1986-VIL-81-ITAT-AHM

Equivalent Citation: ITD 018, 593, TTJ 026, 517,

Income Tax Appellate Tribunal AHMEDABAD

Date: 01.07.1986

INCOME-TAX OFFICER.

Vs

THAKERSI BABUBHAI & CO.

BENCH

Member(s)  : U. T. SHAH., P. J. GORADIA.

JUDGMENT

Per Shri U. T. Shah, Judicial Member - The revenue has come up in appeal with the following grounds :

"1. The learned Commissioner (Appeals) erred in law and on facts in holding that since the assessee has not claimed Rs. 66,084 as trading liability in the profit and loss account, disallowance of this amount under section 43B of the Income-tax Act, 1961 was not in order.

2. The learned Commissioner (Appeals) ought to have held that excess of sales tax collected during the year over that actually paid, represented income of the assessee liable to be taxed in its hands.

3. The learned Commissioner (Appeals) has erred in law and on the facts of the case in entertaining the appeal against the order having interest under section 215 of the Income-tax Act, 1961.

4. It is, therefore, prayed that the order of the Commissioner (Appeals) may be set aside and that of the ITO restored to that extent."

2. The assessee is a firm and carries on business of commission gents for kirana and also trades in certain commodities. The assessment year is 1984-85 and the relevant previous year in Samvat year 2039.

3. While framing the assessment under section 143(3) of the Income-tax Act, 1961 ('the Act') the ITO had added back Rs. 66,084 with the following remarks :

"During the accounting year, assessee has made provision of sales tax of Rs. 66,084. In view of the provisions of section 43B of the Income-tax Act, since this payment has not been made before the end of the accounting year, the same is disallowed."

4. Before the Commissioner (Appeals), the assessee submitted that the ITO was not justified in invoking the provisions of section 43B of the Act. In this connection, it was stated that the assessee was a commission agent and was making sales on behalf of its principals on commission basis. It was further stated that the assessee was maintaining separate sales tax account and the sales tax was never claimed as liability in profit and loss account. The assessee had shown to the Commissioner (Appeals) that the general sales tax account and the central sales tax account were separately maintained and they were directly taken to the balance sheet and that no amount on account of sales tax was debited to the profit and loss account except those where the assessee had affected sales in its own business. It was, therefore, argued before the Commissioner (Appeals) that since Rs. 66,084 was neither debited to the profit and loss account nor claimed as a deduction, the provisions of section 43B would not be applicable in its case. The Commissioner (Appeals) accepted the assessee's contention and deleted Rs. 66,084 from the total income of the assessee in the following manner :

"There is much substance what the learned counsel of the assessee says. Since the assessee has not claimed Rs. 66,084 as trading liability in the profit and loss account, disallowance of the same under section 43B is not in order. The addition of Rs. 66,084 is, therefore, deleted."

Consequently, the Commissioner (Appeals) directed the ITO to recalculate the interest chargeable under section 215 of the Act, after deleting the addition of Rs. 66,084 from the total income of the assessee.

5. Being aggrieved by the order of the Commissioner (Appeals), the revenue has come up in appeal with the grounds already mentioned above. At the outset, the learned counsel for the assessee submitted that since the issue raised in ground No. 2 above does not arise either from the assessment order or from the appellate order, the revenue should not be allowed to agitate the same for first time before the Tribunal.

6. The learned representative for the department strongly argued that since the assessee had collected sales tax and had not paid over the same to the Government, the sales tax so collected would be a revenue receipt. It was, therefore, urged that just because the assessee had not credited the sales tax collected or debited, the sales tax payable by it to the profit and loss account, the nature of the sales tax collected would not alter and, therefore, Rs. 66,084 would form part of the total income of the assessee. According to him, in deciding the issue in the present appeal, we have to see the substance of the matter and not the form. In support of his submission, he strongly relied on the decision of the Hon'ble Supreme Court in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615. He also referred to the decision of the Hon'ble Supreme Court in the case of Mcdowell & Co. Ltd. v. CIT [1985] 154 ITR 148, more particularly, the observations at p. 165. He, therefore, urged that we should reverse the order of the Commissioner (Appeals). As regards the issue of charging interest under section 215, he relied on the order of the ITO.

7. The learned counsel for the assessee strongly supported the order of the Commissioner (Appeals). He once again submitted that since the issue raised in ground No. 2 above does not arise out of the orders of the income-tax authorities, the same should not be dealt with. In other words, he wanted to impress upon us that the department should not be allowed to make an entirely a different case which was never in the mind of the ITO. In this connection, he invited our attention to the relevant portion of the order of the ITO (reproduced above) and highlighted the fact that the ITO had made addition of Rs. 66,084 by invoking the provisions of section 43B. Thereafter, he submitted that the provisions of section 43B were brought on the statute in order to nullify the ratio laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. In this connection, he invited our attention to the Finance Minister's speech in connection with the presentation of the Budget for 1983-84, the relevant portion of which reads as under :

"Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid ...."

He also invited our attention to the relevant portion of the memorandum explaining the provisions in the Finance Bill, 1983, which reads as under :

"Disallowance of unpaid statutory liability

59. Under the Income-tax Act, profits and gains of business and profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated, under the mercantile system of accounting, income and outgo are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts. For the purposes of computation of profits and gains of business and profession, the Income-tax Act defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed.

60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by the way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him.

61. This amendment takes effect from 1st April, 1984, and will accordingly apply in relation to the assessment year 1984-85 and subsequent years."

He, therefore, urged that since the assessee had never claimed deduction of Rs. 66,084 inasmuch as the said amount was not debited in the profit and loss account by way of provision, the provisions of section 43B were wrongly invoked by the ITO. Thereafter, he invited our attention to section 2(5) and section 17 of the Gujarat Sales Tax Act, with a view to impress upon us that but for the provisions of section 17, the assessee being a commission agent, would not be required to collect sales tax on behalf of its principals. Even assuming for the sake of arguments that we should consider the decision in the case of Chowringhee Sales Bureau (P.) Ltd., the learned counsel for the assessee vehemently argued that since the facts and circumstances obtaining in the instant case are clearly distinguishable from the facts and circumstances obtaining in that case, the ratio laid down in that case is not at all applicable in the present case. In this connection, he invited our attention to the observation which read as under :

"It is apparent from the order of the Appellate Assistant Commissioner and has not been disputed before us in the present case that in the cash memos issued by the appellant to the purchasers in the auction sale it was the appellant who was shown as the seller. The amount realised by the appellant from the purchasers included sales tax. The appellant, however, did not pay the amount of sales tax to the actual owner of the goods auctioned because the statutory liability for the payment of that sales tax was that of the appellant. The appellant company did not also deposit the amount realised by it as sales tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid. As the amount of sales tax was received by the appellant in its character as an auctioneer, the amount, in our view, should be held to form part of its trading or business receipt. The appellant would, of course, be entitled to claim deduction of the amount a and when it pays it to the State Government."

and submitted that since in the instant case, the assessee had paid the first three installments of the sales tax recovered on behalf of its principals in the relevant previous year itself and paid the fourth installment in the immediately subsequent year, the assessee's case cannot be brought within the ratio of the said decision of the Hon'ble Supreme Court. He also made a statement at the bar that even though the assessee has paid Rs. 66,084 in the subsequent year, it had never claimed deduction in this regard in computing its total income for that year. It was, therefore, urged that in any view of the matter, we should uphold the order of the Commissioner (Appeals).

8. We have carefully considered the rival submissions of the parties as well as the material already brought on record and we do not find any merit in the appeal preferred by the revenue. It would appear from the relevant portion of the order of the ITO (reproduced above) that he made addition of Rs. 66,084 by invoking the provisions of section 43B, which are not at all applicable in the instant case. It appears to us that the ITO has failed to comprehend the provisions of section 43B, which were brought on the statute in the relevant assessment year. It is pertinent to note that in the instant case, the assessee has never claimed in the past several years as well as in the year under appeal and in the subsequent years, the deduction on account of payment of sales tax collected on behalf of its principals as a commission agent. Again, the assessee has never challenged that it was not liable to collect sales tax on behalf of its principals. Further, it is not in dispute that under the provisions of the State Sales Tax Act, the assessee is to hand over the sales tax collected by it on behalf of the principals on quarterly basis. In fact, from the material already brought on record we find that the assessee had paid sales tax of the first three quarters in the previous year relevant to the assessment year under appeal and has not claimed deduction in this regard. The amount involved in the fourth quarter is Rs. 66,084, which the assessee had paid in the subsequent year and in this respect also, it has not claimed deduction in computing its total income in the assessment year 1985-86. We entirely agree with the submissions made on behalf of the assessee that keeping in mind the aforesaid speech of the Finance Minister as well as memorandum explaining the provisions of section 43B, the ITO could not have invoked the provisions of that section in the manner he did in the instant case. It is also pertinent to note that the assessee has paid sales tax in respect of its own other business in the relevant previous year and has debited the same in the profit and loss account and the ITO has allowed the same as a deductible item. For all these reasons, we have no hesitation in upholding the order of the Commissioner (Appeals).

9. In the result, the appeals is dismissed.

 

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