,86,159 include amount described as Surcharge (HRT) of Rs. 99,50,744." This amount of Rs. 99,50,744 as already stated includes amount of Rs. 99,50,744 as already stated includes amount Rs. 84,95,503. Thus in account, assessee had only exhibited amount of Rs. 84,85,503 as liability in Balance Sheet and had not claimed any deduction thereof in Profit & Loss Account of year. gross receipts of hotel as shown in Profit & Loss Account in printed accounts of at page 80 is Rs. 5,84,38,085. Out of this, break up is given in Schedule I at page 19 and receipt relating to sale of food, beverages, room rents, etc. came to Rs. 5,66,05,437. If broadly calculation is made at 50 per cent of last mentioned figure, amount of tax would be Rs. 2,84,90,815. slight deference, it was stated, was due to actual calculations made from time to time. assessee had also filed sample bills to show that in Bills H.R. Tax was bring shown separately and instance is Bill Not. 40996 for period 6th January 1982 onwards. We would now set out contents of orders of Supreme Court in matter of Writ Petition presented by assessee along with some other hoteliers in relation to Hotel Receipts tax challenging vires thereof. first order is dt. 29th Jan. 1981 and read as under: "Issue Rule Nisi in Writ Petitions and Special Leave to appeal is granted in SLPs. Pending hearing of Stay Applans. On 13th February 1981, we grant interim stay of operation of Hotel Receipts Tax Act. 1980. IT i s unnecessary to add but we may clarify that in event of petitioners failing in matters they will be liable to apply tax irrespective of fact whether they have collected from customers or not." On 13th February 1981 order passed was: "Upon hearing counsel, Court confirmed stay. Liberty to mention for early date." On 17th August 1981 Court passed following order: "Stay on condition that petitioners will be at liberty to collect tax but tax so collected shall be deposited in this Court for every quarter along with statement of persons from whom tax is collected. deposit will be made within one month of every quarter, first of such quarters will begin from October 1, 1981. order passed by us on January, 29, 1981 in W.P. Nos. October 1, 1981. order passed by us on January, 29, 1981 in W.P. Nos. 254-261/81, etc. etc. will stand namely: "That in event of petitioners failing in matters they will be liable to pay tax irrespective of fact whether they have collected it from customers or not." Even if petitioners do not choose to collect tax from their customers, they will still be liable under orders passed today to deposit tax due from them, as directed by us. This order will apply to all aforesaid cases." "The W.Ps. be listed for directions in last week of September, 1981." On 25th September, 1981 order was modified as under: "We modify our order dated August 17. 1981 by directing that in statement of names of persons from whom tax is collected, names of such persons alone may be given who reside in hotel at any time. names of persons who visit any of restaurants need not be given. Wps. to be listed for hearing in second week of January, 1982." On 8th January, 1982 Court passed order as follows: "Times for depositing tax is extended by two months today. List matters before Constitution Bench on March 16, 1982, subject to part heard". "On 11th January, 1982 further order was passed as follows: Upon hearing counsel, Court in rectification of order dated 8th January, 1982 directed that time for depositing tax extended by two months from due date instead of from 8th January, 1982." In terms of this last order, tax became depositable on 31st March, 1982 in respect of first quarter beginning on 1st October, 1981 in terms of judgment of Supreme Court dt. 17th August, 1981 r/w subsequent orders. Thereafter, matter came up before Supreme Court on 31st March, 1982 n d 19th April, 1982 as seen from correspondence and letter of assessee s Counsel reads as under: "This is to inform you that above matter was listed before Supreme Court for direction on 19th April 1982. At time of hearing, we had pointed out to Supreme Court that matter has already been shown on Board. We also pointed out that earlier order had extended time for depositing Hotel Receipts tax collected from customers upto 31st March, 1982 in view of fact that case was directed to be listed for hearing on 16th March, 1982. intention being that time should be extended beyond date of hearing so that Court may hear matter and decide accordingly. However, due to earlier matters, case could be taken up for hearing on 16th March, 1982 and is still on Board. We requested Court to extend time for depositing Hotel Receipts Tax till hearing of Petition. In accordance with our request, Hon ble Supreme Court has directed that time for depositing Hotel Receipts tax in Supreme Court be extended till further orders. In view of this. you are not required to deposit amount immediately". There was circular letter dt. 27th April, 1982 issued by Federation of Hotel & Restaurant Association of India to all Organisations and Individual Members which states as follows: "Re: Writ Petition filed in Supreme Court re: Hotel Receipts Tax Act. Please refer to our Circular No. F/RC/7/82 dated 24th March, 1982, wherein we advised you that aforesaid matter would be mentioned before Supreme Court on or about March 29, with request that time for depositing tax with Supreme Court by hotels concerned should be further extended. above matter was mentioned in Supreme Court on March 31, 1982, and Court directed that matter shall again appear on 19th April, 1982 and stay for depositing tax with Supreme Court was extended upto 20th April, 1982. matter came up for hearing before Supreme Court on 19th April, as scheduled. Mr. P.H. Parekh, Advocate, Supreme Court through whom several members have filed writ petitions, has advised us outcome of hearing on 19th in his letter to Federation President which is reproduced below for your information. We would clarify that order regarding depositing above tax with Supreme Court and stay thereof pertains to only those hotels which have obtained stay against Supreme Court." IAC in making assessment referred to Writ Petition filed in proceedings before Supreme Court in broad terms, which we have set on in details, and stated that assessee is not required to deposit any amount with Court till disposal of Writ Petition and as matter was pending, result was that assessee was using tax collected from customers for its purposes and had neither paid to Government nor refunded to customers. According to IAC, therefore, on facts, case was fully covered by ratio of decision of Supreme Court in case of Chowringhee Sales Bureau P. Ltd. 1973 CTR (SC) 44: (1973) 87 ITR 542 (SC) of which he set out Head Note as under: "The appellant, private company dealing in furniture, also acted as auctioneer. In respect of sales effected by it as auctioneer, appellant realised during relevant period, in addition to commission Rs. 32,986 as sales-tax. This amount was credited separately in its account books under head "sales-tax collection account." appellant did not pay amount of sales-tax to actual owner of goods. Nor did it deposit amount realised by it as sales tax in State Exchequer, because it took position that statutory provisions creating that liability upon it was not valid, or refund it to persons from whom it had been collected. In cash memos issued by appellant to purchasers in auction sales appellant was shown as seller: Held (i) that sum of Rs. 32,986 realised as sales-tax by appellant in its character as auctioneer formed part of its trading or business receipts, (iii) that fact that appellant credited amount received as sales- tax under head "Sales tax collection" did not make any material difference. It is true nature and quality of receipt and not head under which it is entered in account books as would prove decisive. If receipt is trading receipt, fact that it is not so shown in account books of assessee would not prevent assessing authority from treating it as trading receipt. Per curiam: appellant would, of course, be entitled to claim deduction of amount as and when it pays it to State Government." IAC then proceeded to refer to arguments of assessee that said collections could not be treated as trading receipts and even if they were treated as trading receipts, corresponding liability would have to be allowed as deduction in view of decision of Supreme Court in case of Kedarnath Jute Mfg. Co. vs. CIT (1971) 82 ITR 363 (SC). According to IAC. any amount collected in course of business was trading receipt and this was clear from subsequent judgment of Supreme Court also in case of Sinclair Murray and Co. P. Ltd. vs. CIT 1974 CTR (SC) 283: (1974) 97 ITR 615 (SC). He emphasised that amount payable could be allowed as deduction, only when actually paid and he referred to judgment of Punjab and Haryana High Court in case of Sirsa Industries vs. CIT (1983) 36 CTR (P & H) 130: (1984) 147 ITR 238 (P & H) which had considered earlier judgments of Supreme Court. assessee had also relied on certain decisions to show that liability was admissible amount and judgments relied on were those reported in Addl. CIT vs. T. Nagi Reddy & Co. (1976\) 105 ITR 669 (AP), Buddala China Venkata Rao and Co. vs. CIT (1978) 112 ITR 58 (AP) and Deepchand Shyam Sunder vs. CIT (1980) 17 CTR (All) 75: (1980) 125 ITR 724 (All). IAC held that in case of Buddala China Venkata Rao and Co. (supra) there was retrospective amendment to ST Act and therefore, liability was treated as existing. Unless there was enforceable liability, according to IAC, no deduction was permissible and in present case operation of Hotel Receipts tax had been stayed and one of pleas of assessee in Writ Petition was that Revenue should be prohibited from recovering tax from petitioners by applying provisions of Act. IAC emphasised that in view of stay, Revenue was precluded from administering Act and hence it was that no assessment was completed. He also referred to letter dt. 6th January, 1982 written to Department by assessee, relevant portion of which reads as under: "Though Hotel Receipts Tax Act. 1980 is applicable to hotel like us, where room charges exceed Rs. 75 per head per day, our hotel is not liable to pay advance-tax or file advance-tax estimate because our hotel has filed writ petition in Supreme Court challenging vires of Hotel Receipts Tax Act. Supreme Court has admitted our writ petition and granted stay order against operation of Hotel Receipts Tax Act. Therefore, until our writ petition is disposed of on merits by Supreme Court, provisions of Hotel Receipt Tax Act are not applicable to our hotel. Hence, we have not filed any estimate of advance-tax nor have we paid Hotel Receipts Tax." Finally IAC concluded. "Hence, it cannot be said that any legally enforceable liability of Hotel Receipts Tax was existing during previous year. Even in Supreme Court judgment in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) relied upon by assessee, it has been held that: "Whether assessee is entitled to particular deduction or not will depend on provisions of law relating thereto and not on view which assessee might take of his right; nor can be existence or absence of entries in his books of accounts be decisive or conclusive in matter. Thus, in present case legal position is that operation of Hotel Receipts Tax Act has been stayed by Supreme Court and hence there is no legal liability to pay Hotel Receipts tax till matter in decided by Supreme Court. voluntary act of collection of Hotel Receipts tax by assessee from its customers is part of trading receipts of assessee which assessee should incorporate in its income. It is further pertinent to mention that in case Supreme Court declares Hotel Receipts Tax Act as ultra vires, then there is no contractual liability of assessee to refund said amount of Hotel Receipts tax to its customers from whom said money was collected. representative of assessee had shown me bill on which rubber stamp was affixed stating that in case Hotel Receipts Tax Act is held as invalid, customer may collect Hotel Receipts tax on production of bill. Firstly, said rubber stamp was not affixed on any of large number of copies of bills given to me as specimen copies and secondly, no customer shall to preserving bill for so many years and come back to collect said amount. Most of customers of assessee are foreigners and they has no locus stand to claim refund. In any case, liability of Hotel Receipts tax, if any, is more than contingent liability o f Hotel Receipts tax, if any, is more than contingent liability which is dependent on so many factors. Hence, no legally enforceable liability of Hotel Receipts tax existed during year. I, therefore, treat sum of Rs. 84,95,504 collected by assessee as Hotel Receipts tax as its income for asst. yr. 1982-83. assessee shall be allowed deduction of this amount as and when it is paid to Central Government or refunded to customers." Against add back of Rs. 84,96,504, assessee appealed to CIT (A). He set out background of case to which we have already adverted. Thereafter he referred to submissions of assessee that receipts in question did not constitute trading receipt at all in view of ratio of decision of Supreme Court in case of CIT vs. Bijli Cotton Mills (P) Ltd. (1979) 8 CTR (SC)1: (1979) 116 ITR 60 (SC). Reference was also made to decision of Tribunal in case of Sri Hiranyakeshi Shahkari Karkhana Niyamit vs. 1st ito (1986) 15 ITD 343 (Mad). assessee submitted that ratio of decision in case of Chawringhee Sales Bureau (P) Ltd. (supra) had no application and case was further explained by Calcutta High Court itself in (1977) 110 ITR 385 (Cal), also case of Chowringhee Sales Bureau (P) Ltd. (supra.) assessee also contended that in terms of s. 21 of Hotels Receipts Tax Act and Circular of Board, assessee should have been allowed deduction if tax receipts were treated as trading receipts of equivalent amount. assessee emphasised that liability arose as soon as sales took place. CIT(A) considered contentions. According to CIT(A), receipts clearly constitute trading receipts and mere fact that assessee had shown amount only as liability in Balance Sheet did not make any difference. According to CIT(A), there was no conflict between decisions of Kedarnath Jute Mfg. Co. and Chowringhee Sales Bureau P. Ltd. (supra). Since operation of Hotel Receipts Tax Act stood stayed, CIT(A) stated that there was no liability of assessee to make payment of Hotel Receipts tax collected from customers to Government. Sec. 21 of said Act also, therefore, was not operative. According to CIT(A), only if assessee failed eventually before Supreme Court, amount so collected of Hotel Receipts tax would become payable and liability as far as this year was concerned, was contingent liability, not being merely in dispute, but what may be even described as standing, decided for present in favour of assessee. After referring to various judicial pronouncements, CIT(A) finally concluded that contentions of assessee to be rejected and, therefore, he upheld addition. In appeal before us, submissions of learned counsel for assessee were two-fold. His first submission was that amount which was collected by way of Hotel Receipts tax did not form part of trading receipts at all of assessee. In support of this contention, he relied on ratio of judgment of Supreme Court in case of CIT vs. Bijli Cotton Mills (P) Ltd. (1979) 116 ITR 60 (SC) as also decision in case of CIT vs. Tolly Gunge Club Ltd. 1977CTR (SC) 195: (1977) 107 ITR 776 (SC). He emphasised though hotel receipt tax was collected by assessee, it was payable to Government in event of Act being held to be intra vires and if not customers would have claim for refund of tax. fact that assessee had some discretion in relation to manner of payment, namely, because of stay obtained, or fact that assessee did not keep amounts in separate bank account, he submitted, would make no difference having regard t o observations in case of Bijli Cotton Mills (P) Ltd. (supra) of Supreme Court. In this regard, ld. Counsel also relied on decision of CIT(A) in case of M/s Savera Enterprise Pvt. Ltd. and decision of Tribunal thereon in ITA No. 2388 (Mad) of 1983 dt. 30th April, 1986. submission of ld. departmental representative was that ratio of submission of ld. departmental representative was that ratio of aforesaid judgments did not apply in terms of orders of Supreme Court since whether assessee collected money or not, in ultimate if Act was held to be intra vires only they would have to pay tax. Therefore, he submitted, tax collected was not impressed with nature of any trust and eventually, assessee was also not required to make any deposit in Court of amount and ultimate liability was dependent upon decision rendered with reference to vires of Act. We have considered submissions in this regard. In case of M/s. Savera Enterprises Pvt. Ltd. (supra) ITO had included Hotel Receipts tax as trading receipts and had allowed same as outgoing. CIT (A) came t o conclusion that amount was not trading receipt, but if it was to be excluded on that ground, he stated, deduction given would have to be withdrawn and it would not effect total income. Tribunal in its order in appeal stated that they did not think that they should embark on question whether hotel receipts tax collected by assessee was part of trading receipt or not, which would be academic, considering that possibility of issue coming up for consideration in subsequent assessment year was very remote. No doubt, there was observation that collection was subject to diversion by overriding title and could not be considered to be part of receipts of assessee on its own account. In case of M/s. Bijli Cotton Mills (P) Ltd.(supra), payment by customers was of "Dharmada" and payments from inception were validly earmarked for charity. It was taken by seller under understanding that amount would be spent for charity and in such circumstance, Supreme Court held that amount would not constitute trading receipts and assessee was under obligation to utilise amount exclusively for charitable purposes and trust could be implied. Court also observed that realisations were not part of price, or surcharge on price but payments for specific purpose of being spent on charitable purposes and they could not be regarded as trading receipts of assessee (page 74 of 116 ITR). Such is not case here. amount paid by customers, where it was collected, was debited in bills as Hotel Receipts tax, and question of assessee holding amount on trust did not in our view, arise. In case of Tollygunge Club Ltd. (supra) again decision revolved on fact that surcharge collected by club was not part of price for payment of entrance charges but was payment for specific purpose of being applied to local charitable. Here, in present case, it cannot be said that tax collected through bills was being collected for specific purpose of paying such tax. It is no doubt true that trust can be created by any language sufficient to show intention, and no technical words are necessary, and it may even be created by use of words which are primarily words of condition. Supreme Court observed in case of CIT vs. Tollygunge Club Ltd. at page 711 as under: "The only requisite which must be satisfied are that there should be purposes independent of donee to which subject-matter of gift is required to be applied and obligation on donee to satisfy these purposes." When race-goers paid surcharge to assessee, they did so for specific purpose and thereby imposed obligation on assessee to utilise it for local charities." Thereafter, Supreme Court also went to examine aspect as to whether amount collected would reach assessee as income and when it could be said to be diverted by overriding title. Court stated "The true test for determining this question is, to use words of Hidayatullah, J., in CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 at 374 (SC) whether amount sought to be deducted, in truth, reaches assessee as this income. learned Judge proceeded to explain this test in following words: "In our opinion, true test is whether amount sought to be deducted, in truth, never reached assessee as his income. Obligations, no doubt, there are in every case but it is nature of obligation which is decisive fact. There is difference between amount which person is obligated to apply out of his income and amount which by nature of obligation cannot be said to be part of income of assessee. Where by obligation income is diverted before it reached assessee, it is deductible, but where income is required to be applied to discharge obligation after such income reaches assessee, same consequence, in law, does not follow. It is first kind of payment which can truly be excused and not second. second payment is merely obligation to pay another portion of one s own income, which has been received and is since applied. first is case in which income never reaches assessee, who even if he were to collect it, does so, not as part of his income but for and on behalf of person to whom it is payable." If we view facts in light of ratio of both decisions, it is clear that Hotel Receipts tax could not be said to have been paid by buyers in manner that obligation was cast on assessee to utilise same only for purpose of payment of such tax. assessee may have had obligation to pay receipt tax but that could be out of his other receipts also. It cannot be said that there was any obligation by which receipts were delivered before it reached assessee as income. We have therefore, to hold that it has not been established that amounts collected were not trading receipts of assessee. second submission of ld. Counsel for assessee was that even i f amount was trading receipt, there was corresponding liability, which immediately accrued because assessee was maintaining accounts on mercantitle system. Considerable stress in this regard was placed on decision of Calcutta High Court in case of Chowringee Sales Bureau P. Ltd. vs. CIT. West Bengal (1977) 110 ITR 385 (Cal) where High Court had considered earlier decision of same name reported in (1972) 87 ITR 542 (SC) as well as decision in case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) which was yet another decision on which stress was placed on behalf of assessee in support of plea that if amount of receipts was treated as trading receipt simultaneously, set off should be given for equivalent amount of liability. It was pointed out that Calcutta High Court had held in that case that liability to pay sales tax arose moment sale or purchase was effected and assessee who maintained accounts on mercantile system was entitled to deduction of his estimated liability to sales tax, even though it had not been paid to sales tax authorities. On behalf of Revenue, ld. departmental representative placed reliance on decision of Supreme Court in case of Chowringhee Sales Bureau P. Ltd. vs. CIT (supra) and submitted that in any view of matter amount collected was part of trading receipts of assessee and it had to be shown as income where it was part of trading receipts. He also submitted, question of excluding amount from receipt side did not arise. Reference was made to decision of Supreme Court in case of McDowell and Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC) to state that amount paid in respect of Hotel Receipts tax was clearly part of trading receipts and gross amount was consideration paid by customer for stay in hotel. Reference was also made to decision in case of Sinclair Murray and Co. P. Ltd. vs. CIT 1974 CTR (SC) 283: (1974) 97 ITR 615 (SC), decision of Supreme Court to emphasise same proposition viz., receipts were trading receipts. Yet, another case relied on was of Punjab and Haryana (a decision of Single Judge) in case of Sirsa Industries vs. CIT(1984) 147 ITR 238 (P&H) (supra) (This case was also pressed into service by ld. departmental representative in support of his proposition that unless tax was tax paid out to Government, no deduction could be allowed even under mercantile system). ld. departmental representative then went on to stress his arguments s to why even if assessee was following mercantile system of accounting, deduction could not be allowed. cases relied on by him were: Calcutta Co. Ltd. vs. CIT (1953) 24 ITR 454 (Cal) Non Such Tea Estate Ltd. vs. CIT 1975 CIT (SC) 20: (1975) 98 ITR 189 (SC) CIT vs. Oriental Motor Car Co. P. Ltd. (1980) 16 CTR (All) 140: (1980) 124 ITR 74 (All) Addl. CIT vs. U.P. State Agro Industrial Corpn. (1982) 133 ITR 597 (All) CIT vs. West Ghousick Coal Co. Ltd. (1981) 20 CTR (Cal) 269: (1981) 20 CTR (Cal) 62 Calcutta Investment Co. Ltd. CIT (1983) 35 CTR (Cal) 200: (1983) 142 ITR 120 (Cal) CIT vs. Hindustan Housing and Land Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC). In reply, ld. Counsel for assessee, submitted that apart from receipts having to be allowed as deduction by virtue of s. 21 of Hotel Receipt Tax Act, even under IT Act, because assessee maintained accounts on mercantile basis, amount was admissible deduction. In relation to cases relied on by ld. departmental representative, ld. Counsel for assessee submitted that none of cases was similar, and in no cases was stay of Act involved. In present case, he stressed on facts that assumption should be till Act is declared ultra vires, it is inter vires of Constitution, and stay given in present case was subject to conditions, and it was clearly laid down by Supreme Court, that eventually if vires of Act was upheld then whether assessee collected amount or not, tax would have to be paid. When judgment of Supreme Court was eventually pronounced, he stated, it would date back to coming into force of Act because it would only declare law as it always stood and therefore, under mercantile system, liability would have arisen on original date itself, i.e., in previous year relevant assessment year under consideration as far as amount of Rs. 84,95,504 is concerned. We have considered rival submissions. Having regard to ratio of judgment of Supreme Court in case of Chowringhee Sales Bureau P. Ltd. (1972) 87 ITR 542 (SC) (supra) and various other cases relied on by ld. departmental representative to which we have adverted amount in present case which were included in bill described as H.R. tax really represented part of gross trading receipts of assessee. We would therefore, hold that though amount was not taken into trading account by assessee as forming part of gross trading receipts of assessee. question which now survives is whether corresponding amount has to be allowed as deduction on ground that there was liability in year though there was no payment whatsoever, either to Government or into Court or otherwise. We have carefully considered various cases relied on by ld. departmental representative to show that there was no liability which had accrued in accounting year even under mercantile system. decision i n case of Calcutta Co. Ltd. vs. CIT (Central). Calcutta (1953) 24 ITR 454 (Cal) (supra), revolved on issue whether in case of dealer in real estimated development expenses in respect of property could be allowed as deduction. Court took view, there was no settled obligation that year because, whether there would be expenditure or not was dependent upon what assessee did of its own volition in future. This decision therefore, does not help revenue. decision in case of Non Such Tea Estate Ltd. vs. CIT 1975 CTR (SC) 20: (1975) 98 ITR 189 (SC) also does not help to solve present case because that was case of absolute prohibition existing under Companies Act to appointment of managing agents without permission of Government approving appointment with retrospective effect. In view of absolute prohibition, Court held that liability arose only when approval was given though retrospectively. That principle, in our view, does not help in deciding case here. CIT vs. Oriental Motor Car Co. (P) Ltd. (1980) 124 ITR 74 (All) was case where liability was of contractual nature and arose only when it was agreed to. Such was case in Addl. CIT vs. U.P. State Agro Industrial Corporation (1982) 133 ITR 597 (All) (supra) also. In case of CIT vs. West Ghousick Coal Co. Ltd. (1981) 20 CTR (Cal) 269: (1981) 129 ITR 62 (Cal) it was case where issue as to whom royalty was payable was in dispute and State Government passed Act retrospectively and Court held that it was only from date of passing of Act that liability arose, because though claim for royalty arose initially on raising of coal, that was consequent to bargain or contract between lessee and lessor and subsequently there were doubts about same till retrospective Act w s passed which revived claim. This decision therefore, has no applicability. decision of course clearly states that legal liability cannot remain in vacuum and is authority for that general proposition in abstract. In Calcutta Investment Co. Ltd. vs. CIT (1983) 35 CTR (Cal) 200: (1983): (1983) ITR 120 (Cal) it was case where notification by Government was passed only later giving up certain claims which postponed liability. CIT vs. Hindustan Housing and Land Development Trust Ltd. (1986) 58 CTR (SC) 179: (1986) 161 ITR 524 (SC) was case of accruing of enhanced compensation and does not have bearing on question of allowance of liability. ld. departmental representative also referred to observation in Chaturvedi and Pithisaria s at page 1282 of what concept of laying out of expending in year meant even where assessee followed mercantile system of accounting. According to ld. departmental representative only expenditure for which legal liability had been incurred, could be allowed as deduction and mercantile system could never be "stretched" to embrace all sorts of provisional, notional or contingent payments. Reference was also made to observation in Commentary by Kanga & Palkhivala on Law and Practice of Income-tax at page 449 in this regard. He stated that contingent liability was generally not allowable. ld. Counsel for assessee with reference to these passages, submitted that merely because liability was disputed, it did not become contingent, where assessee followed mercantile system and re-emphasised that such was effect of decision of Supreme Court in case of Kedarnath Jute Manufacturing Co. Ltd. (1971) 8 2 ITR 363 (SC) and also observation at page 450 of Commentary by Kanga and Palhivala. As far as observation in Commentary are concerned, merely because liability is disputed it does not cease to be liability under mercantile system of accounting. In present case as far as previous year, i.e., 1st April, 1981 to 31st March, 1982 is concerned, stay granted by Supreme Court of Hotel Receipts Tax Act was in relation to particular writ petitioners and was also stay on terms. It also clearly stated repeatedly in orders of Supreme Court that petitioners in event of their failing in matters, would be liable to pay tax irrespective of fact whether they collected it from customers or not. assessee had challenged vires of Act. Supreme Court had not pronounced on such plea. effect of stay orders granted by Supreme Court was as far as petitioners were stay orders granted by Supreme Court was as far as petitioners were concerned to half machinery for qualification and enforcement as also that which required voluntary payment by way of advance tax. In event of Act being eventually declared to be intra vires Act becomes effective from date of coming into force and receipts become changeable from 1st Feb., 1981. It will not be case of any retrospective legislation being enacted by State on later date but it will be case only of Supreme Court declaring law as it always stood. It cannot therefore, be said that liability to pay hotel receipts tax as far as assessee was concerned stood extinguished in accounting period. taxable event in present case is receipt of room rent, as also other amounts received which all within purview of Hotel Receipts Tax Act. Such events continues to take place from day-to-day in previous year 1st April, 1981 to 31st March, 1982 relevant to asst. yr. 1982-83 now under consideration. As 31st March, 1982 no doubt time even for deposit into Court of receipts for quarter October, 1981 to December, 1981 stood extended to 19th April, 1982. (See letter of 27th April, 1982 of Hotel & Restaurant Association of India reproduced in para 12 of this order) As stated earlier, there can be no vacuum in legal liability. plea of assessee before Supreme Court is not that its case does not fall within purview of H.R. Tax Act, but that Act itself was ultra vires Constitution. order of Supreme Court also is that whether tax was collected or not, by assessee, from customers assessee would, in event of their failing in writ petition, be liable to pay tax, irrespective of whether they collected it from customers or not. In case of India Coffee and Tea Distributing Co. Ltd. vs. IAC (Bombay) (1986) 26 TTJ (Bom) 155: (1986) 18 ITD 120 (Bom) to which one of us, that is Judicial Member was party, it was observed after review of relevant decisions: "The facts that assessee was challenging said liability by writ petition would not make any difference in legal position. Similarly fact that High Court had granted stay of operation of order of Government would also not make any difference. This is because order of stay is interim order. By that order dispute has not been finally decided. essential question is whether in preponderance of circumstances liability can be said to be real and not imaginary ................. It is true High Court has stayed order. On account of said order of High Court, it cannot be said that liability itself had disappeared. effect of order was to postpone date of payment, if ultimately it is held rate of 60 per cent is justified." High Court of Bombay in CIT vs. Tata Chemicals Ltd. (1986) 52 CTR (Bom) 293: (1986) 162 ITR 556 (Bom) had occasion to consider ratio of judgments in case of Kedarnath Jute Co. Ltd. (supra), Chowringhee Sales Bureau Ltd. (supra), CIT vs. Sinclair Murray and Co. Ltd. (1970) 75 ITR 494 (Cal) and CIT vs. Century Enka Ltd. (1981) 130 ITR 267 (Cal). In last of cases even though no demand notice had been issued for excise liability which was disputed, Calcutta High Court held that assessee had made provision for liability in accounts maintained on mercantile basis and provision for excise duty so made is allowable deduction. Such view was approved of by Bombay High Court. In present case also even by stay orders of Supreme Court, as we have already found there was no bar to assessee collecting tax in accounting year. On other hand there was express order of Court that whether tax was collected or not if petitions failed assessee would be liable to pay tax. Court had also initially directed that whether tax was collected was to be paid commencing from October, 1981, quarter-wise, into Court. Even after stipulation for deposit was resounded from 19th April, 1982, assessee was required to file list of resident customers from whom collections were made, and copies of such specimen lists which were filed in Court, were placed before us which separately showed collections of H.R. Tax. liability therefore, which had arisen in previous year relevant to this assessment year did not stand extinguished before close of such accounting period. effect of stay order was to only postpone date of payment of already accrued and existing liability in event of petitioner ultimately failing. In event of assessee succeeding in writ petition, issues such as applicability of provisions of s. 41(1), etc. may arise. There are however, matters which fall outside our consideration in deciding present appeal, as they would fall for examination and decision on merits, should appeal, as they would fall for examination and decision on merits, should matter arise in appropriate assessment year. Hotel Receipts tax itself, we gathered stands repealed subsequent to t h i s assessment year. ld. Departmental Representative had place considerable stress on contents of assessee s letter of 6th January, 1982 (reproduced in para 14 of our order) and had submitted that assessee had stated they were not liable to pay advance tax or pay Hotel Receipts tax because on their writ petition stay had been granted. Since it is settled law that claim of assessee, or treatment afforded in accounts by assessee is not conclusive of admissibility or otherwise, of claim for deduction, argument placing reliance on this letter does not advance case of revenue. assessee maintains accounts on mercantile basis. We hold on basis of aforesaid discussion which refers to general principles of admissibility of deduction of liabilities in computing total income solely in terms of provisions of IT Act and general law (de hors specific provision of s. 21 of H.R. Tax Act which in this order we are leaving out of consideration in view of stay granted in this assessee s case) that assessee is entitled to deduction by way of set off, liability of amount of Rs. 14,95,504 against inclusion of such amount as trading receipts which inclusion is in order and which we uphold. net result is there will be reduction in total income as computed by IAC (Asst.) and upheld by CIT(A) to aforesaid extent. For sake of completeness, we may state that amount of Rs. 14,55,241 was not shown as receipt in profit and loss account for asst. yr. 1981-82 and was not brought to tax in assessment made for that year. administrative Commissioner has taken action under s. 263 and has passed n order in that regard though he had made certain observations to effect that order was erroneous on point. Eventually, assessment on that issue appears to stand set aside to IAC (Asst.) for decision in accordance with facts and after hearing arguments. appeal therefore, stands allowed in part. In view of our finding in this appeal, further petition on 27th January, 1987 in S.P. No. 62 of 1986 which was posted with this appeal becomes infructuous and is dismissed. *** PIEM HOTELS LTD. v. INSPECTING ASSISTANT COMMISSIONER