Income Tax Appellate Tribunal - Ahmedabad
Chandulal Venichand vs Income Tax Officer on 7 May, 1991
Equivalent citations: [1991]38ITD138(AHD)
ORDER
R.L. Sangani, Judicial Member
1. These three appeals were heard together with the consent of the parties and arc being decided by this common order. There are three asscssees before us. All of them follow mercantile system of accounting.
2. The common point in these three appeals relates to interpretation of provisions of Section 43B of the Income-tax Act, 1961 as amended by the Finance Act, 1987 and the Finance Act, 1989.
3. In ITA No. 229/Ahd/1988 the assessee is firm of M/s. Chandulal Venichand carrying on business in tea leaves on wholesale basis. The assessee firm filed return of total income Rs. 41,210 for assessment year 1984-85. The Income-tax Officer noticed that sales-tax liability of Rs. 4,18,302 was outstanding in the books of the assessee.
The assessee explained that it was selling tea on commission basis and was collecting sales-tax from the parties to whom the tea was sold. The assessee maintained a separate sales-tax account. The sales-tax collected from the parties was credited and sales-tax paid to the Government was debited in this sales-tax account. The credit balance outstanding in the said account was taken to balance sheet. No amount was debited to profit and loss account and as such provisions of Section 43B of the Income-tax Act, 1961 were not applicable. The ITO observed that the sales-tax collected by the assessee amounted to trading receipt as held by the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and the sales-tax that was not paid to the Government constituted liability but in view of the provisions in Section 43B, the said liability was not allowable as deduction. Consequently, he made addition of Rs. 4,18,302 under the head "sales-tax liability". The assessee filed appeal before the CIT(A). The CIT(A) did not discuss the various submissions made before him. He merely stated that for reasons stated in the assessment order he was satisfied that no interference was called for. The assessee has now come in further appeal before us and the above mentioned addition is challenged.
4. In ITA No. 1387/Ahd/1988 the assessee is M/s Gujarat Ship Trading Corporation, Bhavnagar. The assessment year is 1985-86. Regarding collection of sales-tax the facts arc similar. The assessee maintained a separate sales-tax account in which the sales-tax collected was credited and sales-tax paid to Government was debited and the balance was taken to the balance sheet and not to profit and loss account. The outstanding credit balance of Rs. 30,006 was added in the total income of the assessee by the ITO for identical reasons under the head "unpaid sales-tax liability under Section 43B". The assessee filed appeal before the CIT(A). The CIT(A) who decided the appeal on 3-3-1988 considered the amendments made by Finance Act, 1987 with effect from 1-4-1988 in Section 43B of the Act. By said amendment first proviso was inserted in Section 43B in which it was laid down that nothing contained in Section 43B would apply in relation to sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under Sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with the return. The CIT(A) held that this proviso which was inserted with effect from 1-4-1988 was applicable for assessment year 1985-86 also. He therefore, examined whether the amount in question related to last quarter and had been paid before the due date applicable to this case for furnishing the return of income under Section 139(1) in respect of the previous year in question. He found that out of amount of Rs. 30,006, an amount of Rs. 5,443 had been paid by the assessee before said date while the balance amount had not been paid before said date.
Consequently, he deleted the addition in respect of Rs. 5,443 and confirmed the addition in respect of the balance amount. The Department is now in appeal before the Tribunal against deletion of Rs. 5,443. The assessee has not come in appeal against confirmation of addition of the balance amount.
5. In ITA No. 3193/Ahd/1987 which is for assessment year 1985-86 the assessee is Smt. Lilavatiben Nandubhai Patel who was proprietor of the concern Advance Chemical and Pharmaceutical Works, Ahmedabad carrying on business in chemicals. In this case also, the facts were similar. The assessee had maintained a separate sales-tax account in which sales-tax collected from customers was credited and sales-tax paid to the Government was debited. There was a balance of Rs. 16,647 in this account which represented unpaid sales-tax of the last quarter. This balance was carried on to the balance sheet and not to the profit and loss account. The ITO made addition in respect of this amount, as according to him, the amount of sales-tax collected represented trading receipt in view of the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) and the unpaid sales-tax liability was not allowable as deduction in view of the provisions in Section 43B of the Act. The assessee filed appeal before the CIT(A) who followed the decision of the Tribunal and deleted the addition in respect of the above amount. The Department has now come in appeal before the Tribunal.
6. Shri J.P. Shah has argued on behalf of the assessee in ITA No. 229/Ahd./1988. Shri K.C. Patel has argued on behalf of assessee in ITA No. 1387/Ahd/1988 while Shri N.R. Divatia has argued on behalf of assessee in ITA No. 3193/Ahd/1987. Shri V.S. Shah the learned Sr. Departmental Representative has argued on behalf of the Department.
7. It is necessary to narrate a few facts before referring to the submissions made by the parties before us. All the three assessees are maintaining accounts on mercantile basis. All of them have separate sales-tax account in which the sales-tax collected from the parties is credited and sales-tax paid to the Government is debited and the balance amount is taken directly to the balance sheet and is not taken to profit and loss account. No deduction as such is claimed in computing profit and loss of the business in respect of sales-tax liability. We shall assume in these appeals that sales-tax collected would represent trading receipt in view of the decision of the Supreme Court in Chowringhee Sales Bureau (P) Ltd. (supra) and another decision of Supreme Court in Central Wines v. Special CTO AIR 1987 SC 611 with the result that the balance in sales-tax account maintained by each assessee would represent liability to pay sales-tax to Government. Since the assessee were following mercantile system of accounting, the liability for payment of sales-tax which arose as soon as the sales were made would be allowable as deduction in computing profits and loss of the business in view of the principle laid down by Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, provided there was no statutory provision which enjoined upon the ITO to disallow such liability. Section 43B of the Income-tax Act, 1961 was inserted with effect from 1-4-1984 by the Finance Act, 1983. That section, so far as relevant for our purpose, lays down that notwithstanding anything contained in any other provision of the Act, a deduction otherwise allowable under the Act in respect of any sum payable by the assessee by way of tax under any law for the time being in force shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income of that previous year in which such sum is actually paid by him. The Gujarat Sales-tax Act provides for the time before which the tax in respect of a particular quarter was required to be paid. In respect of the last quarter of the accounting year the sales tax would be payable under the Sales Tax Act on a date which fell in the next accounting year. It is an admitted position that the amounts involved in these three appeals pertain to the last quarter and that under the provisions of the Gujarat Sales tax Act the said amounts were not payable to the Government on any date in the relevant accounting year and that the said amounts were payable on dates which fell in the subsequent accounting year. It has been laid down by Andhra Pradesh High Court in Srikakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708 that in order to apply the provision of Section 43B (as it stood prior to amendments by Finance Act, 1987 and Finance Act, 1989) not only should the liability to pay the tax be incurred in the accounting year but the amount also should be statutorily "payable" in the accounting year. According to the A.P. High Court if under the provisions of any statute a tax was payable after the close of the accounting year, unamended provisions of Section 43B would not be applicable. It is thus clear that under the unamended provisions of Section 43B, no disallowance could have been made in respect of sales-tax liability with which we are concerned in these appeals as the said liability pertained to the last quarter and the amount in question was statutorily payable after the close of the relevant accounting year.
8. As already stated Section 43B was amended by Finance Act, 1987 and Finance Act, 1989. By Finance Act, 1987 proviso was inserted with effect from 1-4-1988 which reads as under :-
Provided that nothing contained in this Section shall apply in relation to any sum referred to in Clause (a) or Clause (c) or Clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under Sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.
By Finance Act, 1989 Explanation 2 was inserted with retrospective effect from 1-4-1984 as follows:-
Explanation 2. For the purposes of Clause (a), as in force at all material times, 'any sum payable' means 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.
In view of Explanation 2, the amount with which we are concerned would come within the ambit of the expression "any sum payable" in Clause (a) of Section 43B and as such decision of A.P. High Court would no longer be applicable. It is clear that as far as assessment year 1988-89 and subsequent assessment years were concerned, the bar contained in Section 43B for allowance of the liability would not operate if the amount in question was paid by the assessee before the due date applicable in his case for furnishing the return of income under Section 139(1) in respect of the previous year in which the liability to pay such sum was incurred in view of the proviso which was inserted with effect from 1-4-1988 by the Finance Act, 1987. The question is whether the benefit of this proviso would be available for assessment years 1984-85 to 1987-88. The case of the Department is that since the said proviso was inserted with effect from 1-4-1988, benefit under said proviso would not be available for assessment years 1984-85 to 1987-88 while the case of the assessee is that since the said proviso was explanatory in nature benefit thereunder would be available for assessment years 1984-85 to 1987-88 also.
9. As far as the Benches of the Tribunal at Ahmedabad were concerned, the consistent view taken is that the said proviso was applicable with effect from assessment year 1984-85 and as such in respect of assessment years 1984-85 to 1987-88 if the assessee has paid the amount in question before the due date applicable in his case for furnishing the return of income under Section 139(1), deduction in respect of the liability should be allowed as the bar contained in Section 43B would not be applicable. The leading decision on this point is ITO v. K.S. Lokhandwala [1989] 31 ITD 305 (Ahd.). Detailed reasons have been given in said decision and it is not necessary to reiterate those reasons in this order. Suffice it to say that the Benches of the Tribunal at Ahmedabad have been consistently following this decision and the point in controversy has been referred to the High Court and references are pending in the High Court in respect of this question.
10. Since conflicting views on this point had been expressed in the decisions of the Benches at Delhi, Special Bench was constituted at Delhi by the President of the Tribunal under Section 254(3) of the Act. The decision of the Special Bench at Delhi has been reported in Rishiroop Chemical (P.) Ltd. v. ITO [1991] 36 ITD 35. At the time when the Special Bench was constituted there was no decision of any High Court on the point on controversy viz. whether first proviso to Section 43B would be applicable for assessment years 1984-85 to 1987-88. However, when the Special Bench commenced hearing of the appeal, a copy of the decision of Delhi High Court dated 22-8-1990 in Civil Writ Petition No. 2692/90 in the case of Sanghi Motors was filed before it on behalf of the Department. The said decision of Delhi High Court is now reported in Sanghi Motors v. Union of India. The Delhi High Court had held that the first proviso would be applicable for assessment year 1988-89 and subsequent assessment years and would not be applicable to earlier four assessment years. In that case, the assessec's accounting year was calendar year and with regard to sales made for the quarter ending 31st December, 1984 the assessec had paid sales-tax on 31st January, 1985 which was the date on or before which the sale-tax was statutorily payable and the assessee had claimed deduction in respect of sales-tax liability. The Delhi High Court held that the said proviso was not applicable for assessment year 1985-86 and as such the assessee was not entitled to benefit under said proviso. The Special Bench observed that since it was sitting at Delhi it was bound by the said decision of Delhi High Court and was not free to decide the point in controversy by taking a contrary view. The Special Bench followed said decision as it was of binding nature and decided the point in controversy against the assessee and in favour of the Department. The Special Bench had also recorded its reasons in coming to the conclusion in favour of the Department. The decision of the Special Bench was rendered on 10th December, 1990.
11. After the decision of Delhi High Court dated 22-8-1990 in the case of Sanghi Motors (supra), the point in controversy came up for consideration before Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India. This decision is dated 6-11-1990. It has been held by Patna High Court that under the proviso which was inserted with effect from 1-4-1988 by the Finance Act, 1987, the words "actually paid" occurring in the main Section 43B have in fact been interpreted and as such the said proviso should be regarded as an interpretation clause or a clause which explains what is meant by " actually paid" and that the interpretation given to the words "actually paid" in the proviso is different from its literal interpretation and that the proviso had been inserted to clear the doubt as to the meaning of "actually paid" in Section 43B and as such the Finance Act, 1987, so far as the proviso was concerned, was an explanatory Act and that it would be without object unless it was construed retrospective in operation. It was further observed that if Section 43B as inserted by the Finance Bill, 1983 was interpreted to mean that deduction could be claimed only if payment of sales-tax was made in fact during the accounting year of the assessee, it would be requiring the assessee to do an impossibility, because in respect of the last quarter the liability could not have been cleared in the accounting year itself. If the said proviso was literally interpreted it would be struck down as it provided for doing an impossible act and that it could be upheld by holding that an assessee for the assessment year 1984-85 was entitled to have the benefit of the proviso introduced by the Finance Act, 1987. The High Court held that upon textual interpretation of statutes, the proviso to Section 43B of the Act should be construed as retrospective in its operation and Explanation 2 thereto should be held to be subject to the said proviso and that Explanation 2 appended to Section 43B of the Act did not control the proviso thereto. The High Court further observed that such construction would not only be in consonance with the rule of harmonious construction but would advance the object and purport of insertion of the said proviso by the Finance Act, 1987. The High Court held that petitioner would be entitled to claim deduction of such sum on account of sales-tax if actually paid on or before the due date applicable to the petitioner for furnishing the return of income under Section 139(1). In substance, this decision lays down that in respect of assessment years 1984-85 to 1987-88 also the benefit of proviso inserted by Finance Act, 1987 would be available to the assessee and as such if the sales-tax liability pertaining to the last quarter was discharged by the assessee by actual payment before due date applicable to the assessee for furnishing return of income under Section 139(1) of the Act, deduction would be allowable and the bar contained in the main provision under Section 43B would not be applicable. This decision is in favour of the assessee and against the Department as far as the point in controversy before us is concerned.
12. Subsequent to the decision of Patna High Court referred to above the point in controversy again came up for consideration before Delhi High Court in Escorts Lid. v. Union of India. The attention of Delhi High Court was drawn to the above mentioned decision of Patna High Court. The Delhi High Court dissented from the view expressed by the Patna High Court and followed its earlier decision in the case of Sanghi Motors (supra).
13. Thus, at the lime of hearing of these appeals, the position is that there are consistent decisions of the Ahmedabad Benches of the Tribunal in favour of assessee while there arc subsequent decisions against the assessee of which one is by the Special Bench of the Tribunal at Delhi and there are two decisions of Delhi High Court. There is a subsequent decision of Patna High Court which is in favour of assessee. The question that we are required to decide is as to whether we should continue to follow the view which has been taken by the Benches of the Tribunal at Ahmedabad which is reflected in the decision in K.S. Lokhandwala's case (supra) or whether we should now depart from that view and take the view in favour of Department by following the decision of the Special Bench and two decisions of Delhi High Court particularly when there is a decision of Patna High Court which is in favour of assessee and which has taken the same view as had been consistently taken by the Benches at Ahmedabad.
14. Shri J.P. Shah, Shri K.C. Patel and Shri Divatia made submissions on behalf of the assessee referred to above. They submitted that we should not depart from the consistent view which is being taken at Ahmedabad particularly when there are conflicting decisions of High Courts. It was emphasized that the matter was pending in references before the Gujarat High Court and as far as the Benches of Tribunal at Ahmedabad were concerned the matter would be finally decided by the decision of Gujarat High Court which would be binding on the Benches at Ahmedabad. It was further submitted that when there are conflicting decisions, the decision in favour of assessee should be followed as laid down by Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and as such we should not depart from the view which we have taken in the earlier decisions. It was further submitted that the view expressed by Patna High Court was preferable to the view expressed by Delhi High Court. Several reasons were given by the learned counsels who appeared for the three assessees why the view expressed by the Patna High Court should be preferred to the view expressed by Delhi High Court. It was submitted that as far as the Special Bench decision was concerned, that decision is based on the decision of Delhi High Court which was binding on the Special Bench because the Special Bench was sitting at Delhi. The Special Bench found itself bound by the decision of Delhi High Court and was not free to express any view which was contrary to the view expressed by Delhi High Court. Consequently, it could not be said that the Special Bench at Delhi has resolved the conflict of decisions. All the three learned counsels argued on merits. They reiterated the reasons given in the decision of the Tribunal in the case of K.S. Lokhandwala (supra) and the reasons given in the decisions of Patna High Court. They referred to books on interpretation of statutes by Maxwell, Francis, Bennion, Craize and G.P. Singh. They also relied on several rules on interpretation of statutes in support of their plea and referred to decisions in CIT v. Sheo Kumari Debi [1986] 157 ITR 13 (Pat.)(FB), Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC), CIT v. J.K. Hosiery Factory [1986] 159 ITR 85 (SC), Chowringhee Sales Bureau (P.) Ltd.'s case (supra), Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 (SC), CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC), Good Year India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC), S. Gopal Reddy v. CIT [1990] 181 ITR 378 (AP) and Mithilesh Kumari v. Prem Behari Khare [1989] 177 ITR 97 (SC). About the first decision of Delhi High Court it was submitted that in that decision notes to other sides had not been given and all the aspects on point of controversy were not discussed in detail.
15. The learned Departmental Representative relied on the reasons given in the decision of Delhi High Court and submitted that the view expressed by Delhi High Court should be accepted in preference to the view expressed by the Patna High Court. He further submitted that Special Bench has been constituted to resolve the conflict and that if the decision of Special Bench was not followed, the very purpose of constituting the Special Bench would be frustrated. It was also submitted that the decision of the Ahmedabad Bench of Tribunal in the case of K.S. Lokhandwala (supra) should be regarded to have been overruled by the Special Bench of the Tribunal and should not now be followed. It was submitted that since there was no decision of jurisdictional High Court, decision of the Special Bench should be followed. Reliance was placed on the decisions in CD. Thadani, ITO v. Universal Ferro & Allied Chemicals Ltd. [1988] 172 ITR 30 (Bom.), Bardolia Textile Mills v. ITO [1985] 151 ITR 389 (Guj.)(FB) and CED v. N.A. Merchant [1975] 101 ITR270 (Guj.)
16. We have considered the rival submissions. We find that much can be said in favour of the view taken by Patna High Court in favour of assessee as well as the view taken by Delhi High Court in favour of Department. The point is highly debatable. As already stated, there was no conflict in the decisions of the Ahmedabad Bench of the Tribunal on the point in controversy. No decision has been brought to our notice in which a view contrary to the view taken in the case of K.S. Lokhandwala (supra) has been taken by any Bench at Ahmedabad. Hundreds of appeals at Ahmedabad have been decided in favour of assessee on the basis of the decision of the Tribunal in the case of K.S. Lokhandwala (supra). In all those appeals references have been granted under Section 256(1) of the Income-tax Act, 1961 and the references were pending in Gujarat High Court. As far as Ahmedabad Benches are concerned, the question would be finally decided by the Gujarat High Court. In view of the above facts, there should be compelling reasons for departing from the view that has been taken consistently by the Benches at Ahmedabad in hundreds of appeals. As far as the High Court decisions are concerned, if there had been a decision of only one High Court whether in favour of assessee or in favour of Department, the Tribunal would have been bound to follow said decision and decided the appeals in accordance with that decision. That would have been a compelling reason for departing from the view earlier taken. However, in the present case, we have conflicting decisions of High Courts. One High Court has taken view in favour of assessee and another High Court has taken view in favour of Department. Consequently, on the basis of High Court decision, the view which has been consistently taken in the earlier decisions cannot be departed from.
17. As far as Special Bench was concerned, the matter requires serious consideration. The question is whether we should depart from the view which we have been consistently taking at Ahmedabad in view of the decision of the Special Bench referred to above. The learned departmental representative has referred to the decision of Bombay High Court in CD. Thadani's case (supra). In that case, Special Bench of the Tribunal had taken certain view regarding allowability of weighted deduction under Section 35B(1)(b)(iii) of the Act after considering a decision of Bombay High Court. Thereafter, one party filed writ petition in Bombay High Court in which the prayer was that the assessing authorities should be directed to follow the decision of Bombay High Court and not to follow the decision of the Special Bench. The Bombay High Court in said decision [Universal Ferro & Allied Chemicals Ltd. v. P.G.K. Warrier [1983] 143 ITR 959 by a writ that the Department should decide the assessment proceedings relating to the assessee by considering all aspects without feeling bound by the ruling of the Special Bench covered by the High Court ruling. A further appeal was filed before the Division Bench of Bombay High Court and the Division Bench set aside that direction. The Division Bench observed that the learned Single Judge had not considered the question whether the decision of the Special Bench was correct or not and as such the direction issued was erroneous. The Division Bench also observed as follows :-
Once the Special Bench of the Tribunal records the decision after considering the judgment given by the High Court, then, the decision of the Special Bench of the Tribunal is binding on other authorities subordinate to the Tribunal and it is not permissible for those subordinate authorities to ignore the decision of the Tribunal on the ground that the decision of High Court was in conflict with it.
It is on these observations that the learned Departmental Representative has placed reliance. We find that this decision is not of any assistance in the present case. The ratio of said decision is that if the Special Bench of the Tribunal had considered a particular decision of the High Court and then gave a decision, authorities subordinate to Special Bench cannot ignore the interpretation which the Special Bench has put on the said decision of the High Court.
18. In the present case, we are not concerned with this aspect of the matter. As already stated when the Special Bench was constituted, there was difference of opinion amongst Benches and there was no High Court decision. When the Special Bench heard the matter at Delhi, they had before it a decision of Delhi High Court which was jurisdictional High Court and as such binding on the Special Bench. The Special Bench had no jurisdiction to consider independently various aspects and come to the conclusion which was contrary to the conclusion reached by the jurisdictional High Court. Thus, it cannot be said that the Special Bench had resolved the conflict that existed prior to the formation of the Special Bench. As already stated, Patna High Court has taken a view contrary to Delhi High Court on the point in controversy. The Special Bench at Delhi could not have followed the said decision even though the Special Bench had come to the conclusion that the view expressed in said decision was correct. It is in these circumstances that we have to consider whether the decision of the Special Bench should be followed at Ahmedabad where, as already stated, consistent view has been taken in favour of assessee in large number of appeals and where there was no conflict of decisions.
19. In this connection, we may refer to the decision of Hon'ble the President Shri Ch. G. Krishnamurthy as Third Member in an appeal of Amritsar Bench. That decision is reported in the case of Export House v. ITO [1985] 13 ITD 687. The Hon'ble President has observed as follows : -
The orders passed by the Tribunal on appeal are entitled to be followed and deserved great respect and they do not lose their authority if a different view is expressed by another Bench of the Tribunal. A Special Bench constituted by the President for the disposal of any particular case does not exercise an appellate or revisionary jurisdiction. Therefore, it does not possess a power to overrule a Division Bench's decision. Both the views of the Special Bench and the Division Bench are entitled to hold the field till one of them is reversed or modified by the High Court on reference. So long as this situation does not happen, it is wrong to think that the effect of a Special Bench is to overrule a Division Bench case. To an ITO both the decisions are of equal authority though the Special Bench view may be entitled to a greater respect because it is the expression of collective wisdom of more members than constituting a Division Bench. The constitution of Special Bench has assumed greater significance of late not because it is entitled to overrule a Division Bench view but because it is considered necessary to secure uniformity in the views expressed by various Benches of the Tribunal located in various stations in the country. The divergence of views will promote litigation. The reduction of conflict in views will reduce litigation and enhance the faith of litigants in the working and administration of the Tribunal as a judicial body. That does not mean either in fact or in law or in the contemplation of the Special Benches that the Special Bench will overrule a Division Bench view. If sufficient grounds are shown to show that the Special Bench has not considered an important and vital aspect, it is open to a Division Bench to express an opinion on those points.
It is clear from the view expressed by the Hon'ble President in said decision that a decision of the Special Bench does not overrule the decision of Division Bench. Both have persuasive value. However, if there are no High Court decisions on a particular point decided by the Special Bench, then, the Benches of the Tribunal, for the sake of uniformity would follow the view expressed by the Special Bench. If the Special Bench has merely followed the decision of jurisdictional High Court in deciding a point and has expressly stated in its order that it had no jurisdiction to take a contrary view, then such decision of the Special Bench would be binding for all Benches within the jurisdiction of the High Court whose decision has been followed. If there are conflicting decisions of High Courts, then the view which appears to the Bench of the Tribunal to be more reasonable should be accepted.
20. In this connection, we may refer to observations at page 45 in the decision of the Special Bench in Rishiroop Chemicals Co. (P.) Ltd.'s case (supra) which are to the effect that a decision of a High Court was binding on all the Benches if there was no contrary decision of any other High Court but if there were conflicting decisions of High Courts other than the jurisdictional High Court, the view which appears better has to be adopted or under certain circumstances, the view which is favourable to the taxpayer would prevail. Thus, the Special Bench itself has laid down that if there were conflicting decisions of the High Courts, other than the jurisdictional High Court, the Benches of the Tribunal were free to adopt the view which to the Benches appear to be better and that in certain circumstances the view which was favourable to the taxpayer should be adopted. In the present case, as already stated, there are conflicting decisions of the High Courts other than the jurisdictional High Court as far as we arc concerned. After considering all the circumstances, the view which has been expressed by Palna High Court appears to us better and incidentally that view is in favour of assessee and as such should be adopted. It may be noted here that the question here is not of allowance or disallowance in absolute terms. It is only the year of allowance that is in dispute. The question is whether the liability should be allowed in the year in which it was incurred when the assessee was following mercantile system of accounting or it should be allowed only in the year in which payment is made. Besides, the controversy is only for three years viz. assessment years 1984-85 to 1987-88. We see no justifiable reasons as to why the question of allowance or disallowance should stand on different footing for these three years than from assessment years 1988-89 onwards. In the memorandum explaining the provisions in the Finance Act, 1989 by which Explanation 2 was inserted with retrospective effect from assessment year 1984-85 it was expressly mentioned that the proviso which was introduced by the Finance Act, 1987 was intended to remove 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 will unnecessarily involve disallowance of the payment for the last quarter. Thus the proviso had been introduced to remove the hardship in respect of the sales-tax liability for the last quarter. It could not be said that the said hardship was only from assessment year 1988-89 and was not there in assessment years 1984-85 to 1987-88. Consequently, for harmonious construction of all the provisions it is necessary to give retrospective operation to the proviso with effect from 1-4-1984. This is what the Patna High Court has decided and this was also the view taken by the Bench of the Tribunal in the case of K. SLokhandwala (supra) and this is the view which we have been following at Ahmedabad consistently. Considering the entire circumstances, we find that we should follow the view expressed by the Patna High Court in preference to the view expressed by Delhi High Court. We accordingly, hold that as far as sales-tax liability in respect of the last quarter was concerned, said liability would be allowable as deduction for assessment years 1984-85 to 1987-88 provided the assessee establishes that the liability was discharged by actual payment before the due date applicable in his case for furnishing the return of income under Section 139(1) in respect of the relevant previous year in which the liability had been incurred. Consequently, in all the three appeals we direct the ITO to allow deduction after verifying the above facts.
21. We may mention here that in ITA No. 229/Ahd/1988 Shri J.P. Shah, the learned counsel for the assessee had raised an additional argument to the effect that since the assessee was a commission agent, the provisions of Section 43B would not be attracted. Reliance was placed on the decision of the Ahmedabad Bench of the Tribunal in the case of ITO v. Thakersi Babubhai & Co. [1986] 18 ITD 593. It was submitted that if the main point discussed above was decided in favour of assessee then the alternate point need not be decided and be kept open. We, therefore, do not express any opinion on the alternate plea which would necessitate scrutiny of the relevant provisions of the Gujarat Sales-tax Act.
22. We may also mention that in ITA No. 1386/Ahd./1988 Shri K.C. Patel, the learned counsel for the assessee has raised alternate plea to the effect that the sales-tax collected and credited in separate account represented diversion by overriding title and as such provisions of Section 43B were not applicable. It was also submitted that the sales-tax collected was not trading receipt and that assessee had not claimed deduction of any liability. We do not express any opinion on the alternate plea raised by the assessee because at the time of arguments it was agreed that if the main point was decided in favour of assessee then the alternate points may not be decided in this appeal.
23. We may also mention that there was a small point in respect of donation of Rs. 1001 in ITA No. 229/Ahd/1988. The CIT(A) has directed the ITO to examine the claim. In view of that direction, this ground is liable to be rejected.
24. In ITA No. 1387/Ahd./1988 in the case of Gujarat Ship Trading Corporation theres another ground which is to the effect that the learned CIT(A) had erred in directing allow deduction under Section 80HH and 80-I of the Income-tax Act, 1961. The facts are that the assessee firm was carrying on business of ship breaking. The assessee pleaded that the assessee was an industrial undertaking and as such deduction under Sections 80HH and 80-I were allowable. The assessee had explained that more than 20 workers had been employed and other conditions were fulfilled. The assessee relied on decision of CIT(A) in the case of M/s. Rama Ship Breakers in which it was held that activity of ship breaking amounted to industrial undertaking. The assessee also relied on a decision of Bombay High Court. The ITO disagreed with the said decisions. He held that the assessee was not industrial undertaking and rejected the claim for deduction under those provisions. In the appeal filed by the assessee the CIT(A) accepted the claim of the assessee. The Department is now in further appeal before the Tribunal.
25. The learned counsel for the assessee placed reliance on the decision of the Bombay Bench of the Tribunal in the case of Rama Ship Breaking Yard [ITA Appeal No. 2624 (Bom.) of 1984] for assessment year 1979-80 decided on 20-4-1987. The point involved in said appeal was whether an undertaking which was engaged in the business of ship breaking was an industrial undertaking and that whether relief under Section 80J was allowable. Before the Tribunal reliance has been placed on the decision of Bombay High Court in CST v. Indian Metal Traders [1978] 41 STC 169. The Tribunal considered the said decision of Bombay High Court in which the question that was considered was whether the activity of ship breaking was manufacturing activity. The Tribunal relied on said decision and came to the conclusion that the activity of the assessee was that of manufacture and as such it was an industrial undertaking and relief under Section 80J was available. The learned Departmental Representative has submitted that the said decision of Bombay High Court was in respect of provisions in Section 80J of the Act while we are dealing with provisions in Sections 80HH and 80-I.
26. We find that we arc concerned with the ratio of said decision. The ratio of said decision is that activity of ship breaking was manufacturing activity and that an undertaking carrying on such activity was an industrial undertaking who could claim relief under Section 80J of the Act. The question under Sections 80HH and 80-I is whether the assessee was an industrial undertaking and the answer would be in favour of assessee. The learned Departmental Representative relied on decisions in CIT v. Casino (P.)Ltd. [1973] 91 ITR 289 (Ker.), CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom.) and CIT v. Oricon (P.) Ltd. [1989] 176 ITR 407 (Bom.). None of these decisions is directly on the point in controversy and as such they are of no assistance. The case to which we have referred to above is directly on the point in controversy. We, accordingly, reject the ground raised by the Department.
27. ITA No. 229/Ahd/1988 is allowed while the other two appeals are dismissed.