The Commissioner Of Income-Tax, Haryana, Rohtak v. M/S. Rajdhani Wine Traders,Bhiwani

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income-tax Reference No. 61 of 1996Date of Decision: July 5, 2010 The Commissioner of Income-tax, Haryana, Rohtak--- Applicant Versus M/s. Rajdhani Wine Traders,Bhiwani --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL *** PRESENT: None. --- Ajay Kumar Mittal, J. In this reference filed under Section 256(1) of the IncomeTax Act, 1961 (for short “the Act”) at the instance of the Revenue,pertaining to the assessment year 1984-85, the following question oflaw has been referred for the opinion of this Court: “Whether, on the facts and in the circumstances of thecase, the Tribunal was right in law in upholding the orderof the Ld. CIT (Appeals) that unpaid sales-tax liability forthe last quarter of the accounting period cannot bedisallowed under Section 43B by invoking the provision ofSection 154 of the I.T. Act?” The aforesaid question has come to be referred in the following background: The assessing officer vide order dated 7.4.1988 passedunder Section 154 of the Act enhanced the income of the assesseeby a sum of Rs. 1,03,683/- which represented the unpaid sales taxliability, under Section 43B, on the ground that the unpaid sales taxwas a trading receipt as settled by a number of judicial enunciations.The assessing officer was further of the view that it was only due toaccounting system followed by the assessee that the amount of salestax collected from the purchasers was not taken into account in thetrading account and was credited to a separate account under thehead ‘Sales tax Account’. The payment was made from that accountand the amount left outstanding on the last day of the accountingperiod was taken to the balance sheet as the amount payable. Theassessing officer, therefore, held that the system of accountingadopted by the assessee could not alter the nature of the sales tax.The assessing officer, however, rejected the stand of the assesseethat since two interpretations were possible, Section 154 of the Actwas not applicable. The assessee carried appeal. It was contended onbehalf of the assessee that matter did not fall within the scope ofSection 154 of the Act as the non-inclusion of the amount in questionat the time of filing original assessment could not be said to be amistake apparent from the record. The assessee further submittedthat a sum of Rs. 62,000/- was paid by cheque on 30.4.1984 to thesales tax authorities whereas further amount of Rs. 41,692/- waspaid in cash on 14.5.1984, i.e. the entire amount which represented the sale tax liability for the last quarter, was discharged within thetime allowed under the sales tax law. In support of its submission,reliance was placed on S. Subba Rao and others v. Union of India,173 ITR 708. The Commissioner of Income-tax (Appeals) observed thatvarious Benches of the Tribunal had held that the liability of the lastquarter could not be added back by applying the provisions ofSection 43B because that liability did not become payable on the lastdate of the quarter. On the basis thereof, it was held that the issuewhich was controversial and debatable could not be said to becovered within the scope of Section 154. The appeal wasconsequently accepted and the addition of the sales tax liability madeby the Assessing Officer was deleted. The Revenue preferred appeal before the Income TaxAppellate Tribunal, Delhi Bench ‘B’. The Tribunal put its seal ofaffirmation to the view taken by the Commissioner of Income-tax(Appeals). This is how the Tribunal has referred the aforesaidquestion to this Court for its opinion. The Revenue preferred appeal before the Income TaxAppellate Tribunal, Delhi Bench ‘B’. The Tribunal put its seal ofaffirmation to the view taken by the Commissioner of Income-tax(Appeals). This is how the Tribunal has referred the aforesaidquestion to this Court for its opinion. No one has appeared to argue the matter on behalf of theRevenue. From the perusal of the order passed by the Tribunal, thestand of the Revenue which is discernible is that the sale tax liabilitywas to be allowed as deductions only in the year in which it wasactually paid and since in the present case the liability had not beendischarged by the assessee in the previous year relevant to theassessment year under consideration, the un-paid sales tax was tobe treated as trading receipt. Reliance was placed by theDepartmental Representative before the Tribunal on two decisions of Delhi High Court reported in Sanghi Motors vs. Union of India, 187ITR 703 and Escorts Limited vs. Union of India, 189 ITR 81. It may be noticed that the decision in Escorts Limited’scasewas the subject matter of appeal before the apex Court. Whiledeciding the appeal along with some other appeals,, the apex Court-in the case of Allied Motors (P), Ltd. v. Commissioner of IncomeTax,224 ITR 677, reversed the decision in Escorts Limited’s case(supra)and over-ruled the decision in Sanghi Motors’s case. It was held thatthe proviso which was inserted by the Finance Act of 1987, witheffect from 1.4.1988, provided that any sum which was actually paidby the assessee after the accounting year but before the due date forsubmission of the return under sub-section (1) of Section 139 of theAct shall be admissible as expenditure in the previous year in whichliability to pay such sum was incurred, in case the evidence for suchpayment was furnished by the assessee along with the return, andwas to be treated as retrospective in operation and applicable fromthe date of insertion of Section 43B of the Act. The apex Courtobserved as under: “This view has been accepted by a number of HighCourts. In the case of CIT v. Chandulal Venichand, (1994)209 ITR 7, the Gujarat High Court has held that the firstproviso to Section 43-B is retrospective and sales tax forthe last quarter paid before the filing of the return for theassessment year is deductible. This decision deals withassessment year 1984-85. The Calcutta High Court in thecase of CIT v. Sri Jagannath Steel Corporation, (1991)191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after theexpiry of the accounting year in compliance with therelevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to beclarificatory and, therefore, retrospective. The GujaratHigh Court in the above case held the amendment to becurative and explanatory and hence retrospective. ThePatna High Court has also held the amendment insertingthe first proviso to be explanatory in the case of,Jamshedpur Motor Accessories Stores v. Union of India,(1991) 189 ITR 70. It has held the amendment insertingfirst proviso to be retrospective. The special leave petitionfrom this decision of the Patna High Court was dismissed.The view of the Delhi High Court, therefore, that the firstproviso to Section 43-B will be available only prospectivelydoes not appear to be correct. As observed by G.P. Singhin his Principles of Statutory Interpretation, 4th Edn. Page291, "It is well settled that if a statute is curative or merelydeclaratory of the previous law retrospective operation isgenerally intended." In fact the amendment would notserve its object in such a situation unless it is construed asretrospective. The view, therefore, taken by the Delhi HighCourt cannot be sustained”. In view of the above, the sales tax liabilities discharged by theassessee for the last quarter before the filing of the return could notbe disallowed under Section 43B of the Act. In view of the above, the sales tax liabilities discharged by theassessee for the last quarter before the filing of the return could notbe disallowed under Section 43B of the Act. The answer to the question referred to above is to be against the Revenue as per Section 154 of the Act as well. Theissue being a debatable one in view of divergence of opinionbetween various High Courts as it was only the Delhi High Courtwhich had adjudicated in favour of the Revenue whereas view of theGujarat High Court in CIT v. Chandulal Venichand [1994] 209 ITR 7;Calcutta High Court in CIT v. Sri Jagannath Steel Corporation [1991]191 ITR 676 and Patna High Court in Jamshedpur MotorAccessories Stores v. Union of India, [1991] 189 ITR 70 is contrary tothe decision taken by the Delhi High Court, the provisions of Section154 of the Act could not be resorted to. In view of the above, we answer the question referred toabove in favour of the assessee and against the Revenue. (AJAY KUMAR MITTAL) JUDGE July 5, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE