TMI Blog1992 (1) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance sheet and that no deduction had been claimed in the profit and loss account in respect of the sales-tax liability and that in any case there was a corresponding liability against the receipt and as such section 43B would not be applicable. Considering the explanation furnished on behalf of the assessee as satisfactory the Income-tax Officer did not invoke provisions of section 43B in respect of outstanding sales-tax as on the close of the accounting year amounting to ₹ 26,84,153. However, in respect of outstanding liability on account of provident fund contribution and ESI, the Assessing Officer did not accept the explanation of assessee and by invoking provisions of Section 43B, addition of ₹ 3,11,638 was made. Assessee appealed to CIT(Appeals) against the addition of ₹ 3,11,638. The CIT(Appeals) while being seized of the matter felt that Section 43B was attracted in respect of the outstanding sales- tax liability of ₹ 26,84,156. He accordingly issued a show-cause notice inviting objections from the assessee as to why the income may not be enhanced by making the disallowance under section 43B by a sum of ₹ 26,84,156. Assessee objected to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. Assessee has been consistently following the system of accounting of reflecting the collections in a separate account and debiting the account as and when payments were made. This system had been accepted by the Department in the past and as such it was not open for the revenue to disturb the consistent method of accounting followed by the assessee, it was contended. When assessee had not claimed deduction in the profit and loss account, provisions of section 43B could not be invoked. 5. Referring to the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT (1973) 87 ITR 542and another- decision in the case of Sinclair Murray Co. (P.) Ltd. v. CIT (1974) 97 ITR 615 (SC), learned counsel contended that these decisions are inapplicable to the facts of this case as assessee had not disputed the liability before any authority. According to the learned counsel, where the collection is made in fiduciary capacity and the liability is not disputed the collections made cannot be treated as trading receipts. Reliance was placed on the decision of the Andhra Pradesh High Court in the case of CIT v. Devatha Chandraiah Sons (1985) 154 ITR 893. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year of payment. 7. In respect of employers'; contribution to provident fund account and ESI account Shri Monga reiterated the contentions as in respect of sales-tax and pleaded that no addition was warranted. 8. The learned Departmental Representative relied upon the orders of the revenue authorities. 9. We have given our careful consideration to the rival contentions. The issue before us is as to whether the amount of sales-tax collected by the assessee is a trading receipt and if so whether provisions of section 43B are attracted in this case. Assessee is a dealer under the provisions of the General Sales-tax Act, as well as under the Central Sales-tax Act. As and when goods are sold by the assessee, the liability to pay tax arises as held by the Hon';ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [197] 1 82 ITR 363. This is irrespective of the fact whether assessee passes on the liability to the customers or not. It is important to note that the liability under the General Sales-tax Act as well as under the Central Sales-tax Act is upon the dealer and not upon the customers. We may refer to the provisions of the Delhi Sales-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But if he agrees to buy the goods at the quoted price it is not for him to consider how it is made up. It is in these circumstances we have to consider as to whether the amount collected by the assessee from the buyers in the form of sales-tax constitutes a trading receipt. 13. Assessee has not included the collection in its books of account as a trading receipt. It has separately entered the sale-tax collections and debited the account as and when payments were made. Let us first consider as to whether the entries made in the books of account would debar the Assessing Officer from determination of the true nature of the receipt. We do not propose to deal with this issue in detail in view of two decisions of the Hon';ble Supreme Court wherein it has been laid down that entries in books of account is not determinative factors of affairs of assessees. Reference may be made to the decision in the case of Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1(SC). In this case it was held by their Lordships an under: It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er';s power to determine the true nature of receipt in the year under appeal as it is well established that the principles of estoppel do not apply to income-tax proceedings. In the past it was not important to consider the nature of the receipt nor was it necessary for the Assessing Officer to make the addition as prior to incorporation of section 43B in the Statute, assessee following mercantile system of accounting would get a deduction on account of accrued liability of sales-tax. Whereas the collections would be treated as part of the trading receipts, the same would be set off by the corresponding accrued liability. The distinguishing feature in this year is that provisions of section 43B have made it relevant and necessary for the Assessing Officer to consider the true nature of the receipt on account of sales-tax collections. 16. Having held that the entries in the books of account would not be a bar for the Assessing Officer to consider the true nature of the receipt, we now proceed to consider as to whether the amount of sales-tax collection by the assessee is in fact a trading receipt. In the case of Chowringhee Sales Bureau (P.) Ltd. (supra) assessee was a privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed period if the amount so realised exceeded the amount payable as tax or if no tax was payable in respect thereof. Even in the cases of such nature where the assessees under any circumstances were to deposit the sales-tax to the State exchequer, the Hon';ble Supreme Court held that the realisation made by the assessee was nothing but a trading receipt. The Patna High Court in the case of Tata Robins Frazer Ltd. v. CIT (1987) 165 ITR 347 held that the sales-tax collected by the assessee but not paid to the treasury was assessable as income of the assessee. Similar view was taken by the Orissa High Court in the case of CIT v. Parikh Bros. 168 ITR 362(sic). 18. The decision referred to above point towards only one direction that the recoveries of sales-tax made by the assessee, be it termed as sale price or tax, is nothing but part of the trading receipts. 19. We shall now consider as to whether in the case of Devatha Chandraiah Sons (supra) cited on behalf of the assessee, Andhra Pradesh High Court has taken a different view. In that case assessee firm acted as commission agent on behalf of the agriculturists and sold their produce. It maintained its accounts on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has received in the form of sales-tax is nothing but a trading receipt. That being so, we have now to consider as to whether provisions of section 43B are applicable in this case. 22. Under section 145 of the Income-tax Act, the profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Under the mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. Several cases had come to the notice of the Government where the tax-payers would not discharge their statutory liabilities for long periods of time. However, for the purposes of income-tax assessment they would claim the liability as a deduction on the ground that they maintained books of account on mercantile basis. To curb this practice, section 43B was incorporated w.e.f. 1-4-1984. This section provides for allowance of deduction in respect of statutory liability etc. in the year of payment. Section 43B came up for interpretation before the Andhra Pradesh High Court in the case of Srikakollu Subba Rao Co. v. Union of India (1988) 173 ITR 708. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Jamshedpur Motor Accessories Stores (supra) took a different view by holding that proviso to section 43B would be applicable retrospectively. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. (1991) 191 ITR 676has also expressed the same view as expressed by the Patna High Court. The Allahabad High Court in the case of CIT v. S.B. Foundry (1990) 185 ITR 555has declined to call for the Statement of the case against the decision of Allahabad Bench of the Tribunal holding that proviso to section 43B was applicable retrospectively. The Supreme Court has dismissed the Special Leave Petition against the decision of the Patna High Court in the case of CIT v. Jamshedpur Motor Accessories Stores, [SLP No. 11793 of 1991]. This is the position of law as on today. Since the decisions of the Delhi High Court in Sanghi Motors'; case (supra) and other cases referred to above have not been reversed by the Supreme Court and since the jurisdiction of the case falls within Delhi High Court, we are bound to follow the same and respectfully following hold that proviso to section 43B inserted w.e.f. 1-4-1988 by the Finance Act of 1987 is applicable for asst. years 1988-89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of provisions of section 43B in regard to deduction on account of sales-tax which is governed under section 43B(a). Deduction on account of employers'; contribution to any provident fund etc. is governed under section 43B(b). We may state even at the cost of repetition, that Explanation 2 to section 43B was incorporated retrospectively to come into force from 1-4-1984 by the Finance Act of 1989. This was done to overcome the decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao Co. (supra) where it was held that any sum payable would mean a sum for which assessee had incurred the liability to pay the amount during the previous year. It is noteworthy that Explanation 2 refers to clause (a) of section 43B only and not to other sub-clauses. It seems that the Legislature intended to exclude clause (b) from the rigours of Explanation 2 as otherwise the Legislature would have used the words for the purposes of this section ';any sum payable'; would mean?? . In the Explanation it has specifically been mentioned that for the purposes of clause (a) ';any sum payable'; would mean?? . We are thus of the considered view that Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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