1992 (5) TMI 86 - AT - Income Tax

Market Cess deemed fee, not tax under Income Tax Act. Section 43B inapplicable. Appeals dismissed.

Income-Tax Officer. Versus Sancheti Traders.

The Tribunal upheld the decision of the C.I.T.(A) regarding the Market Cess, confirming it as a fee and not a duty or tax. Consequently, the provisions of ... Accounting Year, Agricultural Produce, Carrying On Business Issues Involved:1. Applicability of Section 43B of the Income Tax Act, 1961 to Market Cess.2. Nature of Market Cess - whether it is a tax, duty, or fee.3. Validity and interpretation of the C.I.T.(A)'s decision.Issue-wise Detailed Analysis:1. Applicability of Section 43B of the Income Tax Act, 1961 to Market Cess:The primary issue revolves around whether Market Cess falls under the provisions of Section 43B of the Income Tax Act, 1961, which mandates the disallowance of certain deductions unless the payment is actually made. The C.I.T.(A) held that Market Cess is not covered by Section 43B and thus cannot be disallowed under this section. The Revenue contested this, arguing that the C.I.T.(A) erred in interpreting Section 43B and that the Market Cess should be disallowed if not actually paid.2. Nature of Market Cess - whether it is a tax, duty, or fee:The nature of Market Cess was debated to determine if it qualifies as a 'duty' under Section 43B. The assessee argued that Market Cess is not a duty but a fee, and thus Section 43B does not apply. The C.I.T.(A) agreed with this view, relying on the Tribunal's decision in ITO v. Sree Dhanalakshmi Rice Co. and the Andhra Pradesh High Court's ruling in Srikakollu Subba Rao & Co. v. Union of India, which held that Market Cess is neither a tax nor a duty. The Supreme Court's decision in Om Parkash Agarwal v. Giri Raj Kishori was cited to distinguish between tax and fee, emphasizing that a tax is imposed for public purposes without reference to special benefits, whereas a fee is correlated to the expenses incurred by the Government in rendering services.3. Validity and interpretation of the C.I.T.(A)'s decision:The C.I.T.(A) concluded that Market Cess is a fee and not a duty, and thus the provisions of Section 43B do not apply. This conclusion was supported by the Andhra Pradesh High Court's decision and the Supreme Court's distinction between tax and fee. The Tribunal examined the Maharashtra Agricultural Produce Marketing (Regulation) Act, 1963, which governs the Market Cess, and found that the levy is indeed a fee for services rendered by the Market Committee, such as market development, maintenance, and providing facilities to agriculturists. The Tribunal concluded that there is a quid pro quo relationship between the levy and the services rendered, affirming that the Market Cess is a fee and not a tax or duty.Conclusion:The Tribunal upheld the C.I.T.(A)'s decision, rejecting the Revenue's appeal. It confirmed that the Market Cess collected by the assessee is a fee and not a duty or tax, and therefore, the provisions of Section 43B of the Income Tax Act, 1961, do not apply. The appeals were dismissed, affirming the admissibility of the expenditure claimed by the assessee based on the mercantile method of accounting.