Madras High Court
Commissioner Of Income-Tax vs Arya Vaidhya Pharmacy (Cbe) Ltd. on 13 February, 2006
Equivalent citations: (2006)206CTR(MAD)443, [2006]284ITR335(MAD)
Author: P.D. Dinakaran
Bench: P.D. Dinakaran, P.P.S. Janarthana Raja
JUDGMENT P.D. Dinakaran, J.
1. The above tax case appeals are directed against the order of the Income-tax Appellate Tribunal dated November 12, 2002, made in I.T.A. Nos. 1956, 1958/(Mds)/1992, 2476(Mds)1993 and 19571 (Mds)/1992, raising the following substantial questions of law:
(a) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that excess sales tax collected and retained as a deposit due to a dispute cannot be taxed in the hands of the assessee?
(b) Whether, on the facts and circumstances of the case, the excess sales tax collected cannot be treated as a trading receipt of the asses-see, in view of the fact that subsequently, the Supreme Court had directed that it should be either refunded to the customers or paid over to a charitable trust?
2. The brief facts leading to the filing of the above appeal are as under:
The assessee is a closely held company engaged in the manufacture and 3 sale of ayurvedic medicines. During the previous years relevant to the assessment years, the assessee had collected sales tax at 30 per cent, and retained the same as a deposit without paving it to the State Government on the ground that there was a dispute as to whether arishtams and asavas manufactured by the assessee are subject to sales tax at 30 per cent, or 8 per cent.
3. The said issue as to the assessee's liability to pay tax on arishtams and asavas manufactured and sold by it, whether at 30 per cent, or 8 per cent., was ultimately decided by the Supreme Court by judgment dated March 15, 1989, holding that arishtams and asavas are taxable only at 8 per cent., with a direction to refund the excess amount to the customers to the extent it is possible and to donate the left over excess, which could not be refunded, to the charitable trust for utilisation for public charitable purposes.
4. However, the Assessing Officer, reassessed under Section 147 of the Act and taxed the amount collected by the assessee towards sales tax, as referred to above, in the respective assessment years. Aggrieved by the same, the assessee preferred appeals before the Commissioner of Income-tax (Appeals), who allowed the appeals, discussing in detail that the assessee did not commit any omission to disclose necessary facts at the original assessment stage itself nor did the Assessing Officer come by fresh information subsequent to the completion of the original assessment to assume jurisdiction under Section 147(a) or (b) of the Act. The Commissioner had further held that in any case for the assessment years 1984-85 to 1986-87, the question should have been only under Section 147(a) and therefore, the same was without jurisdiction. It is further held that the jurisdiction under Section 147(b) of the Act was also lacking for the assessment years 1987-88 and 1988-89.
5. The Commissioner, thus, taking note of the directions of the apex court that the amounts so collected by way of excess sales tax either to be refunded to the customers or transferred to the charitable trust for utilisation of the same for public charitable purpose, held that the inclusion of the collection of sales tax from the assessee was not sustainable in law for the assessment years 1984-85 to 1988-89 as the same lacked jurisdiction.
6. That apart, even on the merits, the Commissioner held that since in the wake of the final decision of the Supreme Court, the sales tax collected had to be either refunded to the customers or transferred to the charitable trust, the same could not be taxed as a part of the trading receipt in the course of a trading transaction, but it was a receipt arising as a result of a fiscal transaction and accordingly, cancelled all the reassessments.
7. On further appeal, at the instance of the Revenue, the Tribunal confirmed the order of the Commissioner against which, the Revenue has preferred the above appeals raising the substantial questions of law referred to above.
8. It is also a settled law that as long as the receipt of the amount by the assessee was clearly associated with a liability to refund the amount, such receipt of amount would not be characterised as an income and, therefore, the same cannot be taxed vide K.C.P. Ltd. v. CIT [2000] 245 ITR 421 (SC).
9. In the instant case, the Supreme Court has more clearly held that the sum proposed to be taxed does not belong to the assessee at all and the same was directed to be refunded to the customers and any left over excess has to be paid to the charitable trust, viz., Arya Vaidya Educational Foundation. Therefore, we do not see any merit to entertain the above appeals. Accordingly, the appeals fail and the same are dismissed. Consequently, T.C.M.P. Nos. 176 to 178 of 2006 are also dismissed.