TaxTMI 
TaxTMI 
2013 (7) TMI 662
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....er of disallowance u/s 43B of the Income Tax Act? (3) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the income treated by the Assessing Officer on account of unclaimed balances/wages/bonus which were written off by the assessee and credited to its Profit and Loss Account cannot be treated as the income of the assessee company? (4) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee company was entitled for deduction on account of Extra Shift Allowance relating to transformers? (5) Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the charge of interest u/s 216 amounting to Rs.6,11,667/- by observing that the estimates of advance tax filed by the assessee were reasonable and bona fide. 2. Question Nos. 3 and 4 were not pressed before us by Mr Sabharwal, appearing on behalf of the revenue on account of the small amounts involved therein. In question No.3, the amount involved is roughly around Rs.13,000/- and in question No.4, the amount is approximately Rs.8,600/-. Consequently, insofar as que....
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....reference in respect of assessment year 1984-85 was returned unanswered by a Division Bench of this Court on 05.09.2007 inasmuch as the revenue had not filed the paper books although the matter had been pending for 15 years. Therefore, we do not have the benefit of any decision of this Court on this question as the reference in respect of the earlier assessment year (assessment year 1984-85) had been returned unanswered in the circumstances mentioned above. 4. Section 43B of the said Act as it stood in relation to the assessment year 1985-86 reads as under:- "43B. Certain deductions to be only on actual payment. - Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employee, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method o....
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.... would be retrospective in operation and would also apply to the assessment year 1985-86. Therefore, according to Mr Sabharwal, unless and until the cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958 had actually been paid in the relevant year, the respondent would not have been entitled to claim a deduction in respect of an accrued liability to pay such cess and cess surcharge. The second argument of Mr Sabharwal was that in any event, a cess was a tax and de hors the amendment introduced by the Finance Act, 1988, the provisions of Section 43B(a) which were clearly applicable insofar as a tax was concerned would also apply to a cess. Mr Sabharwal placed reliance on the Budget Speech of the Finance Minister (1983-84). Section 43B was introduced into the said Act for the first time by virtue of the Finance Act, 1983 with effect from 01.04.1984. In the said Budget Speech of the Finance Minister, the following reason had been given behind the introduction of Section 43B:- "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance....
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....nt money for their own purposes. There has been a legal controversy whether the words 'tax' and 'duty' cover within their fold certain statutory levies like cess, fees, etc. It has been held by some appellate authorities that such amounts could not be covered under the expressions "tax" or "duty". Such interpretations are against the legislative intent. Therefore, as a matter of clarification, the Bill provides that cess or fees by whatever name called, which have been imposed by any statutory authority, including a local authority, will also be allowed as a deduction only if these are actually paid." xxxxx xxxxx xxxxx xxxxx "The above amendment will take effect from 1st April, 1989, and will, accordingly, apply to assessment year 1989-90 and subsequent years." 10. Placing reliance on the above extract, Mr Sabharwal submitted that the memorandum itself indicated that "as a matter of clarification", the Finance Bill, 1988 made provision for the fact that cess or fee by whatever name called which had been imposed by any statutory authority, including a local authority, would also be allowed as a deduction "only if" these were actually paid. It was therefore contended t....
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....ions and therefore it has to be regarded as a tax. 13. Finally, Mr Sabharwal referred to the Supreme Court decision in Allied Motors (P) Ltd. v. Commissioner of Income Tax: 224 ITR 677 (SC). He submitted that in that decision the Supreme Court examined Section 43B of the said Act in the context of the introduction of the first proviso thereof by virtue of the Finance Act of 1987. The Supreme Court held the proviso to be of a remedial nature which had been inserted to remedy unintended consequences. In this backdrop, the Supreme Court held that although the proviso had been inserted by virtue of the Finance Act, 1987, it was required to be treated as retrospective in operation, so that a reasonable interpretation could be given to the section as a whole. Seeking to draw an analogy therefrom, Mr Sabharwal submitted that the amendment introduced in Section 43B(a) by virtue of the Finance Act, 1988, also ought to be treated as having retrospective operation. 14. In response to the arguments submitted on behalf of the revenue, Mr Ravi Mehta appearing on behalf of the respondent/assessee submitted that insofar as Section 43B was concerned, the said provision as it stood in respect ....
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....ner of Income Tax v. Mansukhlal Prahjibhai and Company: 227 ITR 429 (MP), the High Court of Madhya Pradesh held that "fee", which was introduced in Section 43B, would operate only prospectively from the date of the amendment. A similar view was taken by the said High Court of Madhya Pradesh in Commissioner of Income Tax v. Dinesh Kumar Gordhanlal: 226 ITR 826 (MP). The High Court of Rajasthan also, in the case of Commissioner of Income Tax v. Udaipur Distillary Co. Ltd. (No.1): 268 ITR 305 (RAJ), took the view that since "fee", as distinct from tax or duty, had not been subjected to the provisions of Section 43B prior to 01.04.1989, the liability incurred on account of bottling fee during the accounting period relating to the assessment year in question would not be subjected to Section 43B of the said Act even if it be assumed that "fee" in its technical sense was a specie of taxation. The Rajasthan High Court also placed reliance on the Andhra Pradesh decision in Srikakollu Subba Rao and Co. v. Union of India: 173 ITR 708 (AP) wherein the Andhra Pradesh High Court held that market cess was not a tax and that the provisions of Section 43B had no application to market cess. The sai....
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.... clarificatory in nature. However, that is put to rest by the concluding portion of paragraph 35 of the said memorandum which makes it clear that the amendment would take effect from 01.04.1989 and would accordingly apply to assessment year 1989-90 and subsequent years. Clearly, the intent was not to make the amendment retrospective. If we examine the 'Notes on Clauses' accompanying the Finance Bill, 1988, we find, inter alia, the following notes with regard to clause 12 of the said Finance Bill, 1988 which sought to amend Section 43B of the said Act:- "Clause 12 seeks to amend section 43B of the Income-tax Act relating to allow-ability of certain sums only on actual payment. Sub-clause (i) seeks to substitute existing clause (a) by a new clause so as to extend the scope of the section to cover any cess or fee, by whatever name called, payable by the assessee under any law for the time being in force." (underlining added) 18. On going through the above extract, we find that it contains three very important words - "substitute", "new" and "extend". These words indicate that the intention was to substitute the existing clause (a) of Section 43B by a "new" clause with the ....
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.... the assessees. This is certainly not the case here and therefore the revenue would not be able to derive any benefit from the ratio of the decision in Allied Motors (P) Ltd. (supra). 21. This takes us to the consideration of the issue as to whether cess is the same thing as a tax and that even though the word "cess" was not used in Section 43B(a) as it originally stood, it always included cess inasmuch as tax was covered in the said provision. We find ourselves in agreement with the submission made by Mr Mehta that the decision of the Supreme Court in India Cement Ltd. (supra) would not be of any help to the revenue inasmuch as the issue there was entirely different. The focus in that decision was not on whether a cess was a tax or not but whether levy of cess on royalty was within the competence of the State Legislature. We also feel that the considerations with regard to cess in that case were in the context of legislative competence of the State Legislature to levy the cess on royalty which, by virtue of an explanation to Section 115 of the Tamil Nadu Panchayats Act, 1958, were said to be included in the meaning of land revenue. In that case, it was not in dispute that the cess....
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....hief Justice Gwyer of the Federal Court of India relied on the observations of Lord Wright in James v. Commonwealth of Australia [1936] AC 578 and observed that a Constitution must not be construed in any narrow or pedantic sense, and that construction most beneficial to the widest possible amplitude of its powers, must be adopted. The learned Chief Justice emphasised that a broad and liberal spirit should inspire those whose duty it is to interpret the Constitution, but they are not free to stretch or pervert the language of the enactment in the interest of any legal or constitutional theory, or even for the purposes of supplying omissions or correcting supposed errors. A Federal Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare the law, but it may rightly reflect that a Constitution of a country is a living and organic thing, which, of all instruments, has the greatest claim to be construed - 'it is better than it should live rather than that it should perish'. 23. So, even if in a particular case, while interpreting the Constitution, the Supreme Court may have regarded cess to be generally a part of taxation, it does not m....
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....of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied." 27. It was further held that: (Hingir Rampur case [AIR 1961 SC 459: (1961) 2 SCR 537], AIR pp. 465-66, para 13) "13. ... It is true that when the legislature levies ....
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....CC p. 332, para 146) "146. ... The term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the person from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged." 30. In the light of the tests laid down in Hingir Rampur [AIR 1961 SC 459 : (1961) 2 SCR 537] and followed in Kesoram Industries [(2004) 10 SCC 201] , it is manifest that the true test to determine the character of a levy, delineating "tax" from "fee" is the primary object of the levy and the essential purpose intended to be achieved." xxxxx xxxxx xxxxx xxxxx "35. Viewed from this perspectiv....
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....s it can be. It means an area the population of which does not exceed 20,000 persons. It need not necessarily be a local area as it is ordinarily understood. Ordinarily, a local area means a municipal corporation, a town municipality, a panchayat, a notified area, a sanitary board, etc. Any geographical area the population of which does not exceed 20,000 persons can be conveniently brought within the scope of section 2(h) of the Act. If it is understood that way, even urban areas can be divided into areas with population not exceeding 20,000 and labelled as rural areas. Even if we exclude from the scope of the expression " rural area ",a town or a city having a population exceeding 20,000 persons, the area in which the amount credited to the Fund can be spent is almost 90 percent. of the total area of the State of Haryana. The amount may be spent on any purpose which the State Government considers to be a purpose intended for the development of the rural areas. There is no specification in the Act that the amount or a substantial part of the amount collected by way of cess under section 3 of the Act will be spent on any public purpose within the market area where the dealer is carr....
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....d Contractors (supra), the Supreme Court had relied on Hingir Rampur Coal Co. Ltd. v. State of Orissa: AIR 1961 SC 459 wherein it was recognized that there was really no generic difference between a tax and a fee inasmuch as both are compulsory exactions of money by public authority. However, where a tax was imposed for public purposes and need not be supported by any consideration of service rendered in return, a fee was levied essentially for services rendered and as such there was an element of quid pro quo between the person who pays the fee and the public authority which imposes it. It was further observed in Hingir Rampur Coal Co. Ltd. (supra) that if specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area and is a condition precedent for the said services or in return for them, cess is levied against the said area or the said class of persons or trade or business, the cess is distinguishable from a tax and is described as a fee. Furthermore, tax recovered by a public authority invariably goes into the consolidated fund which is ultimately utilized for all public purposes whereas a cess levied by way of a fee ....
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....ss collected in the panchayat development block, such percentage as the panchayat union council may fix shall be credited to the village panchayat fund, and the percentage shall be fixed so as to secure as nearly as may be that the total income derived by all the village panchayats in the panchayat union does not fall short of an amount calculated at 20 naye Paisa for each individual of the village population in the panchayat union. (d) The balance of the proceeds of the local cess collected in the panchayat development block shall be credited to the funds of the panchayat union council." 29. From the above it is apparent that the proceeds of the local cess are to be credited in distinct shares to the Panchayat Union (Education) Fund, the Town Panchayat Fund, the Village Panchayat Fund and the Panchayat Union Council Fund. It is apparent that the cess collected under the said Tamil Nadu Panchayats Act, 1958 does not become part of the consolidated fund but becomes part of the special funds under the Tamil Nadu Panchayats Act, 1958. Thus, an essential feature of a tax is nonexistent in the case of a cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958. 30. Sect....
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....dded the said amount to the assessable income of the respondent/assessee. The Commissioner of Income Tax (Appeals) confirmed the assessing officer's order in treating the said sum as a trading receipt at the hands of the respondent/assessee. The Income Tax Appellate Tribunal however deleted the said addition by holding that the said deposits amounting to Rs.26,10,483/- could not be treated as a trading receipt and therefore could not have been included in the assessable income of the respondent/assessee. The tribunal had placed reliance on the decision of the Supreme Court in the case of State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd.: [1960] 11 STC 734 (SC) as also on the decision of a Single Judge of the Madras High Court in the assessee's own case - Dalmia Cement (Bharat) Ltd. v. Deputy Commercial Tax Officer, Lalgudi & Anr.: [1989] 73 STC 167 (Mad). The tribunal distinguished the cases cited on behalf of the revenue, namely, (i) Chowringhee Sales Bureau P. Ltd. v. Commissioner of Income Tax: 87 ITR 542 (SC); and (ii) Sinclair Murray and Co. Pvt. Ltd. v. Commissioner of Income Tax: 97 ITR 615 (SC). 32. The respondent manufactured and marketed cement under the pr....
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....sits could not be considered to be trading receipts or collections by way of sales tax. But, the assessing officer treated the same as a trading receipt and made the addition. The Commissioner of Income Tax (Appeals), as mentioned above, confirmed the addition made by the assessing officer by applying the decisions of the Supreme Court in Chowringhee Sales Bureau P. Ltd. (supra) and Sinclair Murray and Co. Pvt. Ltd. (supra). The tribunal, as pointed out above, set aside the said decision of the Commissioner of Income Tax (Appeals) and held that the deposits could not be regarded as the trading receipts of the respondent/assessee. On facts, the tribunal concluded that the contingency deposits were collected on refundable basis and were also separately ledgerised in the respondent's account and the buyers were treated as depositors. Consequently, the tribunal held that when the amounts are credited in the separate accounts of the buyers and held as deposits and the parties are treated as depositors, the money was collected on the express understanding of payment to Government or refund to the buyers in case the levy was upheld or not upheld by the Supreme Court. The respondent/assess....
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....rmed part of the trading or business receipts. The Supreme Court further held that the fact that the appellant credited the amount received "as sales tax" under the head "sales tax collection account" did not make any material difference as the Court observed that it is the true nature and quality of the receipt and not the head under which it is entered in the account books that would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. It was also held that the appellant company would, however, be entitled to claim a deduction of the amount as and when it paid it to the State Government. What is important to note from the above decision is that the money that was collected by Chowringhee Sales Bureau to the extent of Rs.32,986/- was realized by it "as sales tax". It is in this backdrop that the Supreme Court held that the said sum was part of the trading or business receipts of Chowringhee Sales Bureau. 36. The decision in Chowringhee Sales Bureau P. Ltd. (supra) was followed and applied in Sinclair Murray and Co. Pvt. Ltd. (supra....
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....ealer collecting any amount "by way of tax". It is obvious that when a dealer collects an amount by way of tax, it is part of the sale price. Therefore, that amount would have to be included in the turnover. 38. But the facts of the present case are different. Here, the deposits that were received by the respondent/assessee were neither collected "as sales tax" nor were they collected "by way of tax". They were simple deposits towards possible levy of sales tax on packing charges and freight. The footnote of each invoice specifically mentioned that the security deposit towards possible levy of sales tax on packing charges and freight was refundable in the event of the levy of sales tax on packing charges and freight being ultimately held to be not justified. 39. This takes us to consider the decision of a Constitution Bench of the Supreme Court in Mysore Spinning and Manufacturing Co. Ltd. (supra). In the context of the provisions of Section 11 of the Mysore Sales Tax Act, 1948, the question arose whether amounts received from purchasers by a registered dealer merely as deposits to be refunded to purchasers if the sales were held not liable to tax could be regarded as "collec....