Magadh Stock Exchange Association v. The Commissioner Of Income Tax-I, Central Revenue Building, Bir Chandpatel Path, Patna. Patel Path, Patna

IN THE HIGH COURT OF JUDICATURE AT PATNACivil Writ Jurisdiction Case No.12043 of 2011 ====================================================== Magadh Stock Exchange Association through its Director Sri Yashwir Singh,aged about 40 years, son of Late Soham Singh, Resident of 9th Floor, AshianaPlaza, Budh Marg, in the town and District of Patna. ... ... Petitioner/s Versus 1.The Commissioner Of Income Tax-I, Central Revenue Building, Bir ChandPatel Path, Patna. Patel Path, Patna. 2.The Assistant/ Deputy Commissioner of Income Tax, Circle-1 3rd Floor,Lok Nayak Bhawan, Dakbunglow Road,Patna-800001.Lok Nayak Bhawan, Dakbunglow Road,Patna-800001. ... ... Respondent/s CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE S. KUMARC.A.V. JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date : 02-09-2020 In this petition filed under Articles 226 and 227 of theConstitution of India, petitioner lays a challenge to the order ofassessment dated 26.12.2008 as affirmed by the Commissioner ofIncome Tax-I, Patna vide order dated 20.01.2011. 2. During the hearing, emphatically, petitioner laidchallenge to the virus of the provisions of Section 43B of theIncome-Tax Act, 1961. We allowed the learned counsel to addresson the same. Also on the strength of decisions rendered by theGauhati High Court in India Carbon Ltd. v. Inspecting Assistant Commissioner of Income-Tax and another [1993] 200 ITR 759 (Gau), as affirmed by the Hon’ble Apex Court inSLP (C) No.13038 of 1994, titled as Inspecting AssistantCommissioner of Income Tax v. India Carbon Ltd. vide orderdated 23.08.1996 and subsequent decision dated 22.05.2003passed in Commissioner of Income-Tax v. India Carbon Ltd.[2003] 262 ITR 327 (Gau), decision ofMadras High Court inCIT vs. Everest Litho Press, (2006) 285 ITR 297(Madras);decision of Delhi High Court in CIT v. Noble and Hewitt (I) Pvt.Ltd. (2008) 305 ITR 324 (Delhi), the illegality and perversity inthe order is sought to be argued. 3. Opposing the petition, Mrs. Archana Sinha, learnedcounsel for the Revenue seeks reliance upon a decision of theHon’ble Apex Court in M/s Chowringhee Sales Bureau (P) Ltd.Versus C.I.T. West Bengal, (1973) 1 SCC 46. 4. Briefly facts set out are as under:- 5. For the assessment year 2006-07, petitioner filed itsreturn of income showing total income at Nil. The return dated17.01.2007 was selected for scrutiny through CASS. Afterissuance of due notice and compliance of procedural formalities,the Income Tax Officer vide order dated 26.12.2008 disallowed anamount of Rs.17,87,530/- deducted as Security Transaction Tax(STT) against the transaction of trading of one M/s Bharuka Financial Services Ltd. The Officer found the said amount of STTnot to be deposited with the authorities, and as such provisions ofSection 43B of the Income-Tax Act, 1961 was squarely attractable.As such, the entire amount was assessed towards the income of theassessee. The Commissioner of Income-Tax has affirmed suchorder. 6. The Apex Court in M/s Chowringhee Sales Bureau (P) Ltd. (supra) while dealing with the case where the assesseehad neither deposited the realized amount of sales tax with theState exchequer nor returned the same to the concerned party,added such amount to be part of business income. It is based onthe strength of this decision, Revenue seeks to defend theimpugned orders. 7. Noticeably, the decision does not deal with theprovisions with which we are concerned. 8. Relevant portion of Section 43 B reads as under:- “43B. Certain deductions to be only on actualpayment.-Notwithstanding anything contained in anyother provision of this Act, a deduction otherwiseallowable under this Act in respect of— (a) any sum payable by the assessee by way oftax, duty, cess or fee, by whatever name called, underany law for the time being in force, or (P) Ltd. (supra) while dealing with the case where the assesseehad neither deposited the realized amount of sales tax with theState exchequer nor returned the same to the concerned party,added such amount to be part of business income. It is based onthe strength of this decision, Revenue seeks to defend theimpugned orders. 7. Noticeably, the decision does not deal with theprovisions with which we are concerned. 8. Relevant portion of Section 43 B reads as under:- “43B. Certain deductions to be only on actualpayment.-Notwithstanding anything contained in anyother provision of this Act, a deduction otherwiseallowable under this Act in respect of— (a) any sum payable by the assessee by way oftax, duty, cess or fee, by whatever name called, underany law for the time being in force, or (b) any sum payable by the assessee as anemployer by way of contribution to any providentfund or superannuation fund or gratuity fund or anyother fund for the welfare of employees, or (c) any sum referred to in Clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assessee as interest onany loan or borrowing from any public financialinstitution or a State financial corporation or a Stateindustrial investment corporation, in accordance withthe terms and conditions of the agreement governingsuch loan or borrowing, or (e) any sum payable by the assessee as interest onany loan or advances from a scheduled bank [or a co-operative bank other than a primary agriculturalcredit society or a primary co-operative agriculturaland rural development bank] in accordance with theterms and conditions of the agreement governing suchloan or advances, or (f) any sum payable by the assessee as anemployer in lieu of any leave at the credit of hisemployee, or (g) any sum payable by the assessee to the IndianRailways for the use of railway assets, shall be allowed (irrespective of the previous yearin which the liability to pay such sum was incurred bythe assessee according to the method of accountingregularly employed by him) only in computing theincome referred to in section 28of that previous yearin which such sum is actually paid by him: Provided that nothing contained in this Sectionshall apply in relation to any sum which is actuallypaid by the assessee on or before the due dateapplicable in his case for furnishing the return ofincome under sub-section (1) of section 139in respectof the previous year in which the liability to pay suchsum was incurred as aforesaid and the evidence ofsuch payment is furnished by the assessee along withsuch return. .... (Emphasis supplied) 9. In Allied Motors (P) Ltd. versus Commissioner of Income Tax, Delhi, (1997) 3 SCC 472, the Hon’ble ApexCourt in paragraph 6 has gone into the legislative intent andhistory of enactment of Section 43-B. It observed that:- “To understand the circumstances in which Section43B came to be inserted in the Income Tax Act and themischief which it sought to prevent, it is necessary to look atthe memorandum explaining the provisions in the Finance Bill-of 1983 [(1983) 140 ITR (St.) 160] : "59. Under the Income Tax Act, profits andgains of business and profession are computed inaccordance with the method of accounting regularlyemployed by the assessee. Broadly stated, under themercantile system of accounting, income and outgo areaccounted for on the basis of accrual and not on thebasis of actual disbursements or receipts. for thepurposes of computation of profits and gains ofbusiness and profession, the Income-tax Act defines theword 'paid' to mean 'actually paid or incurred' accordingto the method of accounting on the basis of which theprofits or gains are computed. "59. Under the Income Tax Act, profits andgains of business and profession are computed inaccordance with the method of accounting regularlyemployed by the assessee. Broadly stated, under themercantile system of accounting, income and outgo areaccounted for on the basis of accrual and not on thebasis of actual disbursements or receipts. for thepurposes of computation of profits and gains ofbusiness and profession, the Income-tax Act defines theword 'paid' to mean 'actually paid or incurred' accordingto the method of accounting on the basis of which theprofits or gains are computed. 60. Several cases have come to notice where taxpayers do not discharge their statutory liability such asin respect of excise duty, employer's contribution toprovident fund, Employees' State Insurance Scheme,etc. for long period of time, extending sometimes toseveral years. For the purpose of their income-taxassessments, they claim the liability as deduction on theground that they maintain accounts on mercantile oraccrual basis. On the other hand they dispute theliability and do not discharge the same. For somereason or the other undisputed liabilities also are notpaid. To curb this practice, it is proposed to proved thatdeduction for any sum payable by the assessee by wayof tax or duty under any law for the time being in force(irrespective of whether such tax or duty is disputed ornot) or any sum payable by the assessee as an employerby way of contribution to any provident fund, orsuperannuation fund or gratuity fund or any other fundfor the welfare of computing the income of thatprevious year in which such sum is actually paid byhim." 10. To our mind, the said Section is an exception tothe mercantile system of accounting. It is explicitly added tocorrect the mischief of claiming deductions without payment oftaxes due even at a later stage. The expression used is "same isactually paid by him." In any event, we find the issue is no longer res Integra for Constitutional validity of Section 43B,more particularly Clause (f) thereof, stands affirmed by theHon’ble Apex Court in Civil Appeal No.3545 of 2009 titled asUnion of India & Ors. Exide Industries Limited & Anr.decided on April 24, 2020. 11. After discussing the legislative intent, the Courtcategorically held Section 43B to be a mixed bag with new anddissimilar entries inserted therein, from time to time, to cater todifferent fiscal scenarios. It was an enactment designed toprevent fraud upon the Revenue, and as such required liberalconstruction in its favour. The Court also held that sub-section(1) of Section 145 explicitly provides the method of accountingis a prerogative falling in the domain of the assessee who is wellwithin its rights to follow the mercantile system of accounting.In the mercantile system of accounting, the assessment ofincome is made based on the accrual of liability and not basedon actual expenditure in lieu thereof. However, Section 43B isnot a provision to place an embargo upon the autonomy of theassessee in adopting a particular method of accounting, nordeprive him of any lawful deduction. Instead, it merely operatesas an additional condition for the availment of deduction qua thespecified head. 12. It further observed that “Section 43B bearsheading “certain deductions to be only on actual payment”. Itopens with a non-obstante clause. As per settled principles ofinterpretation, a non-obstante clause assumes an overridingcharacter against any other provision of general application. Itdeclares that within the sphere allotted to it by the Parliament, itshall not be controlled or overridden by any other provisionunless expressly provided for. Out of the allowable deductions,the legislature consciously earmarked certain deductions fromtime to time and included them in the ambit of Section 43B soas to subject such deductions to the conditionality of actualpayment. Such conditionality may have the inevitable effect ofbeing different from the theme of the mercantile system ofaccounting on accrual of liability basis qua the specific head ofdeduction covered therein and not to other heads. But that is amatter for the legislature and its wisdom in doing so.” (Emphasis supplied) 13. And after elaborately discussing the issue,eventually, the Court observed that “Notably, this regulatorymeasure is in sync with other deductions specified in Section43B, which are also present and accrued liabilities. To wit, theliability in lieu of tax, duty, cess, bonus, commission etc. also arise in the present as per the mercantile system, but assesseesused to defer payment thereof despite claiming deductions thereagainst under the guise of the mercantile system of accounting.Resultantly, irrespective of the category of liability, suchdeductions were regulated by law under the aegis of Section43B, keeping in mind the peculiar exigencies of fiscal affairsand underlying concerns of public Revenue.” 14. Even on an earlier occasion, the Court affirmedthe view of the Revenue that furnishing of a Bank Guarantee isnot the same as making payment stipulated under Section 43Bof the Act [Commissioner of Income Tax, Udaipur,Rajasthan vs. Mcdowell and Company Limited, (2009) 10SCC 755]. 15. Hence on both counts, we see no reason to accept thecontentions of the petitioner- (a) Constitutional validity of the Actalready stands affirmed by the Hon’ble Apex Court in ExideIndustries Limited (supra). (b)On the secondsubmission,undisputedly, petitioner had not deposited the amount deducted asSTT with the authorities, and it is not his case that the same stoodpaid back/returned to the person from whom it stood deducted. Itis the admitted case of the petitioner that since the petitioner wasadopting the mercantile system of accounting; he was not supposed to take any action. Even on this count, given lawdiscussed above, more so Exide Industries Limited (supra). (supra) andMcdowell (supra), the orders cannot be said to beperverse and illegal warranting interference by this Court. 16. Given binding precedents of Hon'ble the ApexCourt, we need not refer to the binding effect of the decisionsrendered by different High Courts cited by the learned counsel forthe petitioner. 17. The writ petition stands dismissed. 18. No order as to costs. 19. Interlocutory Application, if any, shall stand disposed of. K.C.Jha/- (Sanjay Karol, CJ) S. Kumar, J: I agree ( S. Kumar, J) AFR/NAFRAFRCAV DATE21.08.2020Uploading Date07.09.2020Transmission Date