Provision of s. 43B would be applicable though sale tax collection and payment debited though a separate sales-tax account.
High Court of Calcutta in the case of Commissioner of Income Tax vs. Associated pigments ltd has held that it is immaterial whether the assessee brings the sales tax collection to its sales account or not. Therefore, where the assessee credits the sales tax collection and debits the payments thereof in a separate account maintained for sales tax the inherent effect is that the collection is being credited and at once debited to the P&L a/c by was of provision. It is of no effect that such credit of the collection as well as the debit of the provision of the equivalent amount is divisible. The crediting and debiting the suspense account merely hide the true nature of the transaction.
Hence, the Tribunal was not correct in law in holding that since the assessee had not made any provision in respect of sales-tax liability but had credited the sales tax collection and debited the sales tax payment in a separate sales tax account, the provisions of s. 43 B would not be applicable in the case
The Tribunal deleted the addition irrespective of whether the figures are correct or not in so far as it is based upon the same premise that s. 43B is not applicable and there was no case for any addition whatsoever out of the sales tax payments. The Tribunal is directed to sort out the figures of the collection payment and the disallowable amounts on the basis of the principle laid down. The matter is remanded to the Tribunal in this respect.
In short, the High concluded that the Provision of s. 43B would be applicable though sale tax collection and payment debited though a separate sales-tax account.
COMPLETE ORDER
COMMISSIONER OF INCOME TAX vs. ASSOCIATED PIGMENTS LTD.
HIGH COURT OF CALCUTTA
Ajit K. Sengupta & Shyamal Kumar Sen, JJ.
IT Ref. No. 106 of 1990
11th June, 1993
(1993) 61 CCH 0431 KolHC
(1993) 71 TAXMAN 0244
Legislation Referred to
S 43B
Case pertains to
1985-86
SENGUPTA, J.:
JUDGMENT
In this reference under s. 256(1) of the IT Act,1961 (‘the Act’), the following questions of law have been referred by the Tribunal for the asst. yr. 1985-86:
“1. Whether , on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that since the assessee had not made any provision in respect of sales-tax liability but had credited the sales tax collection and debited the sales tax payment in a separate sales tax account, the provisions of s. 43 B of the IT Act, 1961 would not be applicable in the case ?
- Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provisions of s. 43B of the IT Act, 1961 would not be applicable in the case and thereby deleting the addition of Rs.77,439 made under that section?
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law I upholding the CIT (A) order directing the AO to allow the deduction of Rs.1.23,704 on account of sales-tax ?”
- The assessee is a limited company and the assessment year involved is 1985-86. The facts of the case are that during the assessment proceedings the ITO noticed that a sum of Rs.2,50,100 represented the assessee’s liability towards sales-tax. According to him, the provisions of s. 43B of the Act would be applicable to this case and therefore, the difference between the said sum of Rs. 2,50,100 and Rs.1,72,661, being the amount disallowed last year but paid during the current year of account, must be added to the assessee’s income. He, therefore, added the sum of Rs.77,439.
- Being aggrieved, the assessee carried the matter in appeal before the CIT (A) and argued that it was maintaining a separate ledger account for sales tax, that the amounts realised from the customers were debited to that account, that the amounts paid to the Government were debited to that account, that the net credit/debit balance was reflected in the balance sheet and that the P&L a/c was not affected in any fashion. It was also pointed out that the sales tax account started with an opening credit balance of Rs. 3,61,816. During the relevant previous year ending on 31st March, 1985 a sum of Rs. 16,44,077 was collected from the customers and credited to that account. At the same time, during the said accounting year a sum of Rs. 17,67,781 was paid to the Government leaving a credit balance of Rs. 2,38,112. The collection made during the year as and by way of sales tax being Rs. 16,44,077 and the payment made being Rs. 17,67,781, there was an excess payment of Rs. 1,23,704 during the year. It was also stated that in a the immediately preceding year of account an amount of Rs. 2,26,629 was disallowed and the excess payment made this year of Rs. 1,23,704 was attributable to the said figure of Rs. 2,26,629. Since the said sum was disallowed in the previous year, the assessee was entitled to a revenue deduction in respect of the sum of Rs. 1,23,704. Further, the addition of Rs. 77,.439 made by the ITO should also be deleted. The CIT (A) accepted the arguments advanced on behalf of the assessee and directed the ITO to allow deduction of Rs. 1,23,704 and also to delete the addition of Rs. 77,439.
Before the Tribunal, the learned Departmental representative has agues that the CIT (A) was not justified in the direction given by him to the ITO in view of the clear provisions of s. 43B which fully support the ITO’s action. On the other hand, the learned counsel for the assessee strongly supported the impugned order of the CIT (A).
- The Tribunal considered the rival submissions. The sales tax account as maintained by the assessee was also duly considered. Since the assessee collected sales tax which was credited to a separate sales tax account and the sales tax paid was debited to the said account, s. 43B is not applicable. The addition of Rs. 77,439 made by the ITO was held to the deleted.
- The Tribunal has further considered the amount of Rs. 1,23,704 claimed as a Revenue deduction by the assessee and allowed by the CIT (A). It was found that the assessee paid the sum of Rs. 1,23,704 over and above the aggregate sum collected during the year. It was considered whether the assessee is entitled to a Revenue deduction in respect of the said amount. The CIT (A) has taken a view that the above amount formed part of the sum of Rs. 2,26,629 disallowed in the assessment for the asst. yr. 1984-85 under the head ‘Sales-tax’. The Tribunal has taken a view that the excess sales tax collected over the sales tax actually paid during the year requires to be straightway added to the assessee’s income on the only ground that the sales tax forms part of the turnover. It was also found that the amount added back in the last assessment year under the head Sales tax is larger than the amount of Rs. 1.23,704. The CIT (A) was justified in directing the ITO to allow the said amount as a Revenue deduction.
- We have heard the rival contentions. The Tribunal has supported the assessee’s contention that where the assessee does not debit the sales tax to the P&L a/c by way of any provision but credits, the sales tax collection and debits the payment thereof in a separate sales tax account, liability, thus, appearing in the balance sheet, the provision of s. 43B cannot have application. It is not permissible for the AO to include the sales tax in the sales tax while completing the assessment of the income by invoking the said provisions.
- According to the assessee, the AO cannot presume a provision for sales tax liability in the P&L a/c when there is non therein. Thus, the disallowance of the hypothesis that a provision is there in the P&L a/c is not within the terms of s. 43B.
It is submitted on behalf of the Revenue that the sales tax is part of the turnover and is, therefore, a revenue receipt. The essential character of the sales tax collection as a revenue receipt is not obliterated by the assessee’s maintaining the account in a manner not treating the sales-tax as its receipt as part of the sales proceeds but as a mere collection credited to a separate suspense account and thereby taking the collection as a liability in the balance sheet. This device of not entering the sales tax in the sales and the P&L a/c cannot avoid the mischief of s. 43B.
- The reliance was placed on the decision of the Surpeme Court in Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 and Sinclair Murray & Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 for the proposition that a tax or duty is part of the dealer’s trading or business receipt even if the tax or duty is charged separately or credited to a separate account in the dealer’s books.
- We are in agreement with the contention of the counsel for the Revenue that it is immaterial whether the assessee brings the sales tax collection to its sales account or not. Therefore, where the assessee credits the sales tax collection and debits the payments thereof in a separate account maintained for sales tax the inherent effect is that the collection is being credited and at once debited to the P&L a/c by was of provision. It is of no effect that such credit of the collection as well as the debit of the provision of the equivalent amount is invisible. The crediting and debiting the suspense account merely hide the true nature of the transaction.
- Therefore, we answer the first question in the negative and against the assessee. The other two questions are practically the offshoot of the assessee’s claim that in the assessee’s case, the provision of s. 43B cannot apply by reason of the manner of accounting treatment meted out to sales tax collection and payment. In the instant previous year ending on 31st March, 1985, the sales tax account had an opening credit balance of Rs.3,51,816 and during the year sales tax collected stood at Rs.16,44,077, the aggregate credit being Rs.20,05,893 while the payments made were of the aggregate sum of Rs.17,67,781, thus, the unpaid liability remains Rs.2,38,112. The ITO however, found that during the year the assessee was liable to pay to sales tax authorities a sum of Rs.2,50,100 but out of the amount disallowed last year the assessee paid during the year to the sales tax authorities Rs.1,72,661. Thus, according to the AO, the unpaid collection of the current year was Rs.77,439 which is disallowed. The assessee does not contest the correctness of the figures of the AO as regards collection and payment but challenges the addition of Rs.77,439 on the ground that in its case s. 43B cannot have any application. Therefore, as a consequence to our answer to question No. 1, question No. 2 is also to be answered in the negative and against the assessee holding that the addition of Rs.77,439 was correct.
- The assessee, however, contended that the collection made during the year was Rs.16,44,077 and the payment Rs.17,60,781 thus, there was an excess payment of Rs.1,23,704 but this excess payment is in the context of the current collection and current payment without taking into account the opening unpaid collection. This contention is also accepted by the Tribunal irrespective of whether the figures are correct or not insofar as it is based upon the same premise that s. 43B is not applicable and there was no case for any addition whatsoever out of the sales tax payments. The Tribunal is directed to sort out the figures of the collection payment and the disallowable amounts on the basis of the principle we have laid down. The matter is remanded to the Tribunal in this respect.
There will be no order as to costs.
SEN, J.
I agree.
