Punjab-Haryana High Court
Commissioner Of Income-Tax vs Khushi Ram Bhagwan Dass on 2 December, 2004
Equivalent citations: [2008]296ITR720(P&H)
Author: Tapen Sen
Bench: Tapen Sen
JUDGMENT G.S. Singhvi, J.
1. In compliance with the direction issued in I.T.C. No. 124 of 1982, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal"), has referred the following questions of law for the opinion of this court:
1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 59,025 has validly been excluded from the assessee's business income for the relevant assessment year?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was merely a trustee in respect of the collections of Central sales tax from its customers?
2. At the relevant time, the assessee was carrying on the business of purchase and sale of cotton and used to maintain accounts on mercantile basis. During the period from October 18, 1971, to November 4, 1972, the assessee collected Rs. 59,025.04 from the customers on account of Central sales tax but neither deposited the same into the Government exchequer nor refunded it to the customers. By an ex parte order dated June 3,1975, passed under Section 143(2) of the Income-tax Act, 1961 (for short, "the Act"), read with Section 144 of the Act, Income-tax Officer, "A" Ward, Sirsa (hereinafter referred to as "the Assessing Officer") completed the assessment for the year 1973-74. The application filed by the assessee for cancellation of the ex parte assessment was rejected by the Assessing Officer. On appeal, the Appellate Assistant Commissioner of Income-tax, Rohtak, set aside the order of the Assessing Officer and directed him to make fresh assessment. Thereafter, the Assessing Officer issued notice to the assessee and called 'upon to it explain why the amount of Rs. 59,025.04 may not be treated as trading receipt and added to its income in view of the law laid down by the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT . The assessee resisted the proposed addition by making the following assertions:
(1) The assessee is a registered dealer and keeps the accounts on mercantile basis. According to the sales tax and Central sales tax laws, the dealer at the moment, effects the sales or purchases they are subject to taxation. The obligation to pay sales tax arises as tax liability is attracted when a registered dealer makes a sale to unregistered dealer in the State of Haryana. His liability arises to pay sales tax and when he effects a sale outside the State of Haryana his liability arises to pay Central sales tax and when the sale is effected to an unregistered dealer, the sales tax is collected from the unregistered dealer.
(2) Similarly, when we make a sale outside the State of Haryana liability arises under the Central Sales tax Act and what we collect from our outside purchasers or effect the Central sales, we credit the Central sales tax collected or provided to a Central sales tax account. From the financial year 1967-68, we are crediting this account according to the collections made or provided on1 account of the Central sales tax and this account is debited when these payments were made on finalisation of assessments. The Central sales tax collected is our liability to pay the Government and is not a trading receipt.
(3) That the assessee has collected Rs. 59,025.04 paise as Central sales tax and the payments made were as under during this year account as well as previous year's balance:
23.06.1975 Rs. 33,966 14.10.1975 Rs. 850 04.11.1976 Rs. 39,791 (4) That the assessee is paying Central sales tax on finalisation of assessment. Whenever the Central sales are effected, the Central sales tax collected or payable on those sales is credited to Central sales tax account and when this is paid, it is debited to the Central sales tax account. This is a trading liability and not a trading receipt.
(5) That the liability was rightly provided according to mercantile system. We have charged from our customers on account of the Central sales tax and we have paid on finalisation of accounts.
3. The assessee has also referred to the judgments in the following cases:
1. Kedarnath Jute Mfg. Co. Ltd. v. CIT .
2. Calcutta Co. Ltd. v. CIT .
3. CIT v. E.A.E.T. Sundararaj .
4. Patidar Oil Mills Co. v. CIT [1976] 44 Taxation (Section 1) 33 (Guj).
4. The Assessing Officer rejected the reply of the assessee and made addition of Rs. 59,025.04 to its income. He also made an addition of Rs. 7,245 in relation to the two transactions entered into between the assessee and M/s. Swadeshi Cotton Mills Company Ltd. and M/s. Shanker Mal Sumer Chand Sirsa. The appeal filed by the assessee was partly allowed by the Appellate Assistant Commissioner vide his order dated October 29, 1979, and the addition of Rs. 59,025 was deleted. The Tribunal dismissed the appeal filed by the Revenue by observing that similar addition made in the income of the assessee in relation to the assessment year 1972-73 had been deleted vide order dated November 5, 1977, passed in I.T.A. No. 256 of 1976-77 and there was no tangible reason to take a different view. For the sake of reference, the relevant extract of order dated September 16, 1981, passed by the Tribunal is reproduced below:
For the assessment year 1972-73, the dispute travelled to the Chandigarh Bench of the Tribunal by way of second appeal from the assessee and decided in its favour vide order November 5,1977, in I.T.A. No. 256 of 1976-77. Making the said order as the basis, we dismiss the Revenue's appeal though Sh. Mange Lal vehemently contended that the collection by the assessee was not even disputed liability. We have reproduced the relevant portion of the assessment order to project that the Income-tax Officer completely relied for his order on the earlier assessment year and the dispute having been decided in the assessee's favour on the charge projected in the assessment, we find no occasion to depart from that decision.
5. Shri Rajesh Bindal relied on the judgment of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT and a judgment of the learned single judge in Sirsa Industries v. CIT and argued that even though the assessee was following the mercantile system of accounting, the sales tax collected by it was liable to be added to its income because the same had neither been deposited with the Government nor refunded to the customers and the Appellate Assistant Commissioner committed a grave illegality by deleting the additions made by the Assessing Officer.
6. We have given serious thought to the argument of Shri Bindal, but have not felt persuaded to agree with him. In Sirsa Industries v. CIT , a Division Bench of this court, while deciding the appeal filed by the assessee against the order of the learned single judge in Sirsa Industries v. CIT , referred to the judgments of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT and Kedamath jute Mfg. Co. Ltd. v. CIT and a large number of decisions of the High Courts including this Court and laid down the following propositions (page 440):
As already noticed; the sales tax amount received by an assessee forms part of the trading receipt and if the assessee is liable to pay tax, the amount will be allowed as a deduction according to the accounting system adopted by the assessee. It is also beyond dispute that if ultimately it is found that an assessee, who has paid the amount and got the deduction, gets the sales tax by way of refund, the amount has to be added as a trading receipt in the relevant accounting year. Similarly, if an assessee who is following the mercantile accounting system and deduction of sales tax is granted on the basis of liability to pay the tax without actual payment and if ultimately it is decided that the whole or a part of the amount received as sales tax was not payable, in the assessment year relevant to the year in which the decision is taken, the whole or balance would be added as a trading receipt.
In the cases cited before us arising before the various High Courts, even the stand of the Revenue was not consistent. Since we are dealing with cases of mercantile system of accounting, we will be referring to all such cases. Whenever the assessee wanted deduction of sales tax amount in the year in which the liability accrued, the stand of the Revenue was that since the amount was not paid, deduction should not be granted. Whenever the assessee did not claim deduction in the year in which the liability accrued and claimed deduction after the sales tax was determined or paid in another assessment year, the Revenue pleaded that deduction was claimable only in the year in which liability accrued and not when the liability was finally determined. Taking all these stands of the parties, the courts have taken an unanimous decision that wherever an assessee follows the mercantile system of accounting, deduction is claimable only in the year in which the tax liability accrues and not in the accounting year in which the liability is finalised or the amount is actually paid.
7. The judgment of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT was also considered by a Division Bench of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. v. CIT , Sabyasachi Mukharji J. (as his Lordship then was), after considering the judgments of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT and Chowringhee Sales Bureau P. Ltd. v. CIT held as under (headnote):
That the amounts collected by the assessee as sales tax formed part of its trading receipts. However, the liability to pay sales tax arises the moment a sale or purchase is effected and an assessee who maintains accounts on the mercantile system is entitled to deduction of his estimated liability to sales tax, even though they had not been paid to the sales tax authorities.
8. In CIT v. Leader Engineering Works , a Division Bench of this court, of which one of us (G.S. Singhvi J.) was a member, negatived the argument of the counsel appearing on behalf of the Revenue that the Division Bench judgment in Sirsa Industries v. CIT is based on misreading of the Supreme Court's judgment in Chowringhee Sales Bureau P. Ltd. v. CIT . The Division Bench referred to the judgment of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. v. CIT and observed (page 437):
In this judgment, the earlier decisions of the Supreme Court relating to the same assessee in Chowringhee Sales Bureau P. Ltd. v. CIT and in Kedarnath Jute Mfg. Co. Ltd.'s case were noticed and in view of the fact that the assessee was maintaining the mercantile system of accounting, deduction was allowed on the basis of accrual of liability. This decision further explains that the point in Chowringhee Sales Bureau P. Ltd. v. CIT was different from the point which was decided in Kedarnath Jute Mfg. Co. Ltd.'s case , the cases referred to above relating to other High Courts and this Court and the case before us.
In view of the aforesaid discussion, although it is held that Chowringhee Sales Bureau P. Ltd. was maintaining the mercantile system of accounting, yet there is no conflict between Kedarnath Jute Mfg. Co. Ltd.'s case and Chowringhee Sales Bureau P. Ltd.'s case , as in Chowringhee Sales Bureau P. Ltd. v. CIT , the precise point was not under consideration. Accordingly, following Kedarnath Jute Mfg. Co. Ltd.'s case the two decisions of this Court and of other High Courts referred to above, it is held that the Income-tax Officer had rightly allowed the deduction in the original assessment framed by him. Once the assessment orders were rightly framed, no case for rectification or for reopening under Sections 147/148 and 154/155 of the Act arises and the notices are clearly illegal and without jurisdiction.
9. In our opinion, the proposition of law laid down by the Division Bench in Sirsa Industries v. CIT represents the correct law. Therefore, we do not find any valid ground to interfere with the order passed by the Tribunal, more so because the Revenue had accepted similar order passed by the Tribunal in the assessee 's case in relation to the assessment year 1972-73.
10. In the result, question No. 1 referred by the Tribunal is answered in favour of the assessee and against the Revenue.
Shri Rahesh Bindal did not advanced any argument with reference to question No. 2. Therefore, the same is also answered against the Revenue.