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2015 (5) TMI 795 - CALCUTTA HIGH COURT

2015 (5) TMI 795 - CALCUTTA HIGH COURT - TMI - Applicability of Section 43B - electricity duty collected by the assessee-company as licensee, on behalf of the State Government - Held that:- The electricity duty, not being a sum payable by the assessee as a primary liability by way of tax, duty, cess or fee, Section 43B is not attracted to the licensee/assessee in respect of electricity duty collected by it for being passed on the State Government. On this point we are in respectful disagreement .....

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to the State Government in its capacity as a principal by an agent. In the instant case, the relationship between the State and the licensee is of a principal and agent/fiduciary and not that of a sovereign and a subject.

It is not a business receipt of the licensee which the licensee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licen .....

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ANDHRA PRADESH High Court). Though the said case deals with sales tax, the principle laid down in that case supports our view. The mischief that Section 43B of the Income Tax Act intended to present, is taken care of by the provisions of the Bengal Electricity Duty Act itself. Thus We clarify that the provision of Section 43B of the Income Tax Act does not apply to the electricity duty collected by the licensee/assessee as per provisions of the Bengal Electricity Duty Act, 1935. - Decided in fav .....

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1 and 142 (Kol)/02. By the order impugned the Ld. Tribunal dismissed the assessee company s appeals against three orders all dated 31st December, 2001 passed by the Commissioner of Income Tax (A) for the assessment years 1986-87, 1987-88 and 1989-90. (2) The facts of the case, briefly stated are that the assessee company (appellant herein) did not include the unpaid electricity duty while computing disallowance to be made under Section 43 of the Income Tax Act. The electricity duty was realized .....

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to the Government during the three years under consideration. (3) On appeal by the Government the Commissioner of Income Tax (A) noted that Section 3 (1) of the Bengal Electricity Duty Act 1935 levies a charge on the customers for payment of electricity duty. According to Section 5 (1) of the said Act, in the case of energy supply by a licensee, the licensee is statutorily obliged to collect and pay to the State Government at the prescribed time and in the prescribed manner the electricity duty .....

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y preferred appeal against the Commissioner s orders before the Income Tax Tribunal. (5) In its order dated 21st October, 2003 the Ld. Tribunal observed that on a reading of the provisions of Section 5(1) of the Bengal Electricity Duty Act, 1935, it is clear that it is the obligation or duty of the licensee to pay electricity duty payable under Section 3 of the said Act in respect of the energy supplied by the licensee to the consumers unless the licensee is unable to recover his dues, i.e., the .....

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ive of whether or not the licensee recovers the amount of electricity duty from the consumers. Thus, there is a primary and clear liability of the licensee who has recovered charges for the electricity supplied by it to the consumers, to pay the electricity duty to the State Government under the said Act. The Ld. Tribunal relied on a decision of the Gujarat High Court in the case of CIT-vs.-Ahmedabad Electricity Co. Ltd. reported in (2003) 262 ITR 97. The Ld. Tribunal further observed that an am .....

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gal Electricity Duty Act, 1935 is related to the trading sphere and to the business activities of generation and supply of electricity carried on by the assesse. The Ld. Tribunal concluded that it was a liability of the assessee to pay the electricity duty to the Government and consequently the deduction of electricity duty is allowable on actual payment as per provisions of Section 43B of the Income Tax Act. With those observations the Ld. Tribunal dismissed the appeals. (6) Being aggrieved the .....

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the same is not a tax, duty, cess or fee payable by the assesseecompany and, as such, the provisions of Section 43B of the Income Tax Act are not applicable to the instant case. He contended that only the amounts which can be construed as payable by the assessee are covered by the provisions of Section 43B of the Income Tax Act. Section 43B does not cover all and every payment made by an assessee to the Government and covers only such payments which are chargeable to the assessee. Referring to .....

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or distribution of electricity and the payment of electricity duty is not a primary liability of the assesse. The assessee is merely supplying energy to the consumers and is obliged to collect the duty from the consumers and make over the same to the State Government. He further pointed out that the assessee neither includes the electricity duty collected from the consumers in the credit balance of its profit and loss account nor is the said sum payable debited to the profit and loss account. H .....

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d argued that Section 43B of the Income Tax Act is applicable only in those cases where any sum is payable by the assessee qua tax, duty cess or fee under any law for the time being in force. However, the amount in question not being an amount payable by the assessee qua tax but being an amount collected by the assesse as the agent of the State of Kerala towards the tax payable by the consumers of electricity to the State of Kerala, Section 43B has no application. The first Appellate Authority a .....

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Kerala as an agent, but not as the assessee who has a primary liability to pay tax under the Kerala Electricity Duty Act, 1963, was not accepted by the Tribunal. The Kerala High Court reversed the decision of the Tribunal. The High Court observed that the words by way of tax, etc. are relevant as they are indicative of the nature of liability. The liability to pay and corresponding authority of the State to collect the tax is essentially in the realm of the rights of the sovereign. On the other .....

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rincipal. With those observations, the Kerala High Court held that Section 43B of the Income Tax Act cannot be invoked in making the assessment of the liability of the assessee under the Income Act with regard to the amounts collected by the assessee pursuant to the obligation cast on it under Section 5 of the Kerala Electricity Duty Act, 1963. (9) Ld. Counsel for the appellant also relied on a Division Bench decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax-vs. .....

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s not able to prove that the sales made by it were on behalf of the agriculturist principals. However, if it proved that it was acting on behalf of the agriculturist principals, then such goods would be exempted from tax. After discussing various decisions of different High Courts as also of the Supreme Court, the Andhra Pradesh High Court held that the money received towards sales tax by the assessee from the purchasers was so received on behalf of the agriculturist principals and the same did .....

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oceeds of tea were not the applicant s trading receipts, the Tribunal was correct in holding that the sales tax collected by the applicant as a tea broker was its income and the amount of sales tax collected but remaining unpaid at the end of the year was disallowable under Section 43B of the Income Tax Act. This court held that the amount received towards the sales tax by the assessee from the purchasers was received on behalf of the actual owner of tea and, therefore, the same could not consti .....

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ed in (2001) 247 ITR 798. The question which arose for consideration in that case was whether the sales tax collected by the assessee, who was a commission agent, from the purchasers and paid to the Sales Tax Department as well as the amount of refund of sales tax collected by the said assessee from the Department when it was found that the sales tax was not payable, could be treated as income in the hands of the assessee and the same is liable for payment of income tax. The Hon ble Supreme Cour .....

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nder which it is taken or entered in the accounts of the assessee that would be determinative and decisive. She further contended that merely because the electricity duty was not credited in the sale account by the assessee-company in its book of account, the same would not alter or change the nature, character and quality of the amount collected by the assessee by way of electricity duty in the course of its business activities. It was further argued by the Ld. Counsel that perusal of the entir .....

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of Commissioner of Income Tax-Vs-.Ahmedabad Electricity Co. Ltd. (Supra) which was relied upon by the Ld. Tribunal as referred to hereinabove. (13) In that case, the Gujrat High Court while considering the provisions of Bombay Electricity Duty Act, 1958, observed that it is the obligation of the licensee to pay electricity duty to the Government in respect of the energy supplied by the licensee to the consumers unless the licensee is unable to recover the dues for the energy supplied by it. If t .....

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ied by him. With the aforesaid observations, the Gujrat High Court held that it could not scribe to the observations of the Tribunal that Section 43B would not be applicable to the assessee s case on the ground that the electricity duty recovered by it did not belong to it, but it was retained for a short-time as an agent of the Government. (14) We have considered the rival contentions of the parties. (15) Section 43B(a) of the Income Tax Act provides that notwithstanding anything contained in a .....

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sum is actually paid by him. The object of Section 43B was to curb the malpractice exercised by some taxpayers who did not discharge their statutory liabilities even though they claimed those liabilities as a deduction on the ground that they maintain accounts on mercantile or accrual basis. The Section was intended to apply to cases where the statutory liability remained undischarged though the assessee in such a case claimed deduction on the ground that he maintained those accounts on mercanti .....

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to the State Government a duty (hereinafter referred to as electricity duty ), on the units of energy consumed at the rates specified in the First Schedule. ……… 5(1) In the case of energy supplied by a licensee, the licensee shall collect and pay to the State Government at the prescribed time and in the prescribed manner, the electricity duty payable under Section 3 on the units of energy supplied by him to consumers. The duty so payable shall be a first charge on the amount .....

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e right of the State Government to recover the amount under Section 8, and after giving not less than seven clear days notice in writing to such person, cut off the supply of energy to such person; and may, for that purpose, exercise the power conferred on a licensee by sub-Section (1) of Section 24 of the Indian Electricity Act, 1920, for recovery of any charge or sum due in respect of energy supplied by him. …….. 8. Any sum due on account of electricity duty if not paid at the pr .....

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tate Government is that of the consumers of energy. The licensee/assessee merely acts as a collecting agent for the State Government. The licensee is obliged to collect the electricity duty from the consumers and pay the same to the State Government. The licensee merely acts as a conduit. The electricity duty is not chargeable to the licensee. If the intention of the legislature was to impose primary and absolute liability for electricity duty on the licensee, the proviso to Section 5 (1) of the .....

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ent. If the licensee recovers only the price of energy supplied from the consumers but not the electricity duty, then a secondary liability arises on the part of the licensee to make payment of the duty to the Government. However, if the licensee is unable to recover the energy charges as well as the electricity duty, there is no liability on the part of the licensee to pay any duty to the Government. (18) The wording of Section 5 (1) of the 1935 Act to the effect that when any person fails or n .....

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e in respectful disagreement with the decision of the Gujarat High Court in the case of Commissioner of Income Tax-vs.-Ahmedabad Electricity Co. Ltd. (Supra) and we are in agreement with the decision of the Kerala High Court in the case of Kerala State Electricity Board-vs.-Deputy Commissioner of Income Tax (supra). We are of the opinion that Section 43B of the Income Tax Act is attracted to a case where payment is to be made to the State Government in the capacity of the State as a sovereign an .....

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