High Court Of Calcutta
A.W. Figgis & Co. Ltd. vs. CIT
Sections 28(i), 43B, 216
Asst. Year 1984-85
Tarun Chatterjee & Asit Kumar Bisi, JJ.
IT Ref. Nos. 94, 125 & 126 of 1995 & 45 of 1997
5th April, 2002
Counsel Appeared
Dr. D.P. Pal with M. Seal for the Assessee : D. Deb, P.K. Bhoumick, M.P. Agarwal, Md. Nizamuddin, J.C. Saha & Sumit Kr. Chakraborty, for the Revenue
JUDGMENT
TARUN CHATTERJEE, J. :
The following questions were referred to this Court for our opinion under s. 256 (2) of the IT Act 1961 (in short “the Act”) :
“1. Whether in view of the fact that the applicant as a tea broker is neither the purchaser nor the seller of tea and the sale proceeds of tea are not the applicant’s trading receipts, the Tribunal was correct in holding that the sales-tax collected by the applicant as a tea broker was its income and the amount of sales-tax collected remaining unpaid at the end of the year was disallowable under s. 43B of the IT Act, 1961 ?
2. Whether the Tribunal was justified in confirming the charging of interest under s. 216 of the IT Act, 1961, amounting to Rs. 10,656 for reasons stated in the order on conjecture and surmise not based on any material on record or were otherwise perverse ?”
2. The assessee who is the applicant before us is a private limited company, carrying on business of tea broking and auctioneering. In the asst. yr. 1984-85, a sum of Rs. 1,45,759 being the sales-tax collected by the assessee under the West Bengal ST Act but remaining unpaid at the end of the accounting year was disallowed and added back under s. 43B of the IT Act. The case of the assessee was that it was neither a purchaser nor a seller of tea and the tea sale proceeds did not represent its trading receipts and therefore, the sales-tax collected could not be treated as a part of the trading receipts. It was further contended by the assessee that no entries in the P&L a/c were made debiting the sales-tax nor the same was claimed in the return as deduction. In these facts and circumstances the assessee contended that the disallowance under s. 43B was not proper. However, the contentions of the assessee were rejected and the amount was added. The order was confirmed by the CIT(A). On further appeal it was pointed out that the decision of the Supreme Court in Chowringhee Sales Bureau vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) : TC 13R.326 was rightly applied by the Department to the facts of this case. The contentions taken earlier were reiterated before the Tribunal. The Tribunal took the view that the aforesaid decision of the Supreme Court was clearly applicable to the assessee’s case and the sales-tax collected but remaining unpaid should be added back under s. 43B of the IT Act. The Tribunal, however, directed that sales-tax actually paid in the accounting year should be allowed as deduction as the Tribunal on that score relied on a decision of this Court in the case of CIT vs. Shri Jagannath Steel Corpn. (1991) 191 ITR 676 (Cal) : TC 19R.725. From the records it appears that on 12th Sept., 1983, the assessee filed an estimate of advance tax showing advance tax liabilities of Rs. 4,99,687 and paid the first two instalments accordingly. The estimate was, however, revised and the advance tax liability was shown at Rs. 7,99,500. However, the final instalment of advance tax was also paid. The ITO was of the view that the assessee had underestimated the advance tax in the first two instalments and, therefore, levied interest of Rs. 10,656 under s. 216 of the Act. This levy was, however, confirmed by the CIT(A). The matter was carried to the Tribunal. Before the Tribunal it was submitted that as the first estimate was filed on the basis of the facts prevailing at the material point of time and that there was no intention to underestimate the advance tax liability and on the basis of the revised estimate the advance tax was paid by the assessee, the levy of interest was not justified. The Tribunal held that the assessee had failed to show any specific circumstances for filing the lower estimate. It was further held by the Tribunal that the profits of the business in tea usually go high towards the close of the accounting year, which the assessee should have foreseen, and accordingly the order levying interest was upheld by the Tribunal. Dr. Pal appearing on behalf of the assessee draws our attention to a decision of the Andhra Pradesh High Court in the case of CIT vs. Devatha Chandraiah & Sons (1985) 154 ITR 893 (AP) : TC 13R.363 and submitted that this decision of the Andhra Pradesh High Court had distinguished the Supreme Court decision in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) on which strong reliance was placed by the Tribunal as well as the authorities below and accordingly Dr. Pal pointed out that the amount received towards sales-tax by the assessee from the purchaser was received on behalf of the actual owner of tea and, therefore, the same could not constitute a trading receipt. According to Dr. Pal the said amount which was paid periodically during the course of the year in question to the Government by way of sales-tax and later on the assessment being completed, the turnover of the individuals whose turnover was less than 10,000 only, the amount of tax paid became refundable, in fact refunded to the assessee. Therefore, according to Dr. Pal, initially the amount of sales-tax received by the assessee cannot bear the insignia of income or trading receipt so as to be assessable to income-tax, Dr. Pal has also drawn our attention to a decision of the Supreme Court in the case of CIT vs. D. Shankaraiah (2001) 166 CTR (SC) 370 : (2001) 247 ITR 798 (SC) in which the judgment of the Andhra Pradesh High Court in the case of CIT vs. Devatha Chandraiah & Sons (supra) has been duly confirmed.
That being the position relying on the aforesaid two decisions, one of the Supreme Court and of the Andhra Pradesh High Court, Dr. Pal contended that the sales-tax collected could not be treated as a trading receipt in the case of the appellant unlike the facts of the Chowringhee Sales Brueau (P) Ltd. vs. CIT (supra). Mr. Agarwal and Mr. Dev and Mr. Joydeb Saha appearing for the Department in the three reference cases disputed the submissions so made by Dr. Pal. Mr. Agarwal appearing in one of the reference cases for the Department, while refuting the submissions of Dr. Pal on the question in hand, relied on a decision of the Supreme Court in the case of Jonnala Narashimharao & Co. & Ors. vs. CIT (1993) 112 CTR (SC) 126 : (1993) 200 ITR 588 (SC) : TC 13R.338 and contended that in view of the said decision, the reference case at the instance of the assessee must be decided against the assessee and in favour of the Department. Mr. Dev appearing on behalf of the Department in another reference case for the Department, however, had drawn our attention to the Expln. 2 of the second proviso of s. 43B of the Act. Relying on this provision of the Act particularly the Expln. 2 r/w second proviso to s. 43B of the Act. Mr. Dev contended that in view of the said Explanation r/w second proviso of s. 43B of the Act it was crystal clear that the authorities were justified in adding back the amount of sales-tax relying on s. 43B of the Act. In support of this contention Mr. Dev relied on a decision of a Division Bench of this Court in the case of CIT vs. Shri. Jagannath Steel Corporation (supra) and contended that this reference case should be answered against the assessee and in favour of the Department. He had also brought to our notice another decision of the Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) : TC S19.2151. Mr. Joydeb Saha appearing in another reference case contested the submission of Dr. Pal and submitted before us that the decision cited by Dr. Pal in the case of CIT vs. D. Shankaraiah (supra) cannot be applied to the facts and circumstances of the case as that was a case of a commission agent and the refund received from the Department, when sales-tax was found not payable was held not to constitute income of the assessee, on the other hand, so far as the assessee is concerned in the present case he is a broker and auctioneer for tea and not a commission agent. Mr. Saha, in this case, also had drawn our attention to the Supreme Court decision in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) and submitted that the decision of the Supreme Court is clearly applicable to the facts and circumstances of the present case as it would be evident that in that decision the Supreme Court was considering a case of an auctioneer. It was further submitted by Mr. Saha that the decision of Chowringhee Sales Bureau (supra) has been consistently and repeatedly followed by the Supreme Court in the case of Sinclair Murray & Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC) : TC 13R.331 and also in the case of Jonnala Narashimharao & Co. vs. CIT (supra). Another decision of the Supreme Court in the case of CIT vs. Thirumalaiswamy Naidu & Sons (1998) 146 CTR (SC) 529 : (1998) 230 ITR 534 (SC) : TC S13.1355 was also relied on by Mr. Saha to show that refund of sales-tax was held to be the income of the assessee. Accordingly, Mr. Saha contended that since the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) has been consistently and repeatedly followed by the Supreme Court, which also dealt with the case of the auctioneer, as we are concerned in this case, the reference cases should be answered against the assessee and in favour of the Department.
We have carefully considered the above submissions of the respective lawyers of the parties in the above three reference cases. We have also carefully examined the different Supreme Court decisions and of this Court relied on by the lawyers of the parties. Let us now take into consideration the second part of the question. The second part of the question proceeds on the footing that the amount collected by the assessee as a tea broker or as an auctioneer but remaining unpaid at the end of the year was disallowable under s. 43B of the Act. Sec. 43B disallows any sum payable by the assessee by way of tax or duty unless such tax or duty is actually paid during the relevant accounting period irrespective of the method of accounts followed by the assessee. Therefore, from a careful perusal of the provisions made in s. 43B of the Act it can be said that s. 43B can be applied only when the tax or duty has been claimed as expenditure but the said tax had not been paid. In our view, in the present case admittedly the assessee did not claim any amount by way of sales-tax as a deduction and, therefore, the question of disallowing any such tax or duty under s. 43B is totally misconceived. Such being the fact in this case we are unable to accept the contention of Mr. Dev that in view of Expln. 2 of second proviso to s. 43B of the Act, the question of disallowing any such tax or duty under s. 43B cannot at all be accepted. According to Dr. Pal the amount received towards sales-tax by the assessee from the purchasers was received on behalf of the actual owner of tea and, therefore, the same could not constitute a trading receipt. As noted hereinearlier, Dr. Pal contended that as the said amount which was paid periodically during the course of the order in question to the Government by way of sales-tax and later on the assessment being completed, the turnover of the individuals whose turnover was less than Rs. 10,000 only the amount of tax paid became refundable, in fact, refunded to the assessee. Therefore, it was urged by Dr. Pal that initially the amount of sales-tax received by the assessee cannot bear the insignia of income or trading receipt so as to be assessable to income-tax. Whether the sales-tax collected and/or received from the purchasers was a business and, or a trading receipt or not is a question, therefore, to be decided now. In our view, the case of Chowringhee Sales Bureau (P) Ltd. (supra) was rightly explained by the Division Bench of the Andhra Pradesh High Court in the case of CIT vs. Devatha Chandraiah & Sons (supra).
At this stage it may be recorded that this decision of the Andhra Pradesh High Court was subsequently confirmed by the Supreme Court in the case of CIT vs. D. Shankaraiah (supra). In the case of CIT vs. D. Shankaraiah (supra) as noted hereinearlier the Supreme Court considered its decision in the case of Chowringhee Sales Bureau (P) Ltd. (supra) and distinguished the same at p. 799 of the said report in the following manner : “The learned counsel for the appellant contends that the matter is covered by the judgment referred to in Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) : TC 13R.326 and the Tribunal was in error in distinguishing that decision. We are unable to accept this contention. It is seen from the said judgment that the assessee in that case was an auctioneer and the cash memo issued by the assessee to the purchasers in the auction sale the assessee was specifically shown as the seller. The amount realised by the assessee from the purchasers included sales tax. The assessee did not pay any amount of sales-tax to the actual owner of the goods auctioned because statutory liability for the payment of that sales-tax was that of the owner. It did not also deposit the amount realised by it sales-tax in the exchequer, because it took the position that the statutory provision creating that liability upon it was not valid. In such circumstances the amount collected by the assessee in its character as an auctioneer, was part of its trading or business receipt and consequently liable for payment of income-tax.” [Emphasis, italicised in print, supplied] Again the Chowringhee Sales Bureau (P) Ltd. (supra) was taken into consideration by the Supreme Court in the case of CIT vs. D. Shankaraiah & Ors. (supra) and again it was distinguished and/or explained by the Supreme Court in that decision in the following manner : “In the present case the ruling will not apply as the assessee here is only a commission agent when it collected sales-tax. The assessee was doing only as a commission agent of the principal and the amount cannot be treated as its income. It is argued in the Andhra Pradesh ST Act, 1957, the definition of ‘dealer’ would also include a commission agent and it is wide enough to include its income collected by way of sales-tax. But in the grounds of appeal there is no reference to the provisions of the Andhra Pradesh General ST Act, 1957. The only grounds raised are that the decision rendered in Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) : TC 13R.326, would apply and the High Court is wrong in following its own earlier decision in C.R. No. 11 of 1981 : [Emphasis, italicised in print, supplied)
In our view, as the amount received towards sales-tax by the assessee from the purchasers was received on behalf of the actual owner of tea, therefore, the same could not constitute a trading and/or a business receipt and, therefore, it cannot be treated as an income of the assessee. It is true that the decision in the case of Chowringhee Sales Bureau (P) Ltd. (supra) was also a case of an assessee who was an auctioneer but the fact remains that in that decision in the cash memos issued by the assessee to the purchasers in the auction sale the assessee was specifically shown as the seller. In the present case the aforesaid decision of the Supreme Court cannot at all be applicable as we find that the assessee in the present case is neither the actual buyer nor the actual seller of tea so that neither the payment for the purpose of tea was recorded as the purchase of the assessee in its accounts nor the sale proceeds were recorded as the sale of the assessee. That is to say, the sale price in the present case was not treated as the sale price on account of assessee. This position also did not reflect in its accounts. The Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra) treated the sales-tax collection as a business and/or a trading receipt because the sale price along with the sales-tax collection was shown and treated as a sale price realised by the assessee on its own and that fact was also reflected in the accounts of that assessee. Therefore, in our view, sales-tax realised from the purchasers can be treated a trading and/or a business receipt only when the sales price is shown to have been realised by the assessee on its own. In our view, the decision in the case of Jonnalla Narashimharao & Co. & Ors. vs. CIT (supra) as was strongly relied on by Mr. Agarwal, cannot help the Department. The decision in the case of Jonnalla Narshimharao & Co. (supra) was dealing with a case of an assessee who a commission agent in jaggery whereas in the present case admittedly we are concerned with the present assessee who is an auctioneer and a tea broker. In any view of the matter in that decision a question was raised before the Supreme Court whether the assessee was liable to pay any sales-tax or not. In the content the Supreme Court observed that all doubts in that behalf were set at rest by the amending effect in 1970 to the Andhra Pradesh General ST Act which was upheld by the High Court of Andhra Pradesh and by the Supreme Court.
The Supreme Court in that decision observed as follows : “As a result of the said amendment, the assessee became liable to pay sales-tax on the sales/purchases effected by him during the relevant accounting year. It is an admitted fact that the assessee did not remit the tax during the asst. yr. 1968-69. He did it later. The question raised in these appeals are whether the collection of the said amount in the name of ‘rusum’ constitutes his business receipt and secondly whether it is a deductible expenditure for the asst. yr. 1968-69 notwithstanding the fact that he did not actually remit the tax during the assessment year. So far as the first question is concerned there can hardly be any doubt. It constitutes his business receipt, though collected under the name “rusum”. See Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) : TC 13R.326.” [Emphasis, italicised in print, supplied]
10. It is true that the Supreme Court in the aforesaid decision also followed its earlier decision in the case of Chowringhee Sales Bureau (supra) and held that sales-tax on account of sale constituted business and/or trading receipt. In view of our discussions made hereinabove by which we have already distinguished the decision in the case of Chowringhee Sales Bureau (P) Ltd. (supra) and followed the decision of the Supreme Court, which confirmed a Division Bench decision of the Andhra Pradesh High Court, we are of the view that the said decision in the case of Jonnallah Narashimharao & Co. & Ors. (supra) is not applicable to the facts and circumstances of the present case. The aforesaid two decisions of the Supreme Court could be explained from another angle. In the aforesaid two decisions, the Supreme Court treated the sales-tax collected by the assessee as a trading and/or business receipt because the sale price along with sales-tax collected was shown and treated as a sales price realised by the assessee on its own and that fact was also reflected in their accounts. As noted hereinearlier, in our view in the present case, the sales-tax realised could be treated as a trading or business receipt only if sales price was shown to have been realised by the assessee on its own. Sales-tax collection cannot be a business and/or a trading receipt when the sales price itself is not reflected in the accounts of the assessee as the realisation of sale proceeds is not on its own. The decision of the Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra) was also considered in the case of CIT vs. Devatha Chandraiah & Sons (supra) and the decision in the case of Chowringhee Sales Bureau (P) Ltd. (supra) was distinguished by the Andhra Pradesh High Court in the following manner : “So far as the principle goes, as stated by the Supreme Court in Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) : TC 13R.326 and in Singclair Murray & Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC) : TC 13R.331, it is final. But it has to be noted that the Supreme Court was not considering in the above two cases what would be the effect if those sales-tax collections are entered in a separate account maintained under the mercantile system. An income accrues or arises when the assessee acquires a right to receive it.” [Emphasis, italicised in print, supplied]
In the same decision Andhra Pradesh High Court after considering the Supreme Court decision viz. Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) and Sinclair Murrary & Co. (P) Ltd. vs. CIT (supra) made the following findings : “Even otherwise, on the basis of well-settled decisions of the Supreme Court as well as of this Court, the money representing the sales-tax received by the assessee has been received by him in a fiduciary capacity, as in the nature of things, the very contract brought about the relationship of principal and agent between the agriculturist principals and the assessee, and therefore, there is an obligation on the part of the assessee to return the said tax. Even at the very outset as and when the money representing sales-tax is received from the purchasers, in fact, it is received for and on behalf of the agriculturist principals with a liability and so with an obligation to pay the same as and when it is refunded by the Government to the agriculturist principals. Further in this case, it is not in dispute that mercantile system of accountancy has been followed by the assessee. If that be so, the contention of the learned standing counsel, that relief will have to be given as and when the money is refunded, is devoid of merit and substance because the very underlying principle behind the mercantile system is that the moment it is received and entered in books of account, it will be deemed that the liability has accrued at that point itself and it does not depend upon the time, when it is determined and becomes due, unlike the cash system wherein the liability is discharged as and when it is paid or made. Hence we hold : (i) that the amounts collected in the form of sales-tax did not constitute trading receipts; and (ii) that, in any event, since the assessee followed and maintained the mercantile system of accountancy and which in turn creates an obligation and a liability to repay as and when it is refunded, the same cannot be included in the income of the assessee for the purpose ofcomputation. [Emphasis, italicised in print, supplied] Such being the position, after considering the decisions of the Supreme Court and the High Court of India we are of the view that the sales-tax collected in the present case cannot be treated as a trading receipt unlike the facts of the Chowringhee Sales Bureau (P) Ltd. (supra) of the Supreme Court.
Accordingly we firmly hold that the sales-tax collected by the assessee as an auctioneer and a tea broker cannot be a trading and or a business receipt when in the present case sales price itself was not reflected in the accounts of the assessee as the realisation of the sale proceeds was not on its own. Before we take this question as closed we may consider the judgment of the Supreme Court in the case of Sinclair Murrary & Co. (P) Ltd. vs. CIT (supra) and also in the case of Jonnala Narashimharao & Co. (supra). So far as the decision of the Supreme Court in the case of Sinclair Murrary & Co. (P) Ltd. (supra) is concerned we find that the said decision practically followed the decision of the Chowringhee Sale Bureau (P) Ltd. (supra). Since we have already distinguished and explained the decision in the case of Chowringhee Sales Bureau (P) Ltd. (supra) (sic) has followed the Chowringhee Sales Bureau (P) Ltd. (supra) (sic) case and since we have already distinguished the said decision in the manner indicated above and that in the case of CIT vs. Thirumalaiswamy Naidu & Sons (supra) the principles laid down in the aforesaid decision were followed, we are of the view that in the facts and circumstances of the case this decision of the Supreme Court cannot as mentioned above also be applied in the present case.
11. For the reasons aforesaid the first question referred to above is answered in favour of the assessee and against the Department. So far as the second question is concerned Dr. Pal appearing on behalf of the applicant conceded before us that the question raised must be answered in favour of the Department and against the assessee. That being the stand taken by the assessee, we need not go into this question at all in detail and, therefore, this question is answered in favour of the Department and against the applicant. Such being the position, all the four reference cases are decided in the manner indicated above. However, we make it clear that in IT Ref. No. 45/1995 none appeared for the Department before us. There will be no order as to costs.
ASIT KUMAR BISI, J.: I agree
[Citation : 256 ITR 268]