TMI Blog1992 (6) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... penses and half the depreciation on motor car. Admittedly, the assessee was having one motor car bearing No. TNG-5139. One of the partners of the assessee-firm was stated to be having another car bearing No. APQ-6500. It was the claim of the assessee that since one of the partners have got separate car for him it would be used for personal purposes and there is no necessity for the firm's car being used for personal purposes of the partners. The ITO negatived this contention on the ground that if the contention of the assessee is correct, the assessee would not have disallowed half of the motor car expenses voluntarily while filing the IT statement. The very fact that the assessee firm itself had disallowed voluntarily half of the motor car expenses would show that the firm's car would have been used by the partners for their personal purposes also and hence disallowance of half of the depreciation on the written down value of the car for assessment year 1982-83 is both reasonable and logical. The learned CIT(A) in the appeal before him also confirmed the decision of the ITO. On going through the records the learned CIT(A) held that the assessee himself voluntarily disallowed a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. For purposes of sales-tax, the assessee-firm opted Raichur as the place for its sales-tax assessment. The turnover pertaining to Bellari and that of Raichur is assessed for sales-tax at Raichur itself under a combined assessment. The assessee had made sales-tax payments both pertaining to the turnover at Bellari and Raichur through its books of account at Raichur. The sales-tax collections at Raichur for the relevant accounting year were of the order of Rs. 1,09,521. They were set off against payments made and the balance alone was claimed as expenditure and debited to Profit and Loss Account of Raichur Branch. Even in the case of Head Office at Adoni, after adjusting the sales-tax collections of Rs. 82,998 the assessee firm had debited the net amount of sales-tax to the Profit and Loss Account, prepared for the HO at Adoni. But when we come to consider the Bellari Branch accounts, it is the contention of the assessee that the sales-tax (Central Sales-tax or State Sales-tax) it was not considered to be a business receipt and it was not brought to the account books of the assessee. The sales-tax collections were exclusively kept in a separate account. As and when sales-tax paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Statute Book. The prime contention of the assessee was that since it had not claimed any deduction of the liability towards sales-tax the provisions of section 43B cannot be invoked. The assessee wanted to rely upon some Tribunal decisions of Hyderabad Bench as well as the other Benches in support of this point. It was contended that major portion of the collections made was paid to the credit of the Government of Karnataka immediately after the close of the accounting year. It was further claimed that the assessee had consistently following the system of accounts whereby sales-tax due is credited to the Sales-tax Account and the amount payable debited to the some account and the balance is taken into the balance sheet as a statutory-liability since no amount is charged to the revenue account in the Profit and Loss Account and so no deduction had been claimed. Under the circumstances, the ITO is not justified in invoking the provisions of section 43B. It is the further contention of the learned counsel for the assessee that there is no statutory obligation under the Karnataka Sales-tax Act to pay sales-tax due for the previous year within the said previous year itself. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court interpreted the words "any sum payable" under section 43B to mean a sum in respect of which assessee had not only incurred liability but also the same had become payable in that year. The Hon'ble A. P. High Court held that when liability as well as payability of the said liability do not occur in the same year section 43B has no application. That means if the part of the liability is payable outside the accounting year or beyond the accounting year, to such cases, section 43B does not apply as the substance of the A.P High Court's decision. In order to supersede the A.P. High Court's decision, Explanation-2 to section 43B was inserted, under which the words "any sum payable" in section 43B(a) were defined to mean a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. This Explanation 2 was inserted by Finance Act, 1989 with retrospective effect from 1-4-1984 itself. The effect of this Explanation is that it is enough the assessee incurred liability to pay sales-tax in the previous year even though part of the sales-tax under the provisions of sales-tax law of a particular S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tax (Amendment Act) (Act 9 of 1970) was passed. By the provisions of that Act, section 11 of the Act was substituted with retrospective effect from 1-8-1963 under which clear liability is cast on the commission agents dealing in jaggery, to pay sales-tax for and on behalf of their principals. The position argued before the High Court was that the "rusum" of Rs. 51,220 collected by the assessee in that case was not a trading receipt and under no circumstances it can be considered as income of the assessee, since there was a statutory liability which arises under section 1 of the Sales-tax Act and the said amount is ultimately to be paid to the sales-tax authorities. It was argued for the assessee in that case that the assessee was maintaining his books of account on mercantile system which brings into credit what is due, immediately it became legally due and before it is actually received and it brings into debit expenditure the amount for which the legal liability has been incurred before it is actually disbursed. Therefore, it was contended that under no circumstances, the sales-tax collections which remained with the assessee can be considered to be the income of the assessee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the tax payable becomes valuable consideration and, therefore, the sales tax collected by the dealer becomes part of the sale price. Once this position is accepted, then the sales tax collected by the dealer and not paid by him to the sales tax authorities has to be treated as business receipts. We are supported in this view by a decision of the Supreme Court in Delhi Cloth General Mills Co. Ltd. v. Commissioner of Sales Tax [1971] 28 STC 331. In Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC), the appellant was a dealer in furniture as well as an auctioneer. In respect of sales effected as auctioneer, the appellant realised a sum of Rs. 32,986 as sales tax and credited the same separately in its account books. The appellant did neither pay the amount of sales tax to the actual owner nor deposited it in the State exchequer as sales tax. It also did not refund the amount to the persons from whom it had been collected. In these circumstances, the Supreme Court held that the amount of sales tax realised by the appellant in its character as an auctioneer formed part of its trading receipts. The fact that the appellant credited the amount in his books separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee also relied upon the earlier decision of this Tribunal for assessment year 1986-87 in Bio Pharma Distributors v. ITO [IT Appeal No. 933 (Hyd.) of 1987 dated 29-12-1989], for the proposition that the unpaid sales tax collections at the end of the year should not be considered as part of trading receipts. A copy of the said order of the Tribunal is filed before us. In the operative portion of the order, the learned Division Bench held that they constitute trading receipt. The following is what is stated by them. " Such being the case, we are of the view that though the sales tax collected is part of the trading receipt, considering the matching liability against such collections and also considering the fact that certain period is allowed for the assessee to pay the tax under the relevant provisions of the Sales tax Act, it would be erroneous to tax the unpaid sales tax carried in a separate amount. " From the above, it is clear that the Tribunal did not accept the contention of the assessee that the unpaid sales tax collections did not constitute trading receipt. There are two authoritative judgments of the Hon'ble Supreme Court, in which the Hon'ble Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up or decided upon. Ultimately, the learned Third Member dismissed the MP and confirmed the order of the Tribunal deleting the opening balance of Rs. 20,685. Copy of the Third Member's order dated 14-8-1990 was filed before us. This order clearly supports the contention of the assessee. In our considered opinion, disallowance of amounts can be made under section 43B only from out of the Sales tax Collections made for the relevant accounting year in question. It does not contemplate any disallowance from out of the Collections made in an earlier accounting year. In this respect we are in complete agreement with the Learned Third Member while he passed his order in MP No. 29/H/89 dated 14-8-1990. We therefore hold that under no circumstances, the sum of Rs. 36,683 can be disallowed under section 43B and brought to tax in the hands of the assessee in the assessment year in question (84-85). The rest of the amount i.e. 78,882 (Rs. 1,15,555 - 36,683 = 78,882) should be considered as part of the trading receipts obtained by the assessee in the relevant accounting year. 8. The next question to which our present decision logically leads to is what follows if it is considered as a tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Tribunal in that case was filed before us. We have perused the order and we do not agree that the ultimate decision of the said order comes to the aid of the assessee or laid down anything in support of its present contention. The ultimate decision of the Tribunal very much turned upon the ratio of the Andhra Pradesh High Court's decision in Srikakollu Subba Rao Co.'s case, since the following is what is found in Para-6 of the Tribunal's order. " Now, therefore the only question to be seen is whether the provisions of section 43B are applicable in respect of the collections made in the last month of the previous year and the question stands decided in favour of the assessee in the decision of the Hon'ble A.P. High Court in Srikakollu Subba Rao v. Union of India [1988] 38 Taxman 272. However, in the case before us, it is not clear whether the sum of Rs. 4,770 represent the collections made in the month of March only. We, therefore, set aside the orders of the CIT(A) and direct the ITO to verify this aspect of the matter and allow the deduction in respect of such amount of collections as were made in the month of March payable in April. " Thus, in the ultimate decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years. " Therefore, it was argued that the ITO is not bound by the fact that the assessee is allowed to maintain a separate account for sales tax collections since last several years as far as Bellari Branch is concerned. Keeping out outstanding sales tax collections by the end of the accounting year does not help the ITO to arrive at the correct income, the accounts of the assessee can be rejected and there is no estoppel operating against the ITO. It is further contended by the learned Standing Counsel for the Department that the fact that the assessee did not claim any allowance or deduction with regard to the outstanding sales tax collections does not debar the Department to invoke the provisions of section 43B and apply the same to the facts of the case so long as the outstanding sales tax collections should be considered as part of the trading receipts and so long as the ITO is to arrive at the correct amount of profit derived by the assessee. That is if the ITO while arriving at the business income of the assessee is bound to allow deductions of sales t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be shown on the credit side. As and when he pays the sales tax to the authorities, he can claim deduction for the sales tax paid. In case he has to refund the sales tax to the original purchaser, who purchases the goods from him, then the amount so refunded will also be a deduction which he can claim and it must be granted to him, that being deduction on the expenditure side. Therefore, the assessee firm which was maintaining its accounts on mercantile system was bound to show as trading receipt, all the amounts which accrued due to it or which were collected by it as sales tax and it was bound to show on the debit side of the accounts, the amounts which it paid by way of sales tax. The fact that no such entries showing credits and debits in respect of sales tax collected and sales tax paid were made by the assessee firm does not alter the real substance of the transaction, nor does it alter the real character of what was required to be done by the assessee in this case. Their Lordships further held in that case as follows : " The words at the commencement of section 41(1) "where an allowance or deduction has been made in the assessment for any year" should be read as "where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. " 10. It is contended by the learned Standing Counsel that the earlier decisions of the Tribunal, relied upon by the assessee did not consider the legal position correctly or completely when they held that section 43B does not come into play at all when no deduction of the sales tax collections made was claimed by the assessee is the assessment proceedings. The earlier decision of the Tribunal if accepted, would create so many anomalies that would go against established principles that sales tax collections are part of trading receipts. That would also offend the Supreme Court's decision in British Paints India Ltd.'s case. It would also give undue advantage spokes for unscrupulous assessees to by-pass section 43B and to gain illegally there from. It would encourage evasion rather than timely compliance of payment of taxes. Therefore, the earlier Tribunal decisions referred to by the assessee's counsel should not be relied upon. 11. After evaluating the merits of the arguments on both sides, we agree with the contention of the learned Standing Counsel for the Department and having regard to the above discussions, we hold that simply because the assessee did not claim any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the provisions of section 43B. Having held that the provisions of section 43B cannot be by-passed and having held that the disallowance, if any, should be considered in the light of section 43B, we have to consider the provisions of section 43B themselves. Section 43B came into the Statute book under Finance Act of 1983 w.e.f. 1-4-1984. The necessity to introduce section 43B was stated by the Finance Minister, in his Budget speech of 1983-84 (at page 31 of 140 ITR St.) : " 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, Employee's State Insurance Scheme, etc., for long periods 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 cure 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 act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear which is an impossibility. A dealer can calculate the exact liability only after the expiry of the particular quarter and thereafter he has to file the return along with the receipted challan showing payment in terms of the return. Thus, a literal construction of the provision would be harsh, clearly unjust and also would be unworkable. That is the reason why Provisions and Explanations were subsequently added to section 43B intending them to make the provisions workable. The first proviso to section 43B was introduced by Finance Act, 1987. No doubt, the said proviso is intended to apply prospectively from 1-4-1987. Under the proviso, if an assessee paid the sales tax etc. on or before the due date applicable in his case for furnishing the return of income, he shall be entitled to claim deduction of that amount if the same has been paid on or before the due date under the relevant sales-tax law. According to the assessee, this proviso applies retrospectively since it is an explanatory proviso which brings out the real intendment of the main section. The assessee relied upon Patna High Court decision in Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee. On the question of correct interpretation of the first proviso to section 43B, we wish to point out that there is cleavage of judicial opinion with reference to retrospective operation of the first proviso to section 43B. The cleavage of opinion is recorded not only by several High Courts but also by different Benches of this Tribunal itself. The following decisions hold that the first proviso to section 43B is not at all retrospective and only prospective and apply only from assessment year 1987-88 onwards and the said proviso does not apply to assessment years 1984-85 to 1986-87. (1) Sanghi Motors v. Union of India [1991] 187 ITR 703 (Delhi). In the said decision, the following is what is held as per the head note of the decision at Page-704. " The Amendment made in section 43B by section 10 of the Finance Act, 1987, with effect from April, 1, 1988, is not clarificatory in nature and cannot be given retrospective effect from April 1, 1984. " The said decision is followed by a later Division bench of the Delhi High Court in Escorts Ltd. v. Union of India [1991] 189 ITR 81. (2) Rishi Roop Chemical Co. (P.) Ltd. v. ITO [1991] 36 ITD 35 (Delhi) (SB) in which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B was introduced, which is the same as contended by the learned counsel for the assessee, we hold that the first proviso to section 43B as introduced w.e.f. 1-4-1988 by the Finance Act, 1987, is only clarificatory in nature and therefore retrospective in effect. By holding this view, we are not doing any violence to the language of the Act for the intention of the Legislature because such interpretation would yield a harmonious construction of the main section, proviso and the Explanation. " Copy of the earlier order of this Tribunal is filed in the Paper compilation before us. 14. As against the contention of the assessee's counsel that the first proviso to section 43B introduced by Finance Act, 1987 w.e.f. 1-4-1988 is clarificatory in nature and therefore retrospective in operation, Shri Ashok, learned Standing Counsel for the department contended that the proviso having come into effect only from 1-4-1988 it comes into effect only from 1988-89 onwards and it should not be applied while disposing of the cases falling under assessment years 1984-85, 1985-86, 1986-87 and 1987-88. In a case relating to assessment year 1984-85, the proviso should not be applied to the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990] 183 ITR 1 (SC) 3. CIT v. T. V. Sundaram Iyengar Sons (P.) Ltd. [1975] 101 ITR 764 at 773 (SC). 4. Morvi Mercantile Bank Ltd. v. Union of India AIR 1965 SC 1954. He ultimately argued that there was no difficulty at all existing in section 43B. Section 43B is unambiguous in its terms. The so called ambiguity is sought to be created by the assessee. Courts cannot offend the language of the section and in support thereof, he relied upon K.M. Viswanatha Pillai v. K.M. Shanmugham Pillai AIR 1969 SC 493 and R.G. Jacob v. Republic of India AIR 1963 SC 550. It is also argued that there is an inherent feature in the proviso to section 43B which militates its being retrospective in operation. By 1988, the time for filing IT returns for assessment year 1984-85 to 1987-88 might have been over. Perhaps the intention of the Legislature to make it only prospective and not retrospective is that the settled position prevailing till 1-4-1988 should not be unsettled. It is impossible to file receipts of having paid sales tax for the last month along with the returns relating to assessment year 1984-85 to 1987-88. There is nothing like a vested right or common law right of securing an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of tax or duty, etc. liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within that previous year, the original provisions of section 43B unnecessarily involve disallowance of the payment for the last quarter. " Thus, it is clear that the above portion of the memorandum explaining the provisions of the Finance Bill, 1989 clearly recognised that the original provision of section 43B if literally interpreted would unnecessarily involve disallowance of the payment for the last quarter. Having recognised this difficulty, the Parliament in order to remove the hardship caused by the literal interpretation of section 43B introduced the first proviso by Finance Act, 1987. Thus, it is clear that the intendment of the proviso was to allow the assessee who collects sales tax etc. during the previous year and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to is to avoid inconvenience to taxpayers, reduce litigation and in that view, the spirit of Explanations 2 and 3 introduced by the Taxation Laws (Amendment) Bill, 1984, should be followed with respect to the preceding assessment years also in order to avoid unnecessary litigation ......" We see no reason to hold that the principle statutorily recognised by Explanations 2 and 3, following the decisions of some High Courts is good only from the assessment year 1985-86 and cease to be so for the preceding assessment years. In our opinion, Explanations 2 and 3 are merely clarificatory in character and must, therefore, govern upto the assessments prior to assessment year 1985-86 also. In this connection, we may also refer to another A.P. High Court decision in S. Gopal Reddy v. CIT [1990] 181 ITR 378. In that case, the retrospective nature of the first proviso to the section 54E(1) introduced w.e.f. 1-4-1984 was considered by the A. P. High Court. In that case, the land of the assessee was acquired compulsorily under the provisions of the land Acquisition Act. Possession of the property was taken on 10-1-1978. Ordinarily, in order to avail the benefits of section 54E, deposits in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the case of compulsory acquisition, the period of six months should be reckoned from the date of receipt of compensation, as and when received. In other words, the provision made by the second proviso to sub-section (1) should be deemed to have prevailed even prior to April 1, 1984. i.e., with effect from the date of enforcement of section 54E. " Their Lordships recognised the oft quoted dictum that equity and Taxation are often strangers. They have quoted the Supreme Court's decision in CIT v. J.H. Gotla [1985] 156 ITR 323 and extracted the following from that decision. " Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. " They have also followed another decision of the Supreme Court in Smt. Saroj Aggarwal v. CIT [1985] 156 ITR 497 where from the following is extracted. " Court should, whenever possible, unless prevented by the express language of any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. . . " K. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the proviso. The law as amended is applicable for the assessment year 1984-85. " It is no doubt true that the Delhi High Court has struck a different note as to the retrospective nature of the first proviso to section 43B in its judgment in Sanghi Motors' case and later followed by another decision in Escorts Ltd.'s case. 16. It may here itself be mentioned that an SLP filed against the Patna decision in Jamshedpur Motor Accessories Stores' case was dismissed by the Hon'ble Supreme Court. 17. Having regard to all the above, we hold that the contention of the learned Standing Counsel for the Department Shri Ashok that a literal construction of section 43B does not present any ambiguity or does not require any clarification and does not present any absurd result and it is fully workable and therefore the provisions of the said section do not need any interpretation or clarification that the intendment of the first proviso was not either clarificatory or make the section workable and therefore the first proviso should always be considered as prospective in nature and it would be effective only from 1-4-1984 and therefore applies only from assessment year 1984-85 onwards a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even to the facts obtaining for assessment year 1984-85. However, in the assessment order of the ITO it is mentioned that a sum of only Rs. 6,268 represents the collections made in the last month of the accounting year. However, when the last month's collection were actually paid to the sales tax authorities was not mentioned. Therefore, after due verification and ascertaining what exactly is the amount representing the last month's collections, and how much out of those collections was paid to the Karnataka State towards sales tax, Central sales tax etc. within the time allowed under the Statute, after the close of the accounting year such amount out of the last month's collections out of the total impugned amount of Rs. 1,15,555 which was found to have been paid should be allowed as deduction while computing the income of the assessee for assessment year 1984-85. 18. We have already held that the brought forward amount of Rs. 36,683.53 should not be disallowed under section 43B since it did not represent the collections made in the accounting year in question. Therefore, in the result, the appeal is partly allowed and with regard to the sum representing the last month's collec ..... 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