The Commissioner Of Income Tax Madras v. The Everest Litho Press Thiruthangal Road Sivakasi

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25.1.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANandTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.310 of 2001 The Commissioner of Income TaxMadras. .. ApplicantVs The Everest Litho PressThiruthangal RoadSivakasi.. Respondent PRAYER: Tax case reference at the instance of the Revenueagainst the order of the Income Tax Appellate Tribunal,Chennai dated 22.4.1997 in I.T.A.No.1698/Mds/1990 for theassessment year 1987-88. against order Appeal No. ITA NO.382/88-89 Dated 26.02.1990 on the file of the Commissionerof Income Tax (Appeals) II Madurai against order in PAN -0381/87-88/VNR I (1) dated 30.03.1988 on the file of the1st Income-Tax Officer, Virudhunagar. For Applicant:Mr.J.NarayanasamyJunior Standing Counselfor Income Tax For Respondent :No appearance JUDGMENT(Delivered by P.P.S.JANARTHANA RAJA,J.) At the instance of the Revenue, the Income TaxTribunal has stated a case and referred the followingquestion of law under Section 256(1) of the Income Tax Act:"Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal erred in law in notholding that the amounts of sales-tax on printingreceipts collected by the assessee formed part ofthe assessee's trading receipts in view of the ratioof the Supreme Court's decisions in the cases ofChowringhee Sales Bureau P. Ltd. (87 ITR 542), https://hcservices.ecourts.gov.in/hcservices/ Jonnalla Narasimarao & Co. and Others (220 ITR 588)and Sinclaire Murrey Co. P. Ltd. (97 ITR 615)?" 2. The relevant assessment year is 1987-88 and thecorresponding accounting year ended on 9.9.1986. Therespondent/assessee was carrying on printing work. Theonly point of dispute pertains to the inclusion ofRs.19,685/- representing the amounts collected towardssales-tax held by the assessee as contingent deposit. TheAssessing Officer made addition under Section 43B of theIncome Tax Act. Aggrieved by the order of the AssessingOfficer, the assessee filed an appeal to the Commissionerof Income Tax (Appeals), who accepted the contention of theassessee and allowed the appeal. Against the order of theCommissioner of Income Tax (Appeals), the Revenue appealedbefore the Tribunal. The Tribunal held that the assesseedid not claim amount as deduction under Section 43B of theAct and held that Section 43B of the Act could not beapplied to the present case and hence, confirmed the orderof the Commissioner of Income Tax (Appeals). 3. The learned counsel for the Revenue contended thatthe assessee collected sales tax and did not deposit thesame to the Sales Tax Department. On the other hand, theamount was shown as contingent deposit and the said amountwas never paid to the Government and therefore, Section 43Bof the Act has been rightly applied by the AssessingOfficer. Despite service on the respondent/assessee thereis no representation. 4. Section 43B of the Income Tax Act reads as follows:"Section:43B – Certain deductions to be only onactual payment.– Notwithstanding anything contained in any otherprovision of this Act, a deduction otherwiseallowable under this Act in respect of- (a) any sum payable by the assessee by way of tax orduty under any law for the time being in force, or (b) any sum payable by the assessee as an employerby way of contribution to any provident fund orsuperannuation fund or gratuity fund or other fundfor the welfare of employees, shall be allowed(irrespective of the previous year in which theliability to pay such sum was incurred by theassessee according to the method of accountingregularly employed him) only in computing the incomereferred to in Section 28 of that previous year inwhich such sum is actually paid by him. Notwithstanding anything contained in any otherprovision of this Act, a deduction otherwiseallowable under this Act in respect of- (a) any sum payable by the assessee by way of tax orduty under any law for the time being in force, or (b) any sum payable by the assessee as an employerby way of contribution to any provident fund orsuperannuation fund or gratuity fund or other fundfor the welfare of employees, shall be allowed(irrespective of the previous year in which theliability to pay such sum was incurred by theassessee according to the method of accountingregularly employed him) only in computing the incomereferred to in Section 28 of that previous year inwhich such sum is actually paid by him. 5. A reading of Section 43B of the Act makes it clearthat if tax having become payable is not paid by theassessee then alone Section 43B of the Act comes intooperation. Section 43B of the Act was inserted with effectfrom April 1, 1984, to discourage taxpayers who did notdischarge their statutory liability of payment of salestax, excise duty, employer's contribution to providentfund, etc., for long periods of time, but claimeddeductions in that regard from their income on the groundthat the liability to pay these amounts had been incurredby them in the relevant previous year. After the insertionof section 43B, even if the assessee had regularly adoptedthe mercantile system of accounting, the amount of taxpayable by the assessee could be deducted only in the yearin which the sum was actually paid and not in the year inwhich the assessee incurred the liability to pay that tax. 6. In the case on hand, the amount collected as salestax was never claimed as deduction by the assessee. Section43B of the Act is not attracted at all when the assesseehas not claimed any deduction of the amount collected byit. The Gauhati High Court, in the case of INDIA CARBONLTD. Vs. CIT, [1993] 200 ITR 758, considered a similarissue and held as follows:"the amount of sales tax appeared on the liabilitiesside of the balance-sheet of the petitioner-company.The petitioner did not claim the added amount asdeduction nor did he charge it to the profit andloss account. The amount of sales tax could not beadded back to the income of the assessee underSection 43B. In the present case, the question waswhether Section 43B applied and not whether salestax collected formed part of the trading receipts." 7. In the instant case, the amount had been added bythe Assessing Officer under Section 43B of the Act. Allthe authorities below had given a factual finding that theassessee never claimed deduction under Section 43B of theAct and therefore, Section 43B of the Act is not applicable. 8. The learned counsel appearing for the Revenuerelied on the decision in COMMISSIONER OF INCOME TAX v.SOUTHERN EXPLOSIVES CO. [2000] 242 ITR 107. The issue inthat case is whether sales-tax collected can be consideredas a trading receipt or not. In the instant case, theissue is whether the addition can be made under Section 43Bof the Act or not. The decision referred supra has norelevance and does not help the Revenue's contention. The 7. In the instant case, the amount had been added bythe Assessing Officer under Section 43B of the Act. Allthe authorities below had given a factual finding that theassessee never claimed deduction under Section 43B of theAct and therefore, Section 43B of the Act is not applicable. 8. The learned counsel appearing for the Revenuerelied on the decision in COMMISSIONER OF INCOME TAX v.SOUTHERN EXPLOSIVES CO. [2000] 242 ITR 107. The issue inthat case is whether sales-tax collected can be consideredas a trading receipt or not. In the instant case, theissue is whether the addition can be made under Section 43Bof the Act or not. The decision referred supra has norelevance and does not help the Revenue's contention. The question of law raised by the Revenue deals only with thequestion whether sales tax collected but not paid wouldform part of the business or trading receipt. The questionraised does not bring out the real controversy in issue. Itdoes not deal with the real issue. It is well settled lawthat the jurisdiction of the High Court in a reference isin the nature of advisory jurisdiction and only such issuescan be and are answered as arise properly on the facts andthe questions referred to the High Court. The Revenue inthe appeal did not bring about the real controversy in thiscase. In view of the above, we return the questionreferred to us unanswered. Further, we have also noticedthat the tax effect in the present case is very negligible.sasiSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo:1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar, Chennai (5 copies with records)2. The Secretary, Central Board of Direct Taxes, New Delhi ( 3 copies)3. The Commissioner of Income-tax (Appeals)-II, Madurai4. The Commissioner of Income-tax, Madras.5. The Income Tax Officer Virudhunagar.+ one cc to M/s. Pushya Sitaraman, Advocate sr no. 3162MAB(CO)NM(07.03.2006) T.C.310 of 2001