Income Tax Appellate Tribunal - Mumbai
Reliance Share & Stock Brokers (P) Ltd. vs Addl. Cit on 14 September, 2004
Equivalent citations: [2004]1SOT44(MUM)
ORDER
S.C. Tiwari, A.M. The assessee has filed this appeal on 3-3-2004 against the order of the learned CIT (A), IV for the assessment year 2000-01.
2. In this appeal the assessee has disputed the addition of Rs. 3,59,93,740 to the income declared in relation to SEBI registration fees. Facts leading to this around of appeal, briefly, are that the assessee is a member of Mumbai and Other Stock Exchanges in India. The assessee derives income from the business of share broking. During the course of assessment proceedings the learned assessing officer noted that the assessee had debited to profit and loss account a sum of Rs. 3.59 crores as SEBI turnover tax that had not been actually paid. The assessee explained that it had collected from its clients apart from brokerage the amount of registration fees payable to SEBI. The assessee argued that this amount had been collected as a trustee on behalf of the clients. The assessee also argued that the provisions of section 43B were not applicable because the amount payable to SEBI was not in the nature of tax. The assessing officer did not accept these arguments. According to him the assessee had collected money from its clients by way of brokerage only. The contract notes issued by the assessee to clients did not give any bifurcation regarding the heads of expenses that the assessee had to pay. The gross brokerage received by the assessee which was Rs. 8,19,70,477 during the year entirely represented the business receipts of the assessee The SEBI Turnover/Registration fee was a liability imposed upon the assessee by the SEBI. This was an expenditure required to be incurred by the assessee and not by its clients. There was no mandate from SEBI to collect any amounts in this behalf from the clients. The learned assessing officer relied upon following judgments in this respect :
(1) Chowringhee Sales Bureau (P) Ltd. v. CIT (1973) 87 ITR 542 (SC) (2) Sinclair Murray & Co. (P) Ltd. v. CIT (1974) 97 ITR 615 (SC) (3) Tata Robins Frazer Ltd. v. CIT (1987) 165 ITR 347 (Pat)
3. The learned assessing officer held also that the sum of Rs. 3,59,93,740 could not be allowed as a deduction because the levy imposed by SEBI in exercise of power vested in it under SEBI (Stock Brokers & Sub-Brokers) Regulations, 1992 had been challenged before judicial authorities. As a result of the litigation Honble Supreme Court by its order dated 1-2-2001 finally held that SEBI was authorized to levy Turnover fees/charges from the brokers. In the meanwhile recovery of Turnover fees/tax by SEBI had been stalled. Since the very question of levy had been challenged it was only after the Supreme Court judgment on 1-2-2001 that the actual quantum of tax or fees payable to SEBI was determined. During the previous year relevant to assessment year 2000-01 the quantum of charges payable by the assessee had not crystallised. It crystallised turnover only subsequent to the end of the previous year in question and filing of the return of income in relation thereto by the assessee. Ultimately, only a nominal amount was found payable by the assessee. During the previous year under consideration the liability was contingent as it depended upon the outcome of pending litigation. Law was well settled that a contingent liability did not constitute expenditure and could not be claimed as deduction even under the mercantile system of accounting.
4. Alternatively, the learned assessing officer argued also that the provisions of section 43B of the Act hit the assessees claim of deduction. The contention of the assessee that turnover fee was not covered by section 43B was not correct. The amendment to section 43B by the Finance Act, 1988 with effect from 1-4-1989 incorporated the words "cess or fee by whatever name called". The learned assessing officer referred to CBDT Circular No. 572 dated 3-8-1990 and argued that according to the circular, after amendment by Finance Act, 1988, any cess or fees which have been imposed by any statutory authority would fall in the ambit of section 43B and would be allowed as deduction only when actually paid. The learned assessing officer further remarked that the levy by SEBI was not a levy on turnover. The annual turnover of the assessee was only a measure of the levy. The words "turnover charges" were being used for the sake of convenience only. In essence, it was a fee charged by a statutory authority the quantum of which was based on the turnover of the brokers.
5. The learned assessing officer held that various judgments relied upon by the assessee such as CIT v. Varas International (P) Ltd. (1997) 225 ITR 831 (Cal) and Sarvaraya Textiles Ltd. v. Dy. CIT (1995) 54 ITD 612 (Hyd-Trib) were not applicable on the facts of the case. In the case of the assessee levy was not in the nature of a fee for grant of license to manufacture and therefore Calcutta High Court judgment did not apply. The decision of ITAT Hyderabad Bench also did not apply because unlike State Electricity Board the levy of SEBI was not for any specific service. The object of SEBI was to raise general revenue for discharging its duties as market regulator. It was not a payment for services rendered. SEBI was regulatory body and, therefore, the fee charged was also regulatory in nature. Hence, the requirement of quid pro quo receded to the background. Therefore, the assessees contention that provisions of section 43B did not cover this fee was riot correct. That being so, the assessee was not entitled to claim deduction without having actually paid the amount to SEBI.
6. Aggrieved by this order, the assessee filed appeal before the learned CIT (A). The learned CIT (A) has in the impugned order given detailed reasons for rejecting the assessees plea. Relying upon the judgment of Honble Supreme Court in the case of CIT v. Thirumalaiswami Naidu & Sons (1998) 230 ITR 534 (SC) the learned CIT (A) held that even if an assessee collected money from its customers in relation to a levy under challenge, the collection was none the less income received in the hands of the assessee. However, if the assessee paid any such amount to the concerned authority or if the assessee returned any portion of such amount to its customers, he would be entitled to claim deduction as and when such payment or refund was made. Thus, it was clear that even during the pendency of litigation the amount collected from the customers was includible in the assessees taxable income. If the income collected was refunded to the customers, the same would be entitled to deduction in the year refund was made.
7. The learned CIT (A) held that the reliance placed by the assessee on the judgment of Honble Andhra Pradesh High Court in the case of CIT v. Chodavaram Co-operative Sugars Ltd. (1987) 163 ITR 420 (AP) and the judgment of Honble Bombay High Court in the case of CIT v. Seksaria Biswan Sugar Factory (P) Ltd. (1992) 195 ITR 778 (Bom) was misplaced. In those cases, the assessees were allowed to collect the price in excess of price fixed by control order subject to the excess amount being deposited in a separate account and various other conditions. The assessees were allowed to collect but they had no control over the funds. They had made the collection of excess price under permission from a judicial authority. The facts of the case were, therefore, distinguishable. At any rate the judgments revealed that the receipts in question were trading receipts even though the same were collected while the matter was in dispute.
8. The learned CIT (A) held that the ratio of the judgment of Honble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC) would not help the assessee on account of the provisions of section 43B. The fact of the matter was that as at the end of the year the assessee had collected the amounts but the assessee had made no payment of the same. There was no force in the contention of the assessee that the SEBI Rules did not expressly require or direct the assessee to collect the registration fee separately from its clients. The same was the position in respect of sales tax and excise duty also. There was contradiction in the contention of the assessee as it was the assessees claim that he had collected these amounts by way of registration fees payable to SEBI. Therefore, the judgments in the case of Chowringhee Sales Bureau (P) Ltd. (supra) and other judgments in Sinclair Murray & Co. (P) Ltd.s case (supra) and 240 ITR 107 (Mad) (sic) were directly applicable on the facts of the case.
9. The learned CIT (A) held that there was contradiction in the arguments also of the assessee that the fee collected by the assessee did not fall in the ambit of section 43B as there was an element of quid pro quo. The assessee had relied on the judgments in CIT v. Shree Warna Sahakari Sakhar Karkhana (2002) 253 ITR 226 (Bom), CIT v. Varas International (P) Ltd.s case (supra) and Sarvarya Textiles Ltd.s case (supra) in this connection. Those were the cases where the Courts had held that the charges paid were for specific services received and, therefore, not covered by section 43B. The case of the assessee against the levy sought to be levied by SEBI was that since no services were being rendered by SEBI to brokers, SEBI was not competent to charge any fee. Thus, the assessee had taken contradictory stand before the Honble Supreme Court and during the course of assessment proceedings. To bring home this point, the learned CIT (A) has quoted extensively from the Supreme Court judgment in the case of BSE Brokers Forum v. Securities Exchange Board of India (Transferred Case (Civil) No. 20 of 2000). The learned CIT (A) noted that Honble Supreme court held that as far as regulatory fee which is collected by SEBI is concerned, the services to be rendered is not a condition precedent and the same does not loose the character of fee provided the fee so charged is not excessive. Honble court has also further observed that the fee levied is regulatory in nature and, therefore, requirement of quid pro quo recedes to background. Hence, the argument of the assessee that the If fee paid to SEBI contained an element of quid pro quo was not acceptable. The learned CIT (A) referred to the judgments also of Honble Bombay High Court in Shree Warna Sahakari Sakhar Karkhanas case (supra) and Honble Supreme Court in Amarchandra Chakraborty v. Collector of Excise AIR 1972 SC 1863. He observed that a fee could also take the colour of word "tax". Moreover, CBDT as per its Circular No. 572 dated 3-8-1990 had stated that insertion of the words "cess or fee" was to clarify that any amount imposed by any statutory authority would be allowed as deduction only if actually paid. Thus, the assessee could not claim deduction in respect of turnover fee on accrual basis when the same had not been paid within the stipulated time.
10. Based on the arguments as summarized above, the learned CIT (A) has dismissed the assessees appeal. Still aggrieved, the assessee is in appeal before us. The learned counsel for the assessee argued that Turnover fee/charges levied by SEBI was challenged practically in every High Court in India on the ground that the same was exorbitantly high and had no logical relationship with services, if any, rendered by SEBI. Ultimately, the Honble Supreme Court transferred the litigation pending in various High Courts to themselves. The verdict of Honble Supreme Court was pronounced on 1-2-2001. During the previous year relevant to assessment year before us, the matter was sub-judice. The contention of share brokers that the levy was exorbitant was finally vindicated by the judgment of Honble Supreme Court. According to the original levy imposed by SEBI, the assessee was liable to pay for the assessment year an amount of Rs. 3,59,93,740. After the judgment of Honble Supreme Court the same was reduced to a few lakhs only. Under these circumstances, the assessee was in a difficult situation. The levy was sub-judice. If the levy as imposed by SEBI was going to stay there was no way the assessee could afford to pay it from the existing level of brokerage being charged from the clients. The assessee, therefore, addressed letters to its clients; the assessee at pages 42 and 43 of the paper book has placed a specimen copy of the same. According to these letters, the assessee informed its clients that the turnover fee as imposed by SEBI was being collected from them pending the settlement of dispute and the same was not being deposited with SEBI. In case of favourable decision if no fee would be payable to SEBI the same would be refunded to the clients. The learned counsel informed us that honouring this commitment, the assessee had actually refunded these amounts to its clients in the succeeding previous year as per the details furnished at pages 89 to 91 of the paper book. The learned counsel pointed out that as against the collection of Rs. 3,59,93,740, the assessee refunded a sum of Rs. 3,57,21,157 to the clients.
11. The learned counsel for the assessee argued that on these facts the collections made by the assessee from its clients could not constitute income received in the hands of the assessee. It was payable either to SEBI or refundable to the parties from whom it was collected. The money was lying with the assessee in trust only because the matter was under litigation and it was not clear as to whom the money was payable.
12. The learned counsel argued that the objection of the assessing officer that the amount had not been separately specified in the contract notes was not justified. The assessee was obliged to issue contract notes to its clients in a specific format prescribed by the stock exchange. The assessee was not entitled to vary that format. He referred to contract note given at page 75 and pointed out that there was no column under which the amount collected by the assessee in this behalf could be separately shown. Accordingly, the assessee had shown the amount under the column brokerage. However, the assessee was bound by its undertaking to its clients to refund these amounts to them in the event the amount being found as not payable to SEBI. The learned counsel further pointed out that reduction in the levy was initially announced by its Circular dated 30-9-2002 in pursuance to the judgment of Honble Supreme Court. Until then the exact amount payable by the assessee to SEBI had not been quantified. The learned counsel argued that the entire conduct of the assessee would show that amount had been collected by it to be utilized either in discharging of its liability either to SEBI by way of Turnover fee/charges or it was to be refunded to the clients. As far as the assessee was concerned, these receipts were to yield no income at all.
13. The learned counsel for the assessee argued that the reliance placed by the assessing officer as well as the CIT (A) on the judgments in the line of Chowringhee Sales Bureau (P) Ltd.s case (supra) was not justified because those judgments had no bearing on the facts of the case of the assessee. There were two major areas of difference. First, in those cases there was no challenge to levy itself. In the case of the assessee, the levy by SEBI had been challenged and Honble Madras High Court had, in the case of the assessee, stayed operation of levy until further orders. Secondly, in those cases sales tax whether collected as part of price or separately was paid by customers without any further claim. What the assessee did with the amount collected was not the concern of the customer. In the case of the assessee, the amounts had been collected with express commitment that these amounts not being paid to SEBI would ultimately be refunded to the persons from whom collected. For these reasons, the ratio in the case of Chowringhee Sales Bureau (P) Ltd. (supra) did not apply. The learned CIT (A) was not justified in para 11 of the impugned order to state that the stay granted by Madras High Court had no bearing on the case of the assessee. The learned CIT (A) also erred in para 13 that in law there was nothing like provisional collection claimed by the assessee. As far as the assessee was concerned, it had to be paid either to SEBI or the party. Either way, the amount would never come to the assessee.
14. The learned counsel argued that the CIT (A) had not been right in disregarding the Sugar Levy case law relied upon by the assessee on the ground that there was no separate account kept by the assessee of the amounts collected. The fact of the matter was that Sugar Control orders prohibited the sugar mills to collect any amount more than the control price. Hence, the court orders were made permitting them to collect the price at the old rate. For that reason certain conditions were imposed by the courts. In the case of the assessee, there was no prohibition on collection of Turnover fee/charges from clients. The assessee did not require any court order for the same. The learned counsel pointed out that in the case of Seksaria Biswan Sugar Factory (P) Ltd. (supra) the judgment of the Honble Supreme Court in the case of Chowringhee Sales Bureau was argued but Honble Bombay High Court held that the same had no application on the facts of the case. Apart from Chodavaram Co-operative Sugars Ltd.s case (supra) and Seksaria Biswan Sugar Factory (P) Ltd.s case (supra) the learned counsel also relied upon the judgments in CIT v. M. P. State Agro Industries Development Corpn. (1983) 139 ITR 312 (MP) and 207 ITR 464 (Bom). The learned counsel also placed reliance on the judgments in CIT v. Tollygunge Club Ltd. (1977) 107 ITR 776 (SC) in the case of CIT v. Bijli Cotton Mills (P) Ltd. (1979) 116 ITR 60 (SC) and argued that in those cases Dharmada receipts collected by the traders were held to be not chargeable to tax because the receipts had not been collected as price of goods. The facts of the case of the assessee were identical. He had collected the amount in question not as consideration for services rendered and not for any purpose for himself. In this context, the learned counsel also placed reliance on the judgment in the case of Taparia Tools Ltd. v. Joint CIT (2003) 260 ITR 102 (Bom). The learned counsel further argued that the case of the assessee could also be decided on the basis of real income principle. How could the assessee be charged tax in respect of amounts in question when it was quite clear that no part of pavement was to result into an income to the assessee. In this context he referred to the judgments in Godhra Electricity Co. Ltd. v. CIT (1997) 225 ITR 746 (SC); CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) and Dy. CIT v. Nagarjuna Investment Trust Ltd. (1998) 65 ITD 17 (Hyd-Trib)(SB).
15. Assailing the invocation of section 43B, the learned counsel argued that the provisions of section 43B did not apply to all kind of fee charged by all kind of authorities and agencies. For a fee to become part of section 43B, the same should be in the nature akin to tax. In support of this proposition, he Placed reliance on the judgments in Varas International (P) Ltd.s case (supra) and Shree Warna Sahakari Sakhar Karkhanas case (supra). He also placed reliance on the decision of the Tribunal in Sarvaraya Textiles Ltd.s case (supra). The learned counsel argued that SEBI was not an authority to impose any tax or any fee in the nature of tax. The basis on which Turnover fee charges was levied was that SEBI rendered general services by regulating stock market. As a matter of fact, the learned CIT (A) did not dispute this aspect and had admitted at page 21 of his order that the Honble Supreme Court has upheld the fee on the basis that it was not in the nature of tax. That being so, the provisions of section 43B could not be in picture at all.
16. The learned CIT (Departmental Representative) argued that what the assessee collected was, essentially, brokerage. Contract notes issued by the assessee did not draw any distinction in relation to the amounts collected. The entire receipts of the assessee were charged as brokerage only. It was only the assessees contention that part of it had been collected as turnover fee. The Regulatory authority authorized no such collection. The argument of the assessee that he held the amounts in Trust was without legal basis. If it were the liability of the buyers to pay turnover fee, the assessee could say he kept the amount in fiduciary capacity. In the case of the assessee, turnover fee was imposed on the assessee and not on its customers. Where was then any question of the customers paying any thing by way of turnover fee/charges ? Hence, whatever the assessee collected from its clients was only in consideration of services rendered by the assessee to its clients. The collections were made by the assessee in the course of its trading activity, hence the principle laid down in the Chowringhee Sales Bureau line of judgments squarely applied on the facts of the case of the assessee. The learned CIT (Departmental Representative) argued that after collecting the amounts as trading receipts, the assessee could not claim that there was corresponding liability to pay the amount to SEBI when it was the assessee who had challenged the levy itself. The principle laid down by the Honble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) did not apply where the levy itself was under challenge. The learned Departmental Representative referred to the judgment of the Honble Madras High Court in the case of CIT v. Hotel Srilekha (P) Ltd. (2001) 250 ITR 573 (Mad). In that judgment, it was clearly held that hotel receipts tax collected by the assessee amounted to trading receipt of the assessee and were liable for assessment. The assessee would be entitled to claim deduction of the amount as and when it paid it to the government or refunded it to its customers. Until then the amount was clearly chargeable to tax as the assessees trading receipts. The amount in question in this appeal accrued to the assessee as income during the year. The deduction against it could only be claimed on actual payment to SEBI or refund to the clients. Thereafter, the learned Departmental Representative referred to the judgment of Honble Patna High Court in the case of Kali Prasad Singh v. CIT (1955) 28 ITR 294 (Pat). In that case, the assessee had collected from the tenant certain part of road tax which was the assessees own liability. The Honble Patna High Court held that it did not matter that the tenant had agreed to pay the same. The amount represented income of the assessee. Then, the learned CIT (Departmental Representative) referred to the judgment of the Honble Supreme Court in Jonnalla Narashimharao & Co. v. CIT (1993) 200 ITR 588 (SC). In that judgment it was held that amounts collected by way of sales tax even while sales tax was disputed by assessee represented the income of the assessee. Reference was made to the judgment of the Honble Supreme Court in the case of K.C.P. Ltd. v. CIT (2000) 245 ITR 421 (SC). The learned Departmental Representative pointed that in that case the assessee had paid the excess sugar price to the Sugar Equalization Fund of the government. But the Honble Supreme Court held that payment to such fund subsequently did not have any bearing on the taxability of the amount that was a trading receipt of the assessee in the year in which it was collected. Thereafter the learned CIT (Departmental Representative) referred to the judgment of the Honble Supreme Court in CIT v. United Provinces Electric Supply Co. (2000) 244 ITR 764 (SC). He argued that in that case it was held that after having received the amount of compensation pendency of arbitration proceedings and the possibility of the amount being reduced could not affect the liability to assessment.
17. The learned CIT (Departmental Representative) argued that from the judgment, it was clear that when a trader collects certain amounts from its customers on account of having supplied any goods or services to his customers, the same has to be considered as trading receipts in lieu of goods or services supplied by the trader. The fact that the consideration for goods or services was fixed having regard to any tax or levy whatever does not alter the character of the receipt. Once the money is received in this manner, liability to tax is attracted for the whole amount. Subsequent events would not change that fact.
18. The learned CIT (Departmental Representative) argued that the contentions of the assessee based on matching principle were not justified. Where the statutory payments are recovered from customers, the matching principle is not in the picture. The assessee is liable to be assessed for the collection of amounts. Deduction of payments of tax paid would be given to the assessee separately and not as a matching expenditure of the amounts collected.
19. The learned CIT (Departmental Representative) argued that there was not much substance in the argument that provisions of section 43B did not apply to Turnover fee/charges. Honble Bombay High Court has in the judgment in Sree Warna Sahakari Sakhar Karkhanas case (supra) held that there was not much distinction between a tax and a fee. Moreover, in the judgment of Honble Supreme Court upholding the levy by SEBI the amount was considered to be fee. The provisions of section 43B were, therefore, squarely applicable.
20. In his rejoinder, the learned counsel for the assessee sought to distinguish various judgments relied upon and referred to by the learned CIT (Departmental Representative). He, in particular pointed out that in the judgment in Hotel Srilekha (P) Ltd.s case (supra), the assessee had collected hotel receipt tax even before the levy was enacted. In such circumstances. the amounts were found to be assessable as income of the assessee.
21. We have carefully considered the rival submissions. The dispute in this appeal is basically of the year of allowability. According to the assessee it is entitled to claim deduction of corresponding liability in this year of collection of the amounts in question, according to revenue the assessee is entitled to deduction only in the year when the amount in question was in part paid to SEBI and in part refunded to the clients from whom it was collected. The case of revenue is based on the broad legal principle that when a trader collects certain amounts from its customers on account of having supplied any goods or services, the same has to be considered as trading receipts irrespective of the fact that a portion of the collection had been attributed to or earmarked for the traders liability to pay any tax, duty, levy or fee arising from or essential to the transaction. According to the assessee this broad legal principle is inapplicable to a case where the collection of such portion is fastened with the unequivocal liability to refund, more so when the operation of the levy itself had been stayed. There were two major areas of difference. First, in Chowringhee Sales Bureau line of cases there was no challenge to levy itself. Secondly, in those cases sales tax whether collected as part of price or separately was paid by customers without any further claim. What the assessee did with the amount collected was not the concern of the customer. In the case of the assessee, the amounts had been collected with express commitment that these amounts not being paid to SEBI would ultimately be refunded to the persons from whom collected. For these reasons, the ratio in the case of Chowringhee Sales Bureau (P) Ltd. (supra) did not apply.
22. The CIT (A) has heavily relied upon the judgment of Honble Supreme Court in the case of Thirumalaiswami Naidu & Sons (supra). Honble Supreme Court have delivered the pithy judgment in following words :
"The question referred in this case is as under (see (1984) 147 ITR 657) page 663 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 1,37,379 from the taxable trading receipt of the assessee for 1974-75.
The assessee in the course of sale of its products, collected sales tax from the purchasers. The assessee, in its turn, was assessed under the Central Sales Tax Act and paid the tax. The sales tax collected by the assessee has to be treated as its income, according to the ruling of this court in the case of Chowringhee Sales Bureau (P) Ltd. v. CIT (1973) 87 ITR 542 (SC). Any payment of sales tax made by the assessee was equally liable to be deducted from the profits made by the assessee. In this case, the assessee had actually made the payment of sales tax under the provisions of the Central Sales Tax Act. Those provisions were under challenge and ultimately were struck down by the Madras High Court. The assessee got back an amount of Rs. 1,37,379 as refund. The entire amount of sales turnover of the assessee inclusive of the amount of tax collected was clearly includible in the assessees taxable income. If any deduction was given from that income and later the same was refunded back to the assessee, the refund will have the character of revenue receipt. It has to be treated as a receipt on the revenue account and has to be assessed as such. The position has been placed beyond doubt by the express provisions ion 41(1) of the Income Tax Act.
The next question is if the assessee returns any portion of the amount to its customers, will it still be liable to pay tax on the entire amount. Admittedly, the assessee had not refunded any part of this amount of Rs. 1,37,379 to any one of its customers in the year of account. As and when such refund is made, the assessee will be entitled to claim deduction.
We are of the view that the Tribunal was in error in deleting the amount from the trading receipt of the assessee from the assessment year 1974-75. The question is, therefore, answered in the negative and in favour of the revenue.
The appeal is allowed. There will be no order as to costs." (p. 535) We find the fact that the assessee had not refunded any part of the amount in the year of account went against that assessees claim because there was no ascertained or crystallized liability to refund and, therefore, unless the assessee had refunded the amount he could not claim deduction on the mere assertion that he had intention to make the refund. The facts of that case are distinguishable. In the case before us the assessee had bound himself to make refund as a precondition of the collection from the customers.
23. We have looked into the various judgments relied upon by the learned CIT Departmental Representative apart from the Chowringhee Sales Bureau (P) Ltd.s case (supra) and like judgments. The first and foremost he relied upon the judgment of the Madras High Court in the case of Hotel Shrilekha (P) Ltd. (supra) in that case, the assessee was running a hotel in Madras. The assessee had collected certain amounts as hotel receipts tax from its customers. The question arose whether the amount thus collected could be taxed as trading receipts of that assessee. It was not in dispute that assessee had not paid this amount as tax either Hotel Receipts Tax Act itself had been withdrawn. The assessee, however, argued that he was liable to refund the amounts to its customers. Hence, following the judgment of the Honble Supreme Court in the case of Thirumalaiswami Naidu & Sons (supra), Honble Madras High Court held that the amounts collected by the assessee were assessable as trading receipt of the assessee. Here again we find that the tax was collected from the customers without a prior commitment that the same would be refunded to them in case the amount was not payable to the Government account by way of hotel receipt tax. We, therefore, find that the facts of the Madras High Court judgment are materially different from the case before us.
24. The next case relied upon by the learned CIT Departmental Representative is of Patna High Court in the case of Kali Prasad Singh (supra). In that case, the assessee had entered into certain lease agreements where under the lessee was to pay the assessee entire road cess payable under the Cess Act in addition to the prescribed rent or royalty. During the accounting period, the assessee realized a sum of Rs. 4,609 on account of road cess. This amount was assessed as income of the assessee. The Patna High Court further noted that under section 80 of the Cess Act, the lessee was liable to pay only 50 per cent and the landlord was liable to pay the other half of the amount. Since the less or had realised the entire amount of the cess from the tenants and not merely half the amount, it was clear that the lessor had derived an advantage, or benefit equal to half the amount of road cess which he had realised from the tenants. Hence, Honble Patna High Court held that the amount of Rs. 2,304 that was half of the amount of Cess received by the assessee from the lessee was in excess and represented the income of the assessee. We find that the facts of the case are vastly different from the case before us. There was no stipulation that the registration fee levied upon the assessee by SEBI could not be collected by the assessee from its clients or could be collected up to specified percentage only. We, therefore, find that the facts of the case of Kali Prasad Singh (supra) are altogether different.
25. In the case of Jonnalla Narasimharao & Co. (supra), the assessee collected certain amount by way of sales tax, but inasmuch as he was disputing the very levy of sales tax during that year, he collected it under the name of "rusum". The matter was subsequently set to rest by a retrospective amendment to Andhra Pradesh General Sales-tax Act. The question arose as to whether the collection in the name of "rusum" constituted the assessees business receipt; and secondly, whether it was deductible expenditure for the assessment year 1968-69, as the assessee did not actually remit the tax during the assessment year. Following the judgment of the Chowringhee Sales Bureau (P) Ltd.s case (supra) the Honble court held that the amounts collected by the assessee in the name of rusum constituted business receipt of the assessee. However, following the judgment in the case of Kedarnath Jute Mfg. Co. Ltd. (supra), the Honble court held that as the assessee was following mercantile System of accounting, he could rightly claim deduction of the same as a statutory liability. Once again, we find that it is the case where the assessee collected amounts pertaining to disputed tax liability without any prior commitment to the customers, from whom the amounts were collected, to refund the same in the event of the amount not being payable as sales-tax. Hence, this judgment also does not cover the controversy in the present appeal.
26. In the case of KCP Ltd (supra) the assessee, a Sugar Company challenged the levy price of sugar under the interim order of High Court of Andhra Pradesh, operation of the notification issued by the government was suspended pending further orders on the assessees petition. Protected by the interim order, the assessee continued to sell sugar at the old rate and thus collected an amount of Rs. 14,96,130 in excess of levy price of sugar fixed by the government. The assessing officer assessed excess price collected by the assessee in this manner, as income of the assessee. The Sugar Company disputed the assessment of the amount of Rs. 14,96,130. It transpired that the Sugar Company was bound by the interim order of the High Court to refund the excess money to its customers in the event of not been successful in its writ petition. The writ petition had been dismissed but the Sugar Company had not done so and admittedly the amount continued to remain with the Sugar Company. Finally, in the year 1997, the Sugar Company transferred the excess price to the Sugar Equalization Fund of the Government. The Honble Supreme Court held that such transfer in the year 1997 did not have any bearing on the taxability of the amount which was the trading receipt in the assessment year 1972-73. On these facts, the Honble Supreme Court found that the facts of KCP Ltd.s case (supra) were distinguishable from the judgments in the case of CIT v. Mysore Sugar Co. Ltd, (1990) 183 ITR 113 (Karn); Seksaria Biswan Sugar Factory (P) Ltd. (supra), Chodavaram Co-operative Sugars Ltd. (supra). We find that the facts of KCP Ltd. (supra) are in the same way distinguishable from the facts of the case before us.
27. Finally, the learned CIT Departmental Representative relied upon the judgment of the Honble Supreme Court in the case of United Provinces Electric Supply Co. (supra). In that case, the assessee was engaged in generating and supplying electricity to the consumers. The assessees undertakings were compulsorily acquired. The possession of the undertaking was handed over to UP Electricity Board with effect from September 1964. The Board paid Rs. 62,60,668 and Rs. 41,35,398 to the assessee as compensation. The final compensation was paid to the assessee amounting to Rs. 3,35,84,552. The assessee accepted the said amount without prejudice to its right to claim enhanced compensation. The assessing officer assessed the sum of Rs. 3,35,84,552 as sales proceeds of the assessees electricity undertaking. The assessee contended that no profit under section 41(2) could be taxed in the assessment year under consideration because the claim of the assessee for compensation was not settled during the year and that dispute was still pending before the Arbitrators. The Honble court found that it was not the case of the assessee that pending final determination of the purchase price he had not accepted the amount paid to him. Pendency of litigation for getting additional amount had no relevancy so far as the taxability of compensation received was concerned. On consideration, we find that this judgment does not assist the case of revenue in any manner. In that case the amount already received by the assessee was not in dispute.
28. After consideration, we are of the view that the authorities below were not justified in distinguishing the binding judgment of the jurisdictional High Court in the case of Seksaria Biswan Sugar Factory (P) Ltd. (supra). In that case, the Honble Bombay High Court considered the following question of law :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 8,64,323 which was the difference between the proceeds of sale of 11,884 bags of sugar sold by the assessee company at the rate of Rs. 209.60 a quintal, which was the selling price fixed by the Allahabad High Court, and the proceeds of sale at the rate of Rs. 136.87 a quintal fixed by the Central Government, which amount was actually realised by it, did not constitute its income and hence was not liable to be included in its total income ?" (p. 779)
29. The revenue placed reliance on the judgment of the Honble Supreme Court in the case of Chowringhee Sales Burean (P) Ltd. (supra). On behalf of the assessee, the reliance was placed on the judgment of the Andhra Pradesh High Court in the case of Chodavaram Co-operative Sugar Ltd.s (supra) and Karnataka High Court judgment in the case of Mysore Sugar Co. Ltd. (supra). After consideration of the matter, the Honble court held as under :
"Having heard the parties and after going through the decisions relied upon, we are in agreement with the view of the Karnataka High Court. What has happened in this case is that the assessee was permitted to collect the amount in question only pursuant to an interim order made by the court, which was subject to several conditions to make the right absolute. Therefore, the collection made by the assessee at an enhanced rate at that stage was an inchoate one as this extra amount did not accrue to the assessee until the finalisation of the dispute pending before the court. In fact, this is also the view taken by the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC). Accordingly, we are in agreement with the Tribunal and answer the first question in the affirmative and in favour of the assessee."
30. In our opinion, the assessee has rightly placed reliance on the judgment of the Honble jurisdictional High Court in the case of Seksaria Biswan Sugar (P) Ltd. (supra). According to the revenue, the facts of the assessees case are distinguishable inasmuch as that assessee had been allowed to collect the price in excess of price fixed by the interim order of the court and subject to excess amount being deposited in a separate account and various other conditions. That assessee had been allowed to collect, but he had no control over the fund. In our view, the revenue has not appreciated that the assessee in the case before us had retained control over the funds only as an interim measure while the matter was under dispute. The amounts were in the possession of the assessee subject to the overriding liability either of SEBI or of the clients. We do not, therefore, see much material distinction between the facts of the case and the facts of the assessees own case. The assessee before us also did not have absolute right over the amounts collected, as the same did not accrue as income at all.
31. During the course of hearing before us considerable arguments were made in relation to the provisions of section 43B. The learned CIT Departmental Representative argued that the assessee could not claim deduction based on the judgment of Honble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd (supra) in view of the provisions of section 43B and the deduction was admissible to the assessee only when actual payment was made to SEBI or refund made to the clients. The learned counsel for the assessee also addressed us at length that provisions of section 43B were not applicable inasmuch as the levy was not included in the meaning of section 43B. We find that the learned CIT (A) has quoted, extensively from the judgment of Honble Supreme Court in the case of BSE Brokers Forum (supra) and argued that the Honble court had upheld the levy as regulatory fee not based on any quid pro quo. We find that at the same time Honble court held that the levy was not akin to any tax also. Be that as it may we find that the question of the provisions of section 43B arises only if the amounts collected by the assessee are considered to be trading receipts of the assessee. Then the question would arise as to whether the assessee can claim deduction on the ground of liability to pay the fee to SEBI. As we have held that the assessee did not have any absolute right over the amounts collected by it and the same were lying with the assessee only on account of uncertainty over the extent of liability owed to SEBI and, therefore, the same did not constitute any trading receipts in the hands of the assessee the further question relating to the applicability of the provisions of section 43B has been rendered academic and we need not go into the same. We find also that during the year under consideration the operation of the levy itself had been stayed. We may, however, observe that the bar against deduction without actual payment under the provisions of section 43B is at best applicable to the fee payable to SEBI and the same cannot be automatically extended to the amounts refundable to the clients.
32. In view of the discussion in the foregoing paragraphs we hold that the sum of Rs. 3,59,93,740 has been wrongly assessed as the assessees income chargeable to tax for the assessment year before us. We direct deletion of the same to the extent the same have been refunded to the clients from whom it was collected, shortly after the determination finally of the fee payable to SEBI for the assessment year under consideration. The assessing officer would allow deduction to the assessee of the fee paid to SEBI in the year of payment. For statistical purposes this appeal shall be treated as allowed.