Income Tax Appellate Tribunal - Pune
Hindustan Commercial Corpn. vs Second Income-Tax Officer on 16 September, 1988
Equivalent citations: [1990]32ITD295(PUNE)
ORDER
M.A. Ajinkya, Accountant Member
1. This appeal by the assessee raises an interesting question about interpretation of Section 43B.
2. The appellant is a registered firm. Its assessment year is 1984-85 and the accounting year ended on 31-3-1984. It filed a return of income declaring income of Rs. 1,49,077 in respect of business of trading in cement pipes, AC water tanks, etc. The ITO in the course of the assessment proceedings noticed that there was a liability towards sales-tax to the extent of Rs. 1,69,909. He called upon the assessee to explain why this amount should not be disallowed Under Section 43B. The assessee in terms of his letter dated 21-11-1986 submitted that Section 43B is applicable when the sales-tax is debited to the P & L a/c. The firm did not claim sales-tax as expenses. They also claimed that the sales-tax collected in one month is payable in the next month. The sales-tax for the month of March 1984 is payable before the end of April 1984 and therefore the sales-tax liability of the month of March was not payable in that month. This argument did not find favour with the ITO. He added an amount of Rs. 1,69,909 to the total income of the assessee as per P & L a/c Under Section 43B of the Act.
3. The assessee took the matter in appeal to the CIT(A). The CIT(A) relying on the decision of the Supreme Court in the case of Kedamath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and in the case of Chowringhee Sales Bureau (P.) Ltd. v, CIT [1973] 87 ITR 542 observed that whether the assessee is entitled to a particular deduction or not will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. Therefore, the fact that the assessee had not debited the amount as deduction in the P & L a/c was not relevant. As regards the time available for payment again relying on the observations of the Supreme Court the CIT(A) held that under the mercantile system the liability that accrues during the year has to be debited to the P & L a/c inasmuch as the collections have to be credited to the P & L account. Accrual of liability is one thing and the time available for discharge of the liability is another thing. In this view of the matter, the CIT(A) declining to follow the decision of the Tribunal cited by the assessee's representative in the case of Fourth ITO v. Sanjay Sales Syndicate [IT Appeal No. 1484 (Bang.) of 1985] held that the ITO was justified in adding Rs. 1,69,909 Under Section 43B of the Act. It is against this finding of the CIT(A) that the present appeal is filed.
4. Shri G.N. Gadgil, the learned counsel for the assessee firstly argued that the impugned amount of sales-tax was payable in terms of Section 15 of the Goa, Daman and Diu Sales Tax Act, 1964 read with rule 13 of Goa, Daman and Diu Sales Tax Rules. Section 15(1) of this Act provided that the tax payable under this Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed. The prescription was provided by Rule 13 of the Rules framed thereunder. This rule reads as under:
13(1) Such dealers who are liable to pay tax and who are required to do so by the appropriate Assessing Authority by notice in writing, and every registered dealer shall pay the tax payable under the Act for every month within thirty days from the expiry of each month:
Provided that the dealers/dealer referred to above may, at their/his option, pay for the first and second month of every quarter one-third of the amount payable for the previous quarter and may adjust any deficiency or excess arising out of short payments or excess payments (if any) made in the first two months of the quarter in the third month of the same quarter.
Shri Gadgil submitted that the combined readings of Section 15 of the Act read with rule 13 made it clear that the dealers who are liable to pay sales-tax and who are required to do so by the appropriate authority shall pay the tax payable under the Act for every month within 30 days from the expiry of each month. Shri Gadgil then referred to us to the Sales-tax Account for the accounting year ended 31-3-1984 which showed the liability to pay sales-tax and its payment every month. This account indicated that the liability in respect of cash sales as on 31-3-1984 for the month of March was Rs.43,324.23 and that for the credit sale was Rs.1,25,759.08 totalling in all to Rs.1,69,082.27 which liability was discharged by the assessee in the month of April 1984. This was done in terms of the provisions of Goa, Daman and Diu Sales Tax Act and the rules framed thereunder and as per the practice followed all along by the assessee in the past. No debit on account of sales-tax was shown to the P & L a/c. The sales-tax for the month of March 1984 became payable in April 1984 and was in fact paid in that month. Shri Gadgil argued that the CIT(A) grievously erred in not appreciating the implication of the Sales Tax Act and the manner in which the liability under that Act was being discharged. Shri Gadgil pressed his argument by relying on a decision of Andhra Pradesh High Court in the case of 5. Subba Rao & Co. v. Union of India [1988] 38 Taxman 272. He also relied on various decisions of the Tribunal on which he placed reliance before the CIT(A) and the details of which have been mentioned by the CIT(A) in para 1 of his order. He also referred to a decision of the Tribunal in M. V. Textiles v. Third ITO [1987] 23 ITD 523 (Bang.) where the scope of Section 43B came up for consideration.
5. Shri Mahadeshwar for the department relied on para 4 of the CIT(A)'s order. He referred to Pyne's. Judicial dictionary to argue that the expression "payable" meant that the amounts become due. He also relied on the decision of S.P.L.P. Narayanan Chettiar v. MA.R. Annamalai Chettiar AIR 1961 Mad. 313 and the decision of the Gujarat High Court in Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240/27 Taxman 462. He also pointed out that the Allahabad Bench of the Tribunal in New Cawnpore Flour Mills (P.) Ltd. v. ITO [1986] 19 ITD 360 had taken a different view from that taken by the Bangalore Bench of the Tribunal on the interpretation of Section 43B. He placed reliance on this decision.
6. We have considered the submissions made by either side. It must firstly be stated that the provisions of Section 43B were not on the statute book when the Supreme Court had announced its judgment in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) and Chowringhee Sales Bureau (P.) Ltd.'s case (supra). The operative portion of Section 43B reads as under:
43B: Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-
(a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or
(c) any sum referred to in Clause (ii) of Sub-section (1) of Section 36.
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.
Clause (a) clearly envisages that any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed only in computing income referred to in Section 28 of that previous year in which such sum is actually paid by him. The question therefore for consideration is whether the impugned amount of Rs. 1,69,082 could be said to be payable under the relevant law during the year of accounting and further whether the amount could be added back to the total income of the assessee only because it was not paid when it had, according to the tax authorities, become due. Since the CIT(A) has relied on the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. 's case (supra) and Chowringhee Sales Bureau (P.) Ltd. 's case (supra) it is necessary to deal with these decisions to first determine whether the authorities of these judgments can be invoked to justify an addition that has been made by the ITO and sustained by the CIT(A). In Kedarnath Jute Mfg. Co. Ltd. 's case (supra), the Supreme Court laid down the principle that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating to the assessee and not on the view which the assessee might take of his rights, nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. In that case, the Supreme Court held that the assessee was entitled to a deduction of a statutory liability irrespective of method of accounting if followed as soon as the taxing events viz. sales in that case took place. The judgment was delivered in an appeal by the assessee who was claiming deduction. In the present case on the one hand the assessee has not claimed any deduction of sales-tax and on the other hand, the assessee is claiming that he is maintaining the account of his sales-tax liability as per the provisions of Goa, Daman and Diu Sales Tax Act and the rules framed there under and in that sense the impugned amounts represent the statutory liability of the assessee which as per the provisions of the relevant law he could discharge only in April 1984 and which he actually did. He did not make any entries in this regard by way of provision in the books of accounts. He has not charged the sales-tax to P & L account and it is surprising that the revenue authorities should so interpret Section 43B as to make an addition of a perfectly legitimate tax liability which is claimed as deduction and is admissible as such in a subsequent year and the deduction of which in terms had not been claimed in the year under appeal.
7. In second case viz. Chowringhee Sales Bureau (P.) Ltd. (supra) the issue was quite different. The Supreme Court held that when the assessee realised sales-tax credited to a separate account and did not pay the sales-tax to the actual owner of the goods such sum realised by the assessee who was an auctioneer formed part of its trading receipts. It was also observed by the Court per curiam that the assessee would be entitled to claim deduction of the amount as and when it pays it to the State Government. In the present case, the assessee is not making any claim of deduction of sales-tax which is contrary to the principles laid down by the Supreme Court in both these judgments. On the other hand, the Andhra Pradesh High Court in S. Subba Rao & Co.'s case (supra) was called upon to deal with more or less a similar issue having a direct bearing on the interpretation of Section 43B. In that case, the assessee had challenged constitutional validity of Section 43B. It also contended that Section 43B could have no application to deduction of sales-tax because deductibility of sales-tax as business expenditure is referable to Section 37(1) and in the absence of any specific provision relating to deduction of sales-tax the provision relating to the payment of taxes for securing deduction did not apply to sales-tax. The assessee also contended that Section 43B came into force on 1-4-1984 and the restriction in it applied only to expenditure by way of taxes and duties incurred on or after 1-4-1984 and therefore, all expenses up to and including 31-3-1984 fell to be allowed without reference to Section 43B. It was also contended on behalf of the assessee that the sales-lax for the month of April 1984 could not be disallowed in terms of Section 43B since it was payable before the 25th day of the succeeding month. In respect of this last argument, the point taken by the assessee in the case before the Andhra Pradesh High Court was exactly the same as is agitated by the appellant before us. On this last contention, the Hon'ble Court observed that in order to apply the provisions of Section 43B not only should the liability to pay the tax or duty be incurred in the accounting year but the amount also should be statutorily payable in the accounting year. Section 43B itself is clear to this extent. It refers to the 'sum payable' in Clause (a) as well as in Clause (b). If the Legislature intended it should have so provided that any sum for the payment of which liability was incurred by the assessee would not be allowed unless such sum was actually paid. Keeping in mind the object for which Section 43B was enacted it is difficult to subscribe to the view that a routine application of that provision is called for in cases where the taxes and duties for the payment of which liability was incurred in the relevant assessment year were not statutorily payable in that assessment year. If under the provisions of any statute, a tax or duty is payable after the close of the relevant year different consideration would prevail and it would not be open to the ITO to disallow tax or duty which is statutorily payable after the relevant year. The court also observed that the amendment brought about, which came into force on 1-4-1984 permitting the deduction of taxes and duties paid before the filing of the income-tax returns, clearly supported the view that taxes and duties not statutorily payable during the relevant year did not fall to be disallowed under Section 43B. Therefore, the ITO was directed to allow the sales-tax payable for the month of March 1984. In our opinion the ratio of this decision which is given on identical facts and in the same set of circumstances would appear to clinch the issue clearly in favour of the appellant and against the revenue. In the present case, the statute itself (in the sales-tax) prescribed the date of payment and therefore, the ITO was not justified in disallowing the sales-tax on the ground that it was not paid during the year of account. Reference may be made to the decision of the Bangalore Bench of the Tribunal in Fourth ITO v. Sanjay Sales Syndicate [1987] 30 Taxman 100. In that case also as in the case of the appellant herein, the assessee was keeping a separate register for sales-tax. Further, the sales-tax collected in one month was being separately credited into the sales-tax account and the corresponding debits were being made to the sales-tax account accordingly. The assessee was neither including sales-tax in the sales, nor claiming a deduction from the profit towards sales-tax paid. All these facts are similar to the facts in the present case. The ITO added sales-tax and surcharge amounting to Rs.2,904 which was collected by the assessee in the last month of the previous year and was only payable in the next month. The AAC held that the amount has not been claimed as a deduction and that the amount was not yet payable but became due for payment only in the subsequent month. The view of the AAC was upheld by the Tribunal. The Tribunal citing the authority of the Supreme Court in the case of CWT v. J.K. Cotton Mfrs. Ltd. [1984] 146 ITR 552/16 Taxman 18 held that unless there is an order or a rule to pay a tax by a particular date the tax is not 'payable'. It is immaterial that the assessee if he wants can pay the tax before the due date. But the last date on which he is permitted to pay is to be taken as the date on which tax is payable. Section 43B in such a case was not applicable since the amount was not payable in the relevant previous year. This decision would also appear to support the case of the assessee. Since we have seen from the provisions of the relevant sales-tax that the amount of Rs. 16,909 representing the tax liability for the month of March became payable only in the month of April 1984. A decision to the same effect was given by the Cuttack Bench of the Tribunal in Kapoor Motor Engg. (P.) Ltd. v. ITO [1987] 21ITD 4. The Tribunal held that Section 43B did not apply to the case where the assessee did not claim the impugned amount as deduction. Further, when the law permits the payment of tax some time after they are collected, then some amount was bound to remain unpaid on the date when the assessee closed its accounts. In this case, the Tribunal took notice of the decision of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. 's case (supra). Shri Gadgil also relied on two other decisions of the Tribunal in ITO v. Thakersi Babubhai & Co. [1986] 26 TTJ (Ahd.) 517. However, we would not refer to them since the main authorities which he has cited have been dealt with hereinabove. Shri Gadgil also argued that the decision of the Andhra Pradesh High Court relied upon by him was the only judgment on the issue and should therefore be followed.
8. The authorities relied upon by the learned departmental representative in support of his interpretation of the term "payable" has to be treated as inapplicable, in the present case and relevant only in the context that they were given. Shri Mahadeshwar, no doubt, relied on-a decision of the Allahabad Bench 'A' of the Tribunal in New Cawnpore Flour Mills (P.) Ltd. 's case (supra). On a careful reading of this decision, we find that the finding given by the Allahabad Bench was a conditional finding. In para 17 of the order at pages 368 and 369 of the report, the Bench observed that Section 43B is applicable to the year under appeal i.e. assessment year 1984-85. However, the deduction is subject to the explanation to the above section which lays down that where a deduction has already been allowed in the earlier year in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. The Tribunal observed that, it is necessary to verify whether the amount of Rs. 1,69,909 was or was not allowed to the assessee in any of the earlier years. Since the counsel for the assessee was unable to clarify this fact, the Tribunal directed the ITO to go into the matter, verify whether any such liability towards the sales-tax due by the assessee and whether such liability had been allowed in any of the earlier years and allow it as a deduction in the assessment year only after such verification. If this would clear then the issue there was quite different. The assessee was claiming deduction. The question was Section 43B was applicable for the assessment year and the Tribunal held that it was applicable and that the deduction for sales-tax claim would be admissible only if it is proved on verification that it has not been claimed in earlier years on due basis. This decision can hardly be said to be supported to the department.
9. The next authority relied upon by Shri Mahadeshwar was of Gujarat High Court in Lakhanpal National Ltd. 's case (supra). Here also, there was a claim of deduction for excise duty. The court observed that the explanation makes clear that the assessee shall not be entitled to any deduction Under Section 43B in respect of such sum, in computing the income of the previous year in which such sum is actually paid by him, in case a deduction in respect of any such sum was allowed in any previous year prior to 1983. We fail to understand how even this decision supports the case of the department and against the assessee in the light of the facts of the present case.
10. We finally hold that there was no justificationon the facts or in law for making addition of Rs.1,69,909 as was done by the ITO. The amount was shown in the sales-tax account. It was not debited in the P & L a/c. No provision for the amount was made. No claim for deduction was made. The amount represented sales-tax liability of the month of March 1984 payable in April 1984 as per provisions of Goa, Daman and Diu Sales Tax Act and the rules framed thereunder and as the Section 43B could not be invoked on these facts to make an addition of this amount to the total income.
11. In the result, the appeal of the assessee is allowed and the order of the CIT(A) is reversed.