Section 43B scope and refundable deposits: cess excluded for the year in question, and buyer deposits were not trading receipts.

Section 43B, as applicable for assessment year 1985-86, covered only tax or duty and did not then extend to cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958; the later 1988 amendment bringing cess and fee within the provision was stated to operate only prospectively from assessment year 1989-90. The levies were also credited to special panchayat funds rather than the consolidated fund, which reinforced that they lacked the attributes required for section 43B treatment. Refundable deposits collected from buyers against possible sales tax liability on packing charges and freight were held in a custodial capacity, separately accounted for, and refundable if the levy failed; they were therefore not trading receipts or collections by way of tax.

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Issues: (i) Whether cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958 fell within section 43B of the Income-tax Act, 1961 for the assessment year 1985-86; (ii) Whether refundable deposits collected from buyers towards possible sales tax liability on packing charges and freight were trading receipts liable to be brought to tax.

Issue (i): Whether cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958 fell within section 43B of the Income-tax Act, 1961 for the assessment year 1985-86.

Analysis: The amendment to section 43B(a) introduced by the Finance Act, 1988 extended the provision to cover cess and fee, but the legislative materials indicated that the change was to operate from 1 April 1989 and for assessment year 1989-90 onwards. The earlier form of section 43B(a) referred only to tax or duty. The cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958 were credited to special panchayat funds and not to the consolidated fund, and their structure lacked the essential attributes of a tax for section 43B purposes.

Conclusion: The question was answered in favour of the assessee. The cess and cess surcharge were not covered by section 43B for the assessment year 1985-86.

Issue (ii): Whether refundable deposits collected from buyers towards possible sales tax liability on packing charges and freight were trading receipts liable to be brought to tax.

Analysis: The amounts were collected as refundable security deposits, separately ledgerised, and were held on the express understanding that they would either be paid to the Government if the levy was upheld or refunded to the buyers if it was not. Such receipts were held in a custodial capacity and were not collections by way of tax or amounts received as sales tax. The authorities dealing with trading receipts involved collections made as tax or as part of sale price, which was not the factual position here.

Conclusion: The question was answered in favour of the assessee. The deposits did not constitute trading receipts.

Final Conclusion: The reference succeeded on the two substantive issues decided on merits, while the remaining questions were left unanswered or not pressed.

Ratio Decidendi: A statutory levy will fall within section 43B only if it is within the specific statutory language applicable for the relevant year, and a refundable deposit held merely as custodian cannot be treated as a trading receipt or a collection by way of tax.

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