2003-VIL-347-CAL-DT

Equivalent Citation: [2003] 260 ITR 97, 180 CTR 329, 134 TAXMANN 563

CALCUTTA HIGH COURT

Date: 15.01.2003

COMMISSIONER OF INCOME-TAX

Vs

NATIONAL STANDARD DUNCAN LIMITED.

BENCH

Judge(s)  : D. K. SETH., R. N. SINHA.

JUDGMENT

The judgment of the court was delivered by

D. K. SETH J.-Leave is granted to Mr. A. K. Dey to file vakalatnama within two weeks.

The Income-tax Officer and the appellate authority disallowed the claim for deduction of a sum of Rs. 4,05,744 under section 43B of the Income-tax Act, 1961. The learned Tribunal overruled the same and allowed the deduction. The Commissioner of Income-tax, West Bengal-II, Calcutta, sought this reference under section 256(1) of the Act. The question formulated is:

"Whether, on the facts and in the circumstances of the case and having regard to rule 41D and rule 45(3) of the Bombay Sales Tax Rules, the Tribunal was right in law in deleting the disallowance of Rs. 4,05,744 under section 43B of the Act?"

In order to appreciate the question, it is necessary to refer to rule 41D and rule 45(3) of the Bombay Sales Tax Rules. Rule 41D provides for grant of draw back, set off or refund of the aggregate of the sums determined in accordance with the provisions of rule 44D in respect of purchases made by a claimant dealer on or after the notified date of any goods specified in Part II of Schedule C and used by him within the State in the manufacture of taxable goods for sale, which manufactured goods have, in fact, being sold by him Or exported by him or in the packaging of the goods so manufactured. Under rule 45, such draw back or set off or refund is available only to a registered dealer under the Bombay Sales Tax Act or under any earlier law at the time of such purchase. Under sub-rule (3), a dealer entitled to a sum by way of draw back, set off or refund or reimbursement, subject to rule 46(1), may adjust such sum against the tax payable according to the returns relating to such period. Such adjustment is permissible if the adjustable amount exceeds the tax payable with the tax payable according to the return for any subsequent period. Rule 46(1) puts some restrictions on adjustment. If any notice under section 38(4) of the Bombay Sales Tax Act is issued to a dealer for recovery of any amount pursuant to such notice, the same is to be recovered first before the adjustment is allowed.

In this case, there is nothing to indicate that a notice under section 38(4) of the Bombay Sales Tax Act has been issued to the assessee. On the other hand, from the materials it appears that the assessee is entitled to the adjustment under rule 45(3), which he may adjust by himself along with the return submitted. It is not necessary to claim such adjustment otherwise than in the return itself. There is no material to indicate any dispute regarding the entitlement of the assessee to the adjustment.

Read together, these rules provide that if an assessee pays sales tax on the purchase of raw material used for the finished product, then such assessee would be entitled to set off or adjustment of its liability to pay sales tax pay able on the sale of such finished product. The Assessing Officer and the appellate authority had found that this amount cannot be deducted under section 43B, inasmuch as, though the amount represents a liability to pay tax, the tax has not been paid though collected by the assessee. This amount was allowed to be retained by the assessee by way of adjustment or set off against the equal amount of tax paid by the assessee on the purchase of raw materials used for the product, on the sale whereof this amount was collected as sales tax. Therefore, it was not a tax payable and as such not a tax liability.

The learned Tribunal, on the other hand, had held that though not actually paid, by reason of set off or adjustment the amount is deemed to have been paid. By legal fiction, this amount is treated to have been paid by way of adjustment or set off. Therefore, it is a tax liability deductible under section 43B of the 1961 Act.

Dr. Pal had pointed out that the amount which has since been the liability, due to be paid, having been adjusted is a deemed payment amounting to actual payment within the meaning of section 43B of the Income-tax Act, 1961. He has pointed out that it is not in dispute that the actual payment by way of adjustment is claimable in the assessment year 1985-86. This liability is admitted. But by reason of rule 41D read with rule 45(3) of the Bombay Sales Tax Rules, the assessee is entitled to claim set off or adjustment of the said amount against its tax liability. Relying on the decisions in K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), wherein the object and purpose of the enactment of section 52 of the Income-tax Act as amended was discussed, he contended that the object and purpose of section 43B of the Income-tax Act is similar to that of section 52 and, therefore, the ratio laid down therein can be attracted herein. He had referred to the decision in Collector of Central Excise v. Dai Ichi Karkaria Ltd., AIR 1999 SC 3234; [1999] 112 ELT 353 (SC), and contended that once credit is allowed, the same cannot be reversed and the benefit must percolate to the assessee. Otherwise, the very purpose of the credit is defeated. He further relied on the decision reported in Kalpana Lamps and Components Ltd. v. Deputy CIT [2002] 255 ITR 491 (Mad) and G. L. Didwania v. ITO [1997] 224 ITR 687 (SC).

Learned counsel for the respondent, on the other hand, contended that the amount was never paid and was retained by the assessee. Even if any adjustment or set off is claimed, there was no actual payment. Unless there is actual payment, section 43B of the Income-tax Act does not come into play. Therefore, the assessee cannot claim any benefit thereout. Secondly, he contends that this amount was not paid within the previous year relevant for the assessment year. He claimed that this amount was paid for the earlier previous year 1983-84 relevant to the assessment year 1984-85, whereas the benefit is being claimed in the assessment year 1985-86. Thirdly, he contends that by reason of such deduction, the assessee will get the benefit of double deduction. According to him, this amount was paid while making the purchase of the raw materials used for the production and a liability to pay tax on the products sold is being adjusted or set off at the same time he is retaining the amount payable as tax, namely, the said sum of Rs. 4,05,744. Thus, once he is getting set off and then again the assessee is retaining the said sum of the tax liability.

The respondent's second contention disputing the claim relatable to the assessment year 1985-86 is no more open to him in view of the observation made in the order of reference, as it appears from page 8 of the paper book where it was observed that the amount was rightly claimed by the assessee for the assessment year 1985-86. This finding of fact bas not been challenged. Therefore, this particular question was not referred to. Once the question has not been referred under section 256(1), the same cannot be reopened even if there might be some material. The court assumes jurisdiction only on the question referred to it and not beyond. If such question is not within the reference, this court cannot assume jurisdiction with regard to such question.

The respondent's third contention relating to double deduction seems to be misapprehended. The assessee was liable to pay the tax of Rs. 4,05,744, which has been set off or adjusted. The assessee has retained the said amount in terms of rule 45(3) of the Bombay Sales Tax Rules. This is a deemed payment of the amount. This is the benefit or incentive allowed under rule 41D of the Bombay Sales Tax Rules. If this amount was paid, in that event, the liability would have been discharged. But because of this benefit given by the Bombay Sales Tax Rules, this amount was adjusted against payment allowing the assessee to retain the said amount, a benefit arising out of the Bombay Sales Tax Rules. Therefore, there is no scope for assuming that there was double deduction.

That apart, even in respect of deferment of payment of instalments, there was a circular issued by the Board that where under the incentive scheme, sales tax is payable by instalment or is deferred, even then the same would be treated to have been actually paid. If in such cases it can be treated as having been actually paid, where by way of adjustment, the payment is treated to have been made, it cannot have any other meaning than of being actually paid within the scope and ambit of section 43B. If such a proposition is accepted, it would hit at the principle of giving with one hand and taking away with the other. A somewhat similar view was taken in Dai Ichi Karkaria Ltd.'s case, AIR 1999 SC 3234; [1999] 112 ELT 353 and in Kalpana Lamps and Components Ltd.'s case [2002] 255 ITR 491 (Mad).

Section 43B of the 1961 Act provides for deduction notwithstanding anything contained in any other provision of the Act in respect of (a) "any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or..." This section is qualified by one Explanation. The Explanation explains that where deduction is allowed on the liability to pay in the assessment for the previous year when the liability was incurred, the assessee shall not be entitled to deduction in the assessment for the previous year in which the amount is actually paid. The scheme of the section makes it clear that the Legislature has left nothing unambiguous to express its intention that such deduction is allowed once, either on the actual payment or on the liability, as the case may be.

A part of the sales tax collected has since been paid. The balance has been sought for being adjusted or being set off under rule 41D read with rule 45(3) of the Bombay Sales Tax Rules. Therefore, it is to be presumed to be a deemed payment within the time to be included in the relevant assessment. The allowance is allowed in respect of the sales tax payable by the assessee, which is qualified by the Explanation to section 43B of the Income-tax Act to mean to have been actually paid or incurred. That the liability was incurred is not in dispute. In this case it has not been actually paid, but was sought to be adjusted or set off against payment of sales tax by the assessee on its purchase of raw material used for the product against which the sales tax has since been collected by the assessee on sale of the product concerned.

Now it is to be seen whether the set off or adjustment amounts to deemed payment. In other words, whether this deemed payment is a payment of the liability contemplated under section 43B of the Income-tax Act. Rule 41D of the Bombay Sales Tax Rules allowed incentive by way of exemption of sales tax to the extent of payment of sales tax on purchase of raw material used for the product. Rule 45(3) entitles the assessee to adjust or set off the amount in the return itself. It is a provision parallel to sections 199 and 245 of the Income-tax Act creating a legal fiction. Therefore, this sum, which is subject to adjustment or set off, is a liability adjusted deeming actual payment by legal fiction. The Sales Tax Rules have allowed an incentive by way of adjustment of sales tax or in other words, the liability is being adjusted as actual payment. Section 43B of the Income-tax Act allows deduction on tax payable by the assessee. When the assessee purchases raw materials, it is liable to pay purchase tax on the purchase. An equivalent of this amount is adjusted towards the liability on the sale of the product produced out of the raw materials purchased. This adjustment, by legal fiction, is deemed to be an actual payment of the tax liability. Admittedly, this amount is a tax payable. If it is a tax liability on being set off or adjusted, deemed actual payment by legal fiction, it is deductible under section 43B of the Act.

Therefore, this reference fails. The question is answered in the affirmative, in favour of the assessee. The order of the learned Tribunal is hereby affirmed.

The reference is answered in the affirmative, in favour of the assessee. The reference, therefore, fails and is dismissed. No costs.

The parties shall act on xerox signed copy of this dictated order on the usual undertaking.

 

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