Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax vs Maharashtra Scooters Ltd. on 5 February, 1997
Equivalent citations: [1997]61ITD12(PUNE)
ORDER
Shri G.K. Israni, Judicial Member
1. This appeal by the department pertains to the assessment year 1985-86 and raises the following grounds :
"(1) On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in allowing the deduction on account of technical know-how fees treating as revenue expenditure.
(2) On the facts and in the circumstances of the case, the CIT (Appeals) erred in deleting the disallowance under section 43B.
(3) On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in allowing the expenditure on asphalting and concreting of roads, as revenue expenditure.
(4) The order of the CIT (Appeals) may be vacated and that of the ITO/IAC(A) be restored."
Ground No. 1 :
2. The learned departmental representative did not advance any argument in respect of this ground and only relied upon the order of the Assessing Officer. As against this, the learned counsel for the assessee submitted that this issue had earlier been agitated in the assessee's own case in relation to the assessment years 1978-79 to 1983-84 and the Tribunal by its order dated 30-11-1988 in the ITA No. 920/PN/83, etc., had concluded this issue in favour of the assessee. No reference has been sought by the department against this order of the Tribunal. This order has further been followed by this very Bench in its order dated 28-9-1993 in ITA No. 870/PN/88, etc. The payment of the current year has been made pursuant to the same agreement under which the payments for technical know-how were made in the earlier years. Even though the department had made a reference application in relation to the assessment year 1984-85 and 1986-87, no question relating to the treatment of the technical know-how fees as capital/revenue capital was suggested. As such, according to the learned counsel, the issue stands concluded against the department. We find that the plea of the learned counsel is fully substantiated by the above orders. This ground raised by the department is, therefore, liable to be rejected.
Ground No. 2 :
3. The issue involved in this ground has been dealt with by the learned CIT (Appeals) in paras 8 & 9 of his impugned order in the following manner :
"8. Ground Nos. 1(ii) and 9 :
In these grounds the appellant has contested the addition of Rs. 80,03,656 under Section 43B of the IT Act. During the course of hearing the IAC (Appeals) had requested the appellant to submit details regarding disallowance, if any, under section 43B. The appellant-company had replied through its letter dated 16-1-1987 that there are no such disallowances. However, on going through the details of pages 33 to 40 of compilation furnished before the IAC(A) it was found that there were certain items that would prima facie be covered by section 43B and they were as under :
i. Sales-tax set off Rs. 68,18,490
ii. Central sales-tax colln. Rs. 49,409
iii. E.S. Collection Rs. 95
iv. M.S.L. Provident fund Rs. 375
v. F.P.F. collection Rs. 2
vi. Octroi duty Rs. 151
vii. Excise Duty Rs. 11,35,215
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Rs. 80,03,656
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It was pointed out before the IAC (Appeals) that the CIT (Appeals) in the earlier assessment year had deleted the addition made under the sales-tax set off and therefore at least amount of Rs. 68,18,490 cannot be added back under section 43B. The IAC (Appeals), however, did not agree with this argument of the appellant's counsel on the ground that the CIT (Appeals) had accepted the appellant's counsel on the ground that the CIT (Appeals) had accepted the appellant's claim that this set off, as has been experienced, is quite verifiable factor and that some businessman do not find it more realistic to offer this amount as income on receipt basis. Therefore, the IAC (Appeals) did not follow the decision of the CIT (Appeals). On the contrary he referred to the decision of SC reported in 82 ITR 835. Thus, in the light of this decision and the provisions of section 43B read with another decision of SC in 87 ITR 142, the IAC(A) has disallowed the entire sum of Rs. 80,03,656 in terms of section 43B.
9. It has been argued before me that while making the above disallowances in para 9 of the assessment order, the IAC(A) ought to have appreciated that all claims of the appellant-company are not arising out of any sales tax but they are on account of certain use of raw material subsequent to their purchase and that the purchases tax which has already been paid at the time of purchase of raw materials is the tax out of which these set off claims are made by the assessee and were allowed by the Sales-tax Department. The IAC (Appeals) has also further erred in completely ignoring the fact that the balance outstanding on the sales-tax set off account do not represent any outstanding sales-tax liability to be paid in future. It only represents a credit balance on the account that sales-tax department on account of claims made by the assessee which are to be finally determined by them. This set off claims represent a source of receipt for the assessee-company out of purchase tax already paid and further the assessee-company has opted to offer the said receipt on the basis of the date when finally determined and accepted by the sales-tax department. This apart it was also proved that out of a sum of Rs. 68,18,409 on account of sales-tax set off two sums amounting to Rs. 14,52,518 and already been added back to the income of the appellant-company for the assessment years 1983-84 and 1984-85. Thus at the most sum of Rs. 29,51,283 pertaining to the present assessment year could have been disallowed under section 43B. Therefore, disallowance to the extent of Rs. 38,67,126 has been wrongly made in the present assessment year. Similarly, out of excise duty payable shown as outstanding at the end of the previous year of Rs. 11,35,215, the entire provisions was made in the respective assessment year, namely, 1980-81, 1981-82, 1983-84 and 1984-85, the break-up of which was already furnished to the IAC (Appeals). Out of this provision a sum of Rs. 2,82,933 has already been added back in the assessment year 1984-85. Since the provisions of section 43B came into force w.e.f. assessment year 1984-85, this amount should have been added in the assessment year 1984-85 and not in the present assessment year. The remaining items included in the total disallowance namely, ESI collection, MSL provident fund, F.P.F. collection and octroi duty were not pressed at the time of hearing, they being very a negligible.
10. After considering the above facts and detailed break-up of the outstanding liability under the various heads, I find that the IAC (Appeals) was clearly in error both on facts as well as in law invoking the provisions of section 43B without even analysing the composition of outstanding balances shown by the appellant-company. The point regarding sales-tax set off has already decided in appellant's favour by the CIT (Appeals) to which the IAC (Appeals) has disagreed without advancing valid reasons. The decision of SC cited by him reported in 82 ITR 635 is quite on different issue, i.e., under mercantile system of accountancy legal liability on account of various dues have to be allowed on due basis or on the basis when liability has been actually disbursed. In the instant case, sales-tax set off provided in the assessment year 1983-84 and 1984-85 have been added but the same has been deleted by the CIT (Appeals). Thus, at least to the extent of Rs. 38,67,126 there is no question of making similar disallowance again. Even in respect of set off of the present assessment year following decision of my predecessor, I do not find any justification to differ from the said decision. This apart sales-tax set off is quite distinguished from the sales-tax liability proper which is covered by section 43B of the Act. As has been explained by the authorised representative this is a sort of source of income to the appellant-company, but it has been shown on liability side till final decision is taken by the sales-tax dept. by allowing set off against purchases tax already paid by the appellant-company. I, therefore, do not agree to the view that the sales-tax set off can be disallowed under section 43B of the Act.
11. Insofar as the excise duty balances are concerned, I find that these provisions related from assessment year 1980-81 to 1984-85. Even if provisions have to be disallowed on the basis of earlier liability before insertion of section 43B, they should have been added back in the respective assessment years. I was told that at least up to assessment year 1983-84 such provisions have been added back and that even for assessment year 1984-85 remaining provision of Rs. 2,82,933 has also been added. Thus, for all these reasons except ESI collection, MSL Provident fund, F.P.F. collection and octroi duty, three items of disallowance of Rs. 68,18,490, Rs. 49,409 and Rs. 11,35,215 should be excluded from the total disallowance."
4. It was submitted by the learned departmental representative that the issue under consideration involves not only the disallowance of statutory dues under section 43B, but also involves the question of accounting of sales-tax set off. The learned counsel for the assessee submitted that the assessee used to account for the sales-tax set off on receipt basis and not on accrual basis. This is for the reason that the entitlement of set off crystallises only when the sales-tax authority passes the assessment order in the sales-tax proceedings. The assessment orders in the sales-tax proceedings are passed only in subsequent years and in some cases after delay of number of years. The assessee is, therefore, not in a position to know as to exactly what amount of set off would be allowed to him and when. In this connection, the learned counsel placed reliance upon the decision dated 28-9-1993 passed by the Pune Bench of the Tribunal in ITA No. 870/PN/83, etc., in the assessee's own case. In those appeals, similar plea of the assessee in relation to the earlier years has been accepted by this Bench. In further support, the learned counsel placed reliances upon the decision of the Ahmedabad Bench of the Tribunal in the case of ITO v. Texmac Engineers [1991] 39 TTJ 365.
5. We find that challenge to this part of the impugned order cannot succeed and, therefore, this ground of appeal is rejected.
Ground No. 3 :
6. The learned CIT (Appeals) has held that the expenditure of Rs. 5,06,381 out of repairs and maintenance for asphalting and concreting of roads is an expenditure of revenue nature. The learned departmental representative challenged this part of the order with the assistance of the decision of the Calcutta High Court in the case of Humayun Properties Ltd. v. CIT [1962] 44 ITR 73. It was contended that asphalting and concerting of roads leads to creation of altogether new asset and such expenditure cannot be allowed on the ground that it is on current repairs. According to the learned departmental representative, only such expenditure can be treated as of revenue as is incurred on current repairs as distinct from renovation. According to the learned counsel, the degree of improvement and the identity of the asset which was subject-matter of renovation, etc., have also to be considered. In support of this view, he placed further reliance upon the decision of the Bombay High Court in the case of New Shorrock Spg. & Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338. It was submitted by the learned counsel for the assessee that asphalting the concerting of roads has not led to creation of any new asset. The asphalting and concreting amounts only to repairs or improvement of roads. It is not necessary that in order to classify an expenditure as of revenue nature, such expenditure should only be on current repairs. According to the learned counsel, direct support to his contention is available from the decision of the Bombay High Court in the case of CIT v. Chemaux Ltd. [1994] 74 Taxman 201.
7. We have studies the decision of the jurisdictional High Court and find that it covers the issue under consideration on all fours. It has been held therein that expenditure on repairs of approach roads and resurfacing of kachha road inside the factory premises constitute expenditure of revenue nature and is therefore allowable as such. In view of this decision of the jurisdictional High Court, further, discussion of the issue does not appear to us to be necessary. We therefore reject this ground of appeal.
8. In the result, the appeal fails and is dismissed.
P. Pradhan, Accountant Member
1. I have gone through the order passed by my learned Brother, but, I am unable to agree with the reasons given and conclusions arrived at regarding ground No. 2 on allowability of deduction under section 43B of Income-tax Act. As regards findings on ground No. 1, on technical know-how fees, and on ground No. 3, on expenditure on asphalting and concerting of roads, I agree with the findings of my learned Brother.
2. The Assessing Officer added Rs. 80,03,656 on account of sales tax under section 43B of the Income-tax Act, the assessee took up the issue in appeal to the CIT (Appeals), who has deleted the same. The reasons for deletion by the CIT (Appeals) have been extracted by my Brother in para-3 of the order. The revenue is aggrieved by the said deletion and is in appeal before the Tribunal, and has raised the following ground :
"On the facts and in the circumstances of the case, the CIT (Appeals) erred in deleting the disallowance under section 43B."
3. During the course of hearing of appeal, the learned DR relied on the order of the Assessing Officer and also submitted that the deletion is contrary to the provisions of the section, and against the legislative intention of the Legislature. The learned AR of the assessee, on the other hand, submitted that the issue in question is covered by the decisions of the Pune Bench of the Tribunal in assessee's own cases in ITA Nos. 920/PN/83 to 922/PN/83 and 258/PN/85, 832/PN/85 and 693/PN/85 dated 30-11-1988 for the assessment years 1978-79 to 1983-84 and also in ITA Nos. 870, 436, 871, 494, 919 and 920/PN/88 dated 28-9-1993. The learned AR further relied on the decisions of the Tribunal in the case of Texmac Engineers (supra).
4. I have gone through the order of the CIT (Appeals), order of my learned Brother for the year under consideration and the orders of the Appellant Tribunal dated 30-11-1988, and dated 28-9-1993, in assessee's own case and find that they are not in accordance with the provisions of section 43B and contrary to the intention of the Legislature. In this connection, it may be mentioned that section 43B was inserted by the Finance Act, 1983, w.e.f. 1-4-1984. The first Pune Bench's order dated 30-11-1988, was rendered for the assessment years 1978-79 to 1983-84, when the provision of section 43B was not in the statute. So the findings of the Tribunal for those years cannot be disputed. As regards the findings of the Tribunal in assessee's own case, in order dated 28-9-1993, for the assessment years 1984-85 to 1986-87, it may be mentioned that the order dated 28-9-1993, simply followed the order dated 30-11-1988, though they were for the subsequent to the insertion of section 43B. The orders dated 30-11-1988 and 28-9-1993, are before and after the insertion of section 43B, but, the result is the same. The later decision has been rendered merely following the earlier one on the footing that as if section 43B has not brought any change to the scheme of taxation.
5. By now it is well-settled that the sales tax collected is a revenue receipt as per decisions of :
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. Central Wines v. Special CTO 1987 SC 611.
Therefore, the sales-tax collected but the portion not paid is to be treated as trading receipt and should be taxed, as section 43B prohibits any other deductions except those which have been actually paid. In the instant case, the assessee is collecting sales-tax and is not paying to the Government as required but keeping in a separate account and is not also showing the same as its income. The same is shown as income only on the completion of sales-tax assessments and after making adjustments. The sales-tax authorities complete the assessments not immediately, but, after lapse of some years in some cases. This method and procedure adopted by the assessee is in fact contrary to the section 43B of Income-tax Act, and against the spirit and intention of the Legislature.
6. According to me, the deduction of Rs. 80,03,656 as proposed by my learned Brother is contrary to the intention, spirit and provisions of section 43B of Income-tax Act ; my learned Brother has not considered the marginal note to section 43B - "certain deductions to be only on actual payment". They have also not considered non obstante nature of the clause. For the abovenoted two propositions, I rely on the Supreme Court's decision in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37. In this particular case, their Lordships of the Supreme Court have given finding regarding the importance and significance to be given, and attached to the head note and also interpreted non obstante character of a particular section. Their lordships have given their interpretation on the above points while deciding the issue which came up before them under section 40A(7) of Income-tax Act. In this connection, it may be noted that the head notes and language of sections 43B and 40A(7) are identical. Their Lordships of the Supreme Court have observed that the marginal note under the heading 'certain deductions to be only on actual payment.' If the marginal note or heading is any indication and it certainly is a relevant factor to be taken into consideration in construing the ambit of a section, the payments which have not been made are to be taxed. Therefore, the heading of the section is a clear indication that amounts are to be taxed as the payments have not been made to the Government account, because they are trading receipts. This is further abundantly made clear by the non obstante expression used in section 43B read with marginal note of the section. Their Lordships have also held in the above cited case that section starts with the non obstante clause "notwithstanding anything contained in any other provisions of this Act, etc. .........", the effect of these words is that even if a particular expense is allowable, it cannot be allowed unless actual payment has been made. Section 43B has an overriding effect on the provisions relating to the computation of income under head 'Profits and gains of business or profession'. The requirement of section 43B is a mandatory. So, in view of these facts, once it is held that sales-tax receipts are trading receipts, and they had not been paid during the accounting year, then there is no escape from taxation only on the ground that they were not due. Their Lordships have further observed in the abovementioned case that where intention of the Legislature in enacting the provision in question was to put an embargo on the deductions, to interpret the same in any other way amounts to defecating that purpose. In this connection, the intention of the Legislature in enacting the provisions of section 43B would be apparent from clause 18 of the Finance Bill, 1983. This section was inserted by Finance Act, 1984 w.e.f. 1-4-1984. The Hon'ble Finance Minister, while introducing the Bill, explained the objects and background of the bill as under.
"Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc. for long periods of time. For the purpose of their income-tax assessment, they nonetheless claim the liability as deduction even as they like resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices, I purpose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid." [p. 31 of 140 ITR (St.)].
The above clearly shows that the object of section 43B is to discourage those who do not discharge their statutory liabilities even though they claim and obtain those liabilities as deduction on the ground that they maintain accounts on mercantile or accrual basis. Section 43B was intended to apply to cases where the statutory liability remained undischarged though the assessee, in such a case, was entitled to claim deduction on the ground that he maintains his accounts on mercantile or accrual basis.
7. It may also be mentioned that the memorandum explaining the provisions in the Finance Bills, 1989 clarified the object of insertion of the first proviso which is as follows :
"Under the existing provisions of section 43B of the Income-tax Act, a deduction for any sum payable by way of tax duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a statutory liability which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous years relates. This proviso was introduced to remove the 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." [See [1989] 176 ITR (St.) 123].
8. Before parting with the subject, it may also be mentioned that Hon'ble Supreme Court in the case of CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377 at page 383, their Lordships have held that "we cannot say that the Legislature did not know its own mind when it used its own expression in section 23A. We must give some reasonable meaning to that expression. No part of provision of a statute can just be ignored by saying that the Legislature enacted the same not knowing what was saying. We must assume that the Legislature deliberately used that expression and intended to convey same meanings thereby."
9. I may also refer the findings of their Lordships of Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 357. Their Lordships observed at page 357, and onwards, is worthnoting : "There is no scope for importing into the statute words which are not there. Such an importation would be, not to construe, but to amend the statue. Even if there be a casus omissions, the effect can be remedied only by legislation and not by judicial interpretation". They further observed : "To us there appears to justification to depart from the normal rule of construction, according to which the intention of the legislature is primarily to be gathered from the words used in the statute". They have also observed that there is no room for any intendment. There is no equity about a tax. There is no presumption as to the tax. Nothing is to be read in, nothing to be implied, one can only look fairly at the language used. Similarly, their Lordships of the Supreme Court in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 at page 156 have held that "it is well settled that the citizen is entitled to the benefit of every ambiguity in a taxing statute, but, where the law is clear, consideration of hardship, injustice or anomaly do not afford justification for exempting the income from taxation".
10. In view of these facts, where there is no dispute that the sales-tax collected is a revenue receipt, and when section 43B requires that only the actual payments, have to be allowed as deduction, and therefore, in the instant case, Rs. 80,03,656 being revenue receipt and same having not been paid, cannot be allowed as a deduction.
11. In the result, the appeal is allowed in part.
In accordance with the provisions of section 255(4) of the Income-tax Act, 1961, the following point of difference of opinion is referred to the President of the Income-tax Appellant Tribunal :
"(1) Whether, on the facts and in the circumstances of the case, section 43B is attracted in the present case ?
(2) Whether the addition of Rs. 68,18,490 on account of sales-tax set off was legally correct and proper ?"
THIRD MEMBER ORDER
1. This appeal came up for hearing before the Pune Bench on several points, one of which was, whether the provisions of section 43B were attracted to the sale-tax collected by the assessee. The learned Judicial Member was of the view that in the case of sales-tax set off, provisions of section 43B do not apply. He held that the assessee neither accounted for sales-tax collected as the revenue receipt, nor claimed any liability by debiting sales-tax to the profit and loss account and hence, the disallowance under section 43B in respect to the sales-tax collected and not paid could not be made. He was of the view that the assessee was required to pay the purchase tax which was set off against the collection of sales-tax on the sales made by the assessee and, therefore, the final liability crystallised only on the completion of sales-tax assessment. The income or expenditure could, therefore, be determined only on the completion of the sales-tax assessment. In this regard, the learned Judicial Member followed the various decisions of the Tribunal which have been discussed by him in his order.
2. The learned Accountant Member, however, was of the view that the sales-tax collected was the revenue receipt, in view of the decisions of the Supreme Court in the cases of Chowringhee Sales Bureau (P.) Ltd. (supra), Sinclair Murray & Co. (P.) Ltd. (supra) and Central Wines (supra). He also was of the view that under the provisions of section 43B the expenditure was allowed to be deducted only on actual payment. He also dealt with the intention of the Legislature in enacting the provisions of section 43B of the Income-tax Act. He also did not agree with the views expressed by the other Benches of the Tribunal and held that the sales-tax collected and not paid was liable to be disallowed under section 43B of the Income-tax Act. On these facts, the point of difference of opinion was formulated in the following manner and it came up before me as Third Member under section 255(4) of the Income-tax Act :
"(1) Whether, on the facts and in the circumstances of the case, section 43B is attracted in the present case ?
(2) Whether the addition of Rs. 68,18,490 on account of sales-tax set off was legally correct and proper ?"
3. On these facts, the learned senior departmental representative, Shri Hari Krishan strongly supported the view expressed by the learned Accountant Member. He also took me through the provisions of section 43B and pointed out that any deduction under the said section could be allowed on actual payment. There is no doubt that during the accounting year relevant to the assessment year under appeal the assessee had collected certain sales-tax, the payment of which was not made during the statutory period. The said sales-tax collected therefore, was liable to be included as the trading receipt of the assessee for the year under consideration. The purchase tax paid by the assessee is distinct and apart from the sales-tax collection and these being two separate issues should not be linked for the purpose of treating the sales-tax collection as the trading receipt. He also pointed out that on the facts and in the circumstances of the case, the provisions of section 43B are applicable. He has illustrated his point of view by an example, viz., that if the total sales-tax liability without considering the set off is Rs. 100 and the sales-tax set off which is due to the assessee is Rs. 20, the actual payment of sales-tax made by the assessee is only Rs. 80. But the department's impression is that the total amount of liability on account of sales-tax debited by the assessee to the profit and loss account is Rs. 100.
4. The learned senior departmental representative continued and pointed out that prior to introduction of section 43B, the question was about the treatment of sales-tax set off as income, whether this should be shown on accrual basis or on cash basis. The pleas of the assessee at that time were that the exact amount of this set off was known only when the sales-tax assessment was made and hence this amount should be assessed on cash basis. This plea was allowed by the appellate authorities and accordingly the amount of Rs. 20 was being taxed as income on cash basis. Thus, the assessee's claim of total liability in the profit and loss account and the corresponding sales-tax of Rs. 20 was shown as income as and when received. According to the learned senior departmental representative, the issue now has to be decided in accordance with the provisions of section 43B. This section allows the liability as a deduction in the year in which it is actually paid. In this connection, the stand of the assessee seems to be that the entire Rs. 100 is to be allowed as deduction because Rs. 80 is actually paid and Rs. 20 is the liability on account of set off which is adjusted by the sales-tax department. In this connection, the assessee treats this amount of Rs. 20 as payment by adjustment. Thus, the same amount of Rs. 20 is treated as a notional payment. The learned senior departmental representative contended that the department's thinking is that as regards the same amount of sales-tax which is amounting to Rs. 20 in the hands of the same assessee, contradictory presumptions made by the assessee cannot be allowed. When it comes to taxability, it is treated as notional income and when it comes to an allowance of liability under section 43B, the same amount is treated as notional payment. As these are contradictory presumptions made by the assessee as regards the same amount, they cannot be allowed. Therefore, the entire amount of Rs. 100 cannot be allowed as a deduction under section 43B of the Act. In the opinion of the learned senior departmental representative, only Rs. 80 should be allowed as deduction under section 43B and Rs. 20 should be disallowed. He, therefore, urged that the view expressed by the learned Accountant Member should be upheld.
5. The learned counsel, Shri S.E. Dastur, on the other hand, assailed the view expressed by the learned Accountant Member. He pointed out that for the sales-tax set off, provisions of section 43B not applicable. The learned Accountant Member, in his opinion, has not properly appreciated the provisions of the Bombay Sales-tax Act.
6. He further pointed out that the issue of set off sales-tax has been considered by the Pune Bench of the Tribunal in the assessee's own case from assessment years 1978-79 to 1983-84. In the said decision, the method of accounting followed by the assessee was approved by the Tribunal. It was held that the income or the deduction should be considered only after the completion of the sales-tax assessment. The assessee is following regularly the same method of accounting from the very beginning in which the claim of the expenditure on the income is determined only in a subsequent year on the completion of the sales-tax assessment. Even for the assessment years 1984-85 and 1986-87, when provisions of section 43B were on statute book, the Tribunal, in the assessee's own case, did not apply the provisions of section 43B of the Act. In that case, the Tribunal again held that for the sales-tax set off, provisions of section 43B do not apply.
7. Shri S.E. Dastur also brought to my notice that the method of accounting regularly followed by the assessee with respect to sales-tax set off has been accepted by the department for the assessment year 1989-90. The Assessing Officer has not made any disallowance under section 43B for the said assessment year 1989-90. The case before the Tribunal was for the assessment year 1985-86 and, therefore, the factual position reveals that for earlier years and even for subsequent years, the provisions of section 43B were not made applicable in the case of the assessee. He also pointed out that the sales-tax set off relevant for the assessment year 1985-86 has been assessed as income by the revenue in assessment year 1988-89. The assessment order for the assessment year 1988-89 has becomes final and no revisional or rectification action is possible for that assessment year. Thus, if the disallowance is allowed to be retained for the assessment year 1985-86, this would amount to double addition as the same has been added as income for the assessment year 1988-89.
8. Shri Dastur pointed out that this is the settled position. He further argued that the settled position should not be unsettled unless there is fresh material before the Tribunal. In this regard, he has drawn my attention to the decisions of the Bombay High Court in the cases of H.A. Shah & Co. v. CIT [1956] 30 ITR 618 and CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 (Bom.)(FB). He argued that on this point alone, the view taken by the learned Judicial Member should be upheld.
9. On merit, the learned counsel pointed out that the amount has wrongly been taken at Rs. 68,18,409. As a matter of fact for the assessment year the sum for consideration is only Rs. 29,51,283. The balance amount has already been considered for set off/disallowance for assessment years 1983-84 and 1984-85.
10. The learned counsel has also dealt at length with the order of the learned Accountant Member. He pointed out in particular that the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) cannot be applied blindly to Bombay Sales-tax Act. The learned counsel has taken me through the relevant provisions of the Bombay Sales-tax Act, and the rules made thereunder. He pointed out that the drawback, set off, refund, etc., are governed by section 42 of the Bombay Sales-tax Act. Rule 41D has also been enacted for the purpose of set off. According to the provision of the Bombay Sales-tax Act and the rules made thereunder, the assessee is entitled to sales-tax set off against the payment of purchase tax. The provisions of section 43B on this set off are, therefore, not applicable. The payment of purchase tax by the assessee should be considered as the deemed payment and, therefore, to that extent, the amount of sales-tax should be deemed to have been paid in time. By drawing my attention to the relevant provisions of the Bombay Sales-tax Act, he pointed out that the dealer is authorised to pass on to his purchaser the tax which he is liable to pay to the Government. Undoubtedly, he can do so with the consent of his purchaser. But this is, or, must be deemed to be reason of separate agreement express or implied with the purchaser, namely, that in addition to the price he will also pay to the dealer the amount of tax which he becomes liable to pay to the Government. In this regard, he has drawn my attention to the decision of the Bombay High Court in the case of Bata India Ltd. v. State of Maharashtra [1983] 53 STC 132.
11. The learned counsel has also drawn my attention to the decision of the Gauhati High Court in the case of India Carbon Ltd. v. IAC [1993] 200 ITR 759 in which the provisions of section 43B were considered. According to the said decision, the provisions of section 43B declare that taxes and duties shall not be allowed as deduction from the income unless they are actually paid. The section, however, does not place any restriction on the business activities and on the system of accounting. Therefore, section 43B will only be attracted when the assessee claims deduction from any sum payable by way of tax or duty under any law for the time being in force and, as such, where no such deduction is claimed nor charge made to the profit and loss account, there is no question of disallowing the amount taken to the balance sheet on the liabilities side. The learned counsel urged that the case of the assessee is fully covered by the said decision. The assessee has not claimed deduction under section 43B in the year under consideration and, therefore, the said provisions cannot be applied to the case of the assessee.
12. The learned counsel further continued and said that the issue in this appeal is not only covered by the decision of the Tribunal in the assessee's own case, but in the case of Hindustan Commercial Corpn. v. Second ITO [1990] 32 ITD 295, wherein it has been held that if the sales-tax was not debited in the profit and loss account or no provisions for the amount was made, it could not be disallowed under section 43B of the Income-tax Act.
13. The learned counsel reiterated that the assessee has already paid the purchase tax for which it is entitled for the set off. By drawing my attention to the decision of the Gujarat High Court in the case of State of Gujarat v. D.K. Patel & Co. [1975] 35 STC 63, he pointed out that the set off under Rule 41 partially or totally extinguishes the tax liability of an assessee and, therefore, such set off can legitimately be considered as the sum paid. In this decision, the learned counsel pointed out, the provisions of Bombay Sales-tax Act and the rules made thereunder were examined. The said decision has been followed by the Bombay High Court itself in the case of CST v. Empico Traders 47 STC 426. In the said decision, the jurisdictional High Court held :
"For the purpose of levying penalty under section 36(2)(c) of the Bombay Sales-tax Act, 1959, the expression 'tax paid' appearing in Explanation (1) to that section could not be restricted to only the amount of tax paid by the dealer into the Government treasury but would also include the amount of set off granted to that dealer under rule 43 of the Bombay Sales-tax Rules, 1959."
These two decisions, the learned counsel pleaded, therefore, lay down that there is a deemed payment in the case of the assessee and, therefore, unless the sales-tax assessment is made, the assessee would not know whether the assessee has to account for income or claim some deduction for the payment. In the case of the assessee itself, the learned counsel pointed out that the claim for the year is only Rs. 29,51,283. However, on the completion of the sales-tax assessment the assessee has been allowed actual set off of Rs. 30,60,364. The assessee was, therefore, entitled to the refund for the year under consideration.
14. The learned counsel has also taken me through the sales-tax return forms and pointed out that the set off is part and parcel of the Sales-tax Act and the rules made thereunder. In addition, the learned counsel has also drawn my attention to the several Tribunal decisions which have decided the issue in favour of the assessee. Such decisions are noted below :
(1) In the case of Shri Santosh Kumar Rana [IT Appeal No. 4052 (Bom.) of 1988].
(2) In the case of Skefco Bearing Co. Ltd. [IT Appeal No. 7523 (Bom.) of 1988].
(3) In the case of Falls Industries In-Corporation [IT Appeal No. 1578 (Bom.) of 1988].
(4) Texmac Engineers' case (supra).
Thus, the learned counsel concluded by saying that the view expressed by the learned Judicial Member is correct on the facts and in law. He, therefore, prayed that the said view should be upheld.
15. I have considered the rival submissions in the light of the judicial decisions brought to may notice. I have also gone through the relevant provisions of the Bombay Sales-tax Act and the rules made thereunder. It would be necessary for me to refer to the relevant provisions of the Bombay Sales-tax Act and the Bombay Sales-tax Rules, 1959.
Section 42 reads as under :
"42. Drawback, set off, refund, etc. - The State Government may by rules provide, that -
(a) in such circumstances and subject to such conditions as may be specified in the rules, a draw back, set off or refund of the whole or any part of the tax -
(i) paid or levied or leviable under any earlier law in respect of any earlier sales or purchases of goods which are held in stock by a dealer at the commencement of this Act, be granted to such dealer ; or
(ii) paid or levied or leviable in respect of any earlier sale or purchases of goods under this Act or any earlier law, be granted to the purchasing dealer ; or
(iii) paid or levied or leviable under the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987, be granted to a dealer whose principal business is of buying or selling motor vehicles.
(b) for the purpose of the levy of tax under any of the provisions of this Act, the sale price or purchase price shall in the case of any class of sales or purchases be reduced to such extent, and in such manner, as may be specified in the rules."
Under the said provisions, the State Government has enacted rule 41D and rule 43 of the Bombay Sales-tax Rules, 1959. Sales-tax set off under rule 41D is allowed on purchases for manufacturing purposes, irrespective of whether taxes are charged separately in the bills or included in the purchase price itself. The conditions to be met for being eligible to claim set off are as under, namely :
(1) He should be a registered dealer, who manufactures taxable goods for sales or export, (2) It is allowed in respect of purchases made by the dealer of any goods specified in Part II of Schedule C, (3) The goods purchases should be used by him within the State -
(a) in the manufacture of taxable goods for sale, these manufactured goods must in fact be sold by him or exported by him, or
(b) in this packing of goods so manufactured.
Sales-tax set off under rule 43 is available for resale of goods in the course of inter-State trade or commerce. For the purpose of my decision in the present case, I am not concerned with rule 43 of the Bombay Sales-tax Rules.
16. To the case before me, rule 41D is applicable. Under this rules, sales-tax set off is claimed by an assessee from time to time, provided an assessee complied with all the conditions stated under the rule. However, the claim made by the assessee does not become final since there is a chance for disallowance of whole or part of the sales-tax set off claimed by an assessee. Disallowance of sales-tax set off by Sales-tax Department during the assessment can arise out of many factors, some of which are as under, viz. :
(i) Part II of Schedule C of the Bombay Sales-tax Act contains a list of numerous items giving therein the rate of sales-tax and purchase tax applicable thereto. There could be different interpretations with regard to classifications of some of the classified items, due to which amount of sales-tax set off allowable may become higher or lower.
(ii) Disputes could also arise as to whether a particular items purchased has been used in the manufacture of taxable goods for sale or not. The set off allowable would vary depending on whether certain items such as loose tools, consumables, lubricating oils, plywoods, etc., used are treated as used for the manufacture or otherwise.
(iii) Goods manufactured by using the items purchased must in fact be sold or exported by the dealer within the year, failing which proportion of the sales-tax set off admissible on the purchases may be disallowed for the year and will be carried forward for the next year. The precise amount which is to be carried forward for the next year can be ascertained only during assessment, since it is practically impossible to ascertain the exact quantum of the sales-tax set off portion in the items lying unutilised for manufacture as at the end of the year. Before the accounts are finalised in all respects, it is impossible to find out the element of sales-tax set off that can be claimed by the assessee on the items lying in stock, since it will be a very lengthy and cumbersome process to ascertain the exact figure and hence, certain estimated figures based on certain pro rata calculations are disallowed by the sales-tax department normally. In view of this also, the amount of sales-tax set off claimed and actually allowed may differ.
(iv) In case there are certain bills from suppliers who have given either invalid/bogus registration numbers, sales-tax set off thereon will not be allowed by the sales-tax department. The amount that may be disallowed on this ground can also be ascertained only at the time of assessment.
(v) Under rule 41D, the sales-tax set off allowed cannot also be calculated precisely on account of the large volume of business and activities of sales and purchases of goods. It is difficult to find out before the finalisation of the accounts for the year the quantum of goods which have been resold within the specified period and the quantity of goods which have remained in stock.
(vi) Where sales-tax set off is claimed on purchases from suppliers within the State of Maharashtra at rates inclusive of sales-tax, sales-tax set off claimed is to be supported by Form N-31 issued by the supplier. Form N-32 contains a declaration from the supplier that he is a registered dealer and that the goods specified by him in his bill have been included in his turnover on which tax has been paid. If Form N-32 is not produced before the sales-tax assessing authorities at the time of assessment or if the Form N-32 is invalid for various reasons, the sales-tax set off claimed to that extent can be disallowed by the sales-tax department.
Due to these various practical difficulties listed above, some of the assessees follow the method of accounting for income or claim of deduction after the sales-tax set off is allowed by the Sales-tax department.
17. In the case before me, the assessee has been following a consistent method of accounting right from the year 1979-80 in which the income or loss is accounted for on the completion of the assessment by the sales-tax authorities. Such a method of accounting followed by the assessee has also been approved by the Tribunal in the assessee's own case for earlier years. It is settled that profits and gains of the business or profession or income from other sources shall be computed in accordance with the method of accounting regularly employed by an assessee. Such a method should not be rejected unless the Assessing Officer gives a finding that the method is defective and does not lead to the correct computation of income. In the case of the assessee, no such finding has been given by the Income-tax department. Moreover, I also find from the facts of the case that the sales-tax liability which has been disallowed by the Assessing Officer under the provisions of section 43B of the Income-tax Act was not claimed as an expenditure in the profit and loss account by the assessee. It was only shown in the balance sheet as the liability as it represented amount collected from the customers. In such an eventuality, I am of the view that the provisions of section 43B are not applicable to the facts of the case. In fact, the real controversy in the case before me is not one of disallowance of expenditure under section 43B or otherwise, but one of the assessment year in which the amount of sale/purchase tax set off is to be accounted for as income of the assessee. The amount of set off is ascertained, adjudicated and finally allowed by the competent sales-tax authority in the sales-tax assessment order as and when it is passed. Till such assessment order is passed in the sales-tax proceedings, the assessee's claim of set off is only incohate and is neither finally determined nor adjudicated. Thus, the right of an assessee to its claim of sales-tax set off becomes cohate and finally available to him only when an assessment order for the year is passed in the sales-tax proceedings.
18. The learned Judicial Member in his order has referred to various decisions of the Income-tax Appellate Tribunal of Bombay Benches, Ahmedabad Benches and even Pune Bench. All these decisions are in favour of the assessee. No contrary decision has been brought to my notice. In all these decisions, which need not be mentioned by me by name, it has been categorically held that the sales-tax set-off is not covered by the provisions of section 43B of the Income-tax Act. Where the amount of sales-tax set-off has been offered for taxation in subsequent years according to a consistent method of accounting followed in respect of the sales-tax amount, such amount of sales-tax set-off could not be added under section 43B of the Act. Such a finding has been given even in the case of the assessee for the assessment years 1979-80 to 1983-84 and 1984-85 and 1986-87. Such a position has also been accepted by the revenue itself for the assessment year 1989-90. The revenue itself has not invoked the provisions of section 43B for the said assessment year 1989-90. Thus, in the case of the assessee itself, it is a settled position.
19. There is ample authority for the proposition that settled position should not be unsettled, unless some fresh facts are discovered. In this regard, the Bombay High Court in the case of H.A. Shah & Co. (supra) have laid down :
"Therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning, especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not apply, even though there may be no estoppel by record, it is very describe that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act. It is not a very satisfactory thing that an assessee should feel a grievance that one Tribunal came to one conclusion and another Tribunal came to a different conclusion and that the two conclusions are entirely inconsistent with one another. Therefore, the second Tribunal must be satisfied that the circumstances are such as to justify it in departing from the ordinary principles which apply to all Tribunals to try and give as far as possible a finality and a conclusiveness to the decision arrived at. We should also like to lay down a further limitation upon the power of the Tribunal to revise the decision given earlier by that very Tribunal. The effect of revising this decision should not lead to injustice and the Court must always be anxious to avoid injustice being done to the assessee. If the Court is satisfied that by depriving the assessee of his rights under the later decision in an earlier year, the assessee lost an important advantage or lost some benefit which he could have got under the Income-tax Act, then the Court may take the view that departing from the earlier decision leads to injustice or denial of justice and the Court may prevent an Income-tax Authority from doing something which would be unjust and inequitable."
This view has again been reiterated by the Full Bench of the Bombay High Court in the case of CIT v. Nirmal Commercial Ltd. [1995] 213 ITR 361. It bears repetition that the claim of the assessee has been accepted by the Tribunal for the assessment years 1978-79 to 1983-84, 1984-85 and 1986-87 and accepted by the department for 1989-90. The income on account of set-off for the year under consideration has already been brought to tax by the revenue in the assessment year 1988-89, which order has become final. Thus, there is no necessity, in my view, to disturb only one assessment year, viz., 1985-86.
20. Viewed from this angle, I am of the considered view that settled position should not have been disturbed by way of the proposed order by the learned Accountant Member. I have very carefully gone through the reasons recorded by the learned Accountant Member and I am of the view that he has gone only on the basis of applicability of section 43B of the Income-tax Act. He was not viewed the problem from the angle of the Bombay Sales-tax Act provisions and the rules made thereunder. He has also not properly appreciated the decisions of the various Benches of the Tribunal to which reference has been made by the learned Judicial Member or by me above. In view of this position, I answer the reference as under :
"With regard to question No. 1, I agree with the learned Judicial Member that the provisions of section 43B are not attracted to the case of the assessee, and regarding question No. 2, I again agree with the learned Judicial Member that the addition on account of sales-tax set-off cannot be legally made in the year under consideration."
21. The matter will now go back to the regular Bench and be disposed by it according to the majority opinion.