Gauhati High Court
India Carbon Ltd. vs Inspecting Assistant Commissioner Of ... on 22 September, 1992
Equivalent citations: [1993]200ITR759(GAUHATI)
JUDGMENT Manisana, J.
1. The facts leading to this writ application under Article 226 of the Constitution of India, in brief, are as follows. The Inspecting Assistant Commissioner of Income-tax, while making assessment for the assessment year 1984-85, added a sum of Rs. 21,98,557 stating thus :
Rs.
"Sales Tax : Out of current year's collection, an amount of Rs. 28,955 remains still to be paid on June 30, 1983. As such section 43B is attracted and the amount is added back. 28,955 Central Sales Tax : Out of current year's collection, an amount of Rs. 21,69,602 remains still to be paid on June 30, 1983. As such, section 43B is also attracted and the amount is added back. 21,69,602 21,98,557".
2. The amount of sales tax appeared in the balance-sheet on the liabilities side to the income of the petitioner-company. The petitioner did not claim the added amount as deduction ; nor did he charge it to the profit and loss account. It appears that the addition was made in view of the provisions under Section 43B of the Income-tax Act. Section 43B introduced by the Finance Act, 1983, with effect from April 1, 1984, provides, inter alia, that a deduction in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed from the income of the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay such sum was incurred.
3. Mr. A.K. Saraf, learned counsel for the petitioner, has submitted that Section 43B shall apply only when an assessee claims deduction in respect of any sum payable by the assessee by way of tax or duty payable under any law for the time being in force and, therefore, the Inspecting Assistant Commissioner of Income-tax could not make an order for addition. In support of his contention Mr. Saraf has relied on a decision of the Allahabad High Court reported as CIT v. S. B. Foundry [1990] 185 ITR 555.
4. The question which arises for consideration is whether, on the facts and in the circumstances of the case, Section 43B shall apply.
5. Section 43B declares that taxes and duties shall not be allowed as deduction from the income unless they are actually paid. It removes the doubt as to the meaning of the word "paid" according to the method Of accounting regularly employed by an assessee, in so far as deduction claimed in respect of any sum payable by way of tax or duty. The declaration does not, however, place any restriction on the business activities and on the system of accounting. Therefore, Section 43B shall only be attracted when the assessee claims deduction for any sum payable by way of tax or duty under any law for the time being in force, and, as such, where no such deduction is claimed nor charge made to the profit or loss account, there was no question of disallowing the amount taken to the balance sheet on the liabilities side as well as of "add back".
6. At this stage it will be helpful to refer to CIT v. S. B. Foundry [1990] 185 ITR 555 (All). In that case, the Income tax Officer added a sum of Rs. 10,003 with the following remarks (at page 555) : "Balance-sheet tallies at Rs. 10,42,319. Liabilities of Rs. 8,312 and Rs. 1,961 are shown as the U. P. Sales Tax and Central Sales Tax, the same shall be added under Section 43B". The appellate authority deleted the addition by giving a finding that (at page 556) "the addition is on the finding that the assessee had not claimed the disputed amount as deduction nor had it charged that amount to the profit and loss account". In that fact-position, the High Court approved the Tribunal's conclusion that there was no question of disallowing the amount taken to the balance-sheet on the liabilities side and, in those circumstances, the question of any "add back" from the profit and loss account did not arise. I respectfully agree with the decision and it supports the view taken by me.
7. Mr. Senapati, learned counsel for the respondents, has contended that the taxes collected by the assessee formed part of the business or trading receipts and, therefore, they were to be included as income under Section 28 of the Income-tax Act, and as such, the addition was rightly made. In Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542, the Supreme Court has held that the amount realised or collected as sales tax by the assessee in the course of its business formed part of the trading or business receipts and that it had to be included in the income. The Supreme Court further held that the assessee would be entitled to claim deduction of the amount as and when the assessee paid it to the State Government. The principle laid down in Chowringhee Sales Bureau [1973] 87 ITR 542 (SC) was reiterated in the case of Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC).
8. In the present case, the question is whether Section 43B shall apply and not the question whether or not the sales tax collected formed part of the business or trading receipts. What would be the effect of showing such sum as payable by way of tax on the liabilities side in the balance sheet without actually paying the same is a different question. That question is not before me.
9. For the foregoing reasons, the petition is allowed and the addition is quashed. The petition is disposed of with the aforesaid observations.