Allahabad H.C : Whether without pointing out any specific error in its original order,can Tribunal recall its order under s. 254 (2) of the IT Act, 1961

High Court Of Allahabad

CIT Vs. Moti Lal Padampat Udyog Ltd.

Assessment Year : 1987-88

Section : 43B

Prakash Krishna And Ram Surat Ram (Maurya), Jj.

IT Appeal No. 80 Of 2003

March  12, 2013

JUDGMENT

Ram Surat Ram (Maurya), J. – The present appeal has been filed under s. 260A of the IT Act, 1961 (hereinafter referred to as the Act) against the order dt. 9th Jan., 2003 passed by the Income-tax Appellate Tribunal, Lucknow Bench, Lucknow (hereinafter referred to as the Tribunal) in ITA No. 2466/A11/1990. The appellant has proposed the following substantial questions of law in the memorandum of appeal :

“1. Whether without pointing out any specific error in its original order dt. 26th Feb., 2002, can Tribunal recall its order under s. 254 (2) of the IT Act, 1961 ?

2. Whether on the facts and circumstances of the case, the Tribunal was justified in law in recalling its earlier order dt. 26th Feb., 2002 without recording a finding that the said order suffered from a mistake apparent from the record ?

3. Without prejudice to question No. 2, whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing miscellaneous application of the assessee on the ground that its order dt. 26th Feb., 2002 suffers from mistakes apparent from the record ?

4. Whether on the facts and circumstances of the case, (order of) the Tribunal is liable to be set aside on the ground that the Tribunal has no inherent power like a Court of law to review its own order ?

5. Whether on the facts and circumstances of the case, the Tribunal was correct in law in allowing the claim of the assessee on account of market fee while the AO disallowed the claim of the assessee on account of market fee amounting to Rs. 11,05,123 by following the decision of the Tribunal rendered in ITA No. 586/A11/1984 for the asst. yr. 1980-81 and holding that it was contingent liability not due and covered under s. 43B of the IT Act, 1961 ?

6. Whether on the facts and circumstances of the case, the Tribunal was correct in law in allowing the claim of the assessee on account of market fee collected on past transactions prior to the date of Hon’ble Supreme Court’s order in the case of Belsund Sugar Co. Ltd. v State of Bihar AIR 1999 SC 3125, 3157 according to which the Bihar Market Act was not enforceable and market fees collected before the date of the Supreme Court order would not be required to be paid ?”

2. The facts in short giving rise to the present appeal are as follows : The dispute relates to the asst. yr. 1987-88. Moti Lal Padampat Udyog Ltd., Kanpur (the assessee) is a company registered under the Companies Act, 1956, having its registered office at Kanpur. The assessee owned a sugar factory at Majholia, District West Champaran (Bihar) and one vanaspati factory and one steel unit at Kanpur. The assessee filed its IT return on | 24th June, 1987 declaring total income of Rs. 2,18,14,040 which was revised on 26th Oct., 1988 declaring total income of Rs. 2,10,15,647 and | again revised on 22nd Dec, 1989 declaring total income of Rs. 2,06,32,867. The dispute in the present appeal is confined to the deduction of Rs. 11,05,123 claimed by the assessee, which was payable by the sugar factory towards ‘market fee’ levied under the Bihar Agricultural Produce Market Act, 1960 and the Bihar Agricultural Produce Market Rules, 1975, on the purchase of sugarcane and sale of sugar, while calculating his business income. The assessee stated that crushing season was started on 25th Nov., 1985 and ended on 16th April, 1986. Accounting period of the assessee ended on 31st July, 1986. Total cane crushed in this year was 24,19,365 quintals and total sugar produced was 2,49,275 quintals. Total sale of sugar was of Rs. 10,04,26,169. On the purchase of sugarcane and sale of sugar, it was alleged that an amount of Rs. 11,05,123 was payable as ‘market fee’ as such this amount is liable to be deducted while calculating the business income. The assessee claimed that for the asst. yr. 1980-81, the Tribunal has allowed this benefit in its order passed in ITA No. 598/A11/1984.

3. The AO by order dt. 30th Jan., 1990 held that Bihar Government imposed tax in the name of ‘market fee’ under the Bihar Agricultural Produce Market Act, 1960 and the Bihar Agricultural Produce Market Rules, 1975. The assessee has challenged imposition of market fee before Patna High Court on the ground that nature of levy of ‘market fee’ was tax on the purchase of sugarcane and sale of sugar and had actually not paid any amount in the head of ‘market fee’. Change of the nomenclature as ‘market fee’ under the Bihar Agricultural Produce Market Act, 1960 and the Bihar Agricultural Produce Market Rules, 1975 does not make any difference, as according to own case of the assessee, it was tax. Under s. 43B of the Act, deduction can only be allowed on actual payment. Since no payment was made in this head as such the assessee is not entitled for any deduction in this head. On these findings, the AO made addition of Rs. 11,05,123. The assessee filed an appeal from the aforesaid order. The appeal was heard by the CIT(A), Kanpur who by order dt. 13th Aug., 1990 affirmed the findings of the AO in this respect. The assessee filed a second appeal before the Tribunal.(The Tribunal by order dt. 26th Feb., 2002 held that s. 43B of the Act was amended by Finance Act, 1987. The amendment is curative in nature and applied retrospectively as held by the Supreme Court in Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 as such s. 43B of the Act applies to the assessee. Since no payment of ‘market fee’ was made by the assessee as such no deduction can be allowed on this head under s. 43B of the Act. On these findings, the appeal was dismissed.

4. The assessee filed an application under s. 254 of the Act for rectification of the order of the Tribunal dt. 26th Feb., 2002 on the ground that judgment of Supreme Court in Allied Motors (P.) Ltd. (supra), was in respect of deductions on account of sales-tax while deduction claimed by the assessee was in respect of ‘market fee’ as such this judgment of the Supreme Court has been wrongly applied in his case. On the other hand in the matter of assessee the Tribunal by order dt. 21st Dec, 2001 passed in ITA No. 2115/A11/1989 and ITA No. 2129/A11/1989 has held that the assessee was entitled for deductions on account of ‘market fee’. The Tribunal by order dt. 29th Aug., 2002, relying upon its earlier order dt. 21st Dec, 2001, recalled the order dt. 26th Feb., 2002 and fixed 9th Jan., 2003 for further hearing. The Tribunal relying upon the order dt. 21st Dec, 2001 passed in ITA No. 2115/A11/1989 and ITA No. 2129/A11/1989 allowed the appeal of the assessee on 9th Jan., 2003 and held that the assessee was entitled to deduction of ‘market fee’ and addition made by the AO is illegal.

5. We heard Sri Shambhu Chopra, senior standing counsel for the appellant and Sri S.K. Garg and Sri Ashish Bansal, for the assessee. Hearing of the appeal was started on 28th Feb., 2013 and was adjourned for 1st March, 2013 on the request of the counsel for the assessee. On 1st March, 2013, Sri S.K Garg, relying upon some case law argued that order passed under s. 254 of the Act is appealable and as no appeal was filed from the order dt. 29th Aug., 2002 as such substantial questions of law Nos. 1 to 4 do not arise in this appeal. Then, on the request of senior standing counsel, the hearing was adjourned for 4th March, 2013 and again on 4th March, 2013 hearing was adjourned for 5th March, 2013 on his request. As the appellant has not challenged the order dt. 29th Aug., 2002 in this appeal and instead of challenging the order dt. 29th Aug., 2002 appeared before the Tribunal and argued the matter on merit on 9th Jan., 2003, as such substantial questions of law Nos. 1 to 4 cannot be said to be involved in this appeal and we are unable to examine these questions of law Nos. 1 to 4.

6. So far as substantial questions of law Nos. 5 and 6 are concerned, the counsel for the appellant submitted that s. 43B was inserted in the Act by Finance Act, 1983 and provision has been made that deduction for any sum payable by the assessee by way of tax or duty under any law can only be allowed in case actual payment is made during the relevant period. Sec. 43B was again amended by Finance Act, 1988 and in substance the words “cess or fee by whatever name called” have been added in it. Nature of the amendment is curative, as the legislature has merely cured the defect as such the amendment is retrospective. He placed reliance on Allied Motors (P.) Ltd. (supra).

7. In reply, the counsel for the assessee submitted that in Allied Motors (P.) Ltd. (supra), Supreme Court was examining the nature amendment made by Finance Act, 1987 by which proviso to s. 43B was amended. The proviso and Explanation to the main section are read with reference to the main section as such it was held that the amendment made by Finance Act, 1987 was curative in nature and takes effect retrospectively while by Finance Act, 1988 the words “cess and fee” were added, which are totally new Heads as in the original section “tax and duty” alone were mentioned. Therefore, the amendment covering the new field cannot be made retrospectively. He further relying upon the judgments of Supreme Court in Kewal Krishan Puri v. State of Punjab AIR 1980 SC 1008 submitted that Supreme Court has held that “market fee” levied under Punjab Agricultural Produce Markets Act, 1961 is in the nature of fee and not tax. He further submitted that Supreme Court in Om Parkash Agarwal v. Giri Raj Kishori [1987] 164 ITR 376, in which Haryana Rural Development Fund Act, 1983 has imposed “cess” on the dealers on sale proceeds on agricultural produce, held it as ultra vires being in the nature of tax. He further relying upon the judgments of Andhra Pradesh High Court in Srikakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708/38 Taxman 272, CIT v. M.L. Agroproducts (P.) Ltd. [1992] 197 ITR 485 (AP), CIT v. Mansukhlal Prahjibhai [1997] 227 ITR 429 and CIT v. Dineshkumar Gordhanlal [1997] 226 ITR 826 (MP) in which it has been held that “market cess” or “market fee” are not tax as such s. 43B (prior to its amendment w.e.f 1st April, 1989) is not applicable to it, submitted that s. 43B is not applicable to the assessee and the addition made by the AO has been rightly deleted by the Tribunal.

8. In order to decide whether amendment made in s. 43B of the Act is retrospective, the relevant portion of s. 43B as enacted originally is quoted below :

“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 employees, 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 of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him.

Explanation.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in cl. (a) or cl. (b) of this section is allowed in computing the income referred to in s. 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.”

9. Sec. 43B as amended by Finance Act, 1988 is quoted below :

“Sec. 12. Amendment of s. 43B : In s. 43B of the IT Act [as amended by s. 15 of the Direct Tax Laws (Amendment) Act, 1987] (4 of 1988), w.e.f. 1st day of April, 1989 :

(i) for cl. (a), the following clause shall be substituted, namely :

‘(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or’;”

10. Thus in view of the legislative declaration under s. 12 of the Finance Act, 1988 that amendment was made w.e.f. 1st April, 1989, there is no scope for the arguments to say that the amendment was retrospective. The Supreme Court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416, held that situation arose prior to 1st April, 1984, in the context of assessees collecting sales-tax and other indirect taxes from their respective customers and claiming deduction only by making provision in their books without actually remitting the amount to the exchequer. To curb this practice, s. 43B was inserted w.e.f. 1st April, 1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and under s. 43B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis.

11. Although s. 43B explains the mode of calculation of profits and gains under s. 145, in view of the definition of the word “paid” as defined under s. 43 of the Act, neither the original s. 43B nor the amended s. 43B can be said to have retrospective application as legislation itself applied them prospectively i.e., s. 43B was specifically applied w.e.f. 1st April, 1984 and amendment made by Finance Act, 1988 was applied w.e.f. 1st April, 1989.

12. The argument that “market fee” is also a tax and only nomenclature has been changed is also not liable to be accepted. Supreme Court in Kewal Krishan Puri (supra) held that market fee is not tax. Again in Krishi Utpadan Mandi Samiti v. Ashok Kumar Dinesh Chandra [1996] 10 SCC 100 in which “market fee’ is levied under U.P. Krishi Utpadan Mandi Samiti Adhiniyam, 1964, an enactment with pari materia of Bihar Agricultural Produce Market Act, 1960 held as follows :

“It is thus well settled by numerous recent decisions of this Court that the traditional concept in a fee of quid pro quo is undergoing a transformation and that though the fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct, a mere casual relation may be enough. It is not necessary to establish that those who pay the fee must receive direct benefit of the services rendered for which the fee is being paid. If one who is liable to pay receives general benefit from the authority levying the fee the element of service required for collecting fee is satisfied. It is not necessary that the person liable to pay must receive some special benefit or advantage for payment of the fee.”

13. Supreme Court in CIT v. McDowell & Co. Ltd. [2009] 314 ITR 167/180 Taxman 514 has held that ‘bottling fee’ realized under the rules framed under the Excise Act is neither tax not duty as such s. 43B of the Act is not applicable on it. In view of the above, we respectfully agree with the view of Andhra Pradesh High Court in Srikakollu Subba Rao & Co. (supra) and M.L. Agroproducts (P.) Ltd. (supra) and Madhya Pradesh High Court in Mansukhlal Prahjibhai (supra) and Dineshkumar Gordhanlal (supra).

14. In view of the aforesaid discussion we do not find any merit in this appeal. Consequently the appeal fails and is dismissed. The parties shall bear their own costs.

[Citation : 357 ITR 705]