Trading receipt and section 43B relief: sales-tax, provident fund, ESI, and presentation article disallowances were partly sustained.

Sales-tax collected by a dealer was treated as a trading receipt, and section 43B disallowance was sustained, with the proviso inserted from 1-4-1988 applied prospectively and relief available only on actual payment. Employer's contribution to provident fund and ESI was not disallowable under section 43B because it fell within clause (b), the retrospective Explanation 2 was confined to clause (a), and the amount was paid within the permissible time, so the disallowance was deleted. The partial disallowance of presentation article was upheld where business purpose was not satisfactorily proved.

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Issues: (i) whether sales-tax collected by the assessee formed a trading receipt and was liable to disallowance under section 43B, including the effect of the proviso inserted with effect from 1-4-1988; (ii) whether unpaid employer's contribution to provident fund and ESI was disallowable under section 43B; and (iii) whether the disallowance in respect of presentation articles was sustainable.

Issue (i): whether sales-tax collected by the assessee formed a trading receipt and was liable to disallowance under section 43B, including the effect of the proviso inserted with effect from 1-4-1988

Analysis: The collections were made by the assessee as a dealer under the sales-tax laws and not in a fiduciary capacity for another person. The true character of a receipt is not controlled by the manner of accounting in the books. Amounts recovered as sales-tax, though separately credited, retained the character of trading receipts. The proviso to section 43B, inserted with effect from 1-4-1988, was held applicable prospectively and not retrospectively for the assessment year in question.

Conclusion: The sales-tax collection was held to be a trading receipt and the disallowance under section 43B was sustained, subject to allowance in the year of actual payment.

Issue (ii): whether unpaid employer's contribution to provident fund and ESI was disallowable under section 43B

Analysis: Section 43B(b) was treated as distinct from clause (a), and the retrospective Explanation 2 was confined to clause (a). Since the employer's contribution had not become due under the statute by the end of the previous year and was paid in the subsequent year within the permissible time, the statutory condition for disallowance was not attracted.

Conclusion: The disallowance of employer's contribution to provident fund and ESI was deleted.

Issue (iii): whether the disallowance in respect of presentation articles was sustainable

Analysis: In the absence of satisfactory evidence showing that the expenditure was wholly for business purposes, the partial disallowance made on estimate was upheld.

Conclusion: The disallowance in respect of presentation articles was confirmed.

Final Conclusion: The assessee succeeded only on the provident fund and ESI contribution issue, while the other additions were sustained, resulting in partial relief.

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