Full Judgment
The sum representing market fee collections is not liable to tax in the hands of the assessee and, at any rate, it would be allowable as an admissible deduction on the mercantile system of accounting which is being regularly followed by the assessee. The assessment order sought to be revised by the Commissioner was not erroneous insofar as it was prejudicial to the interests of the revenue.
1. These two appeals relate to the same assessee and for the same assessment year. Hence, they were heard together at the request of the parties and are disposed of by a common order for the sake of convenience.
2. These appeals arise out of the income-tax assessment of M/s. Jamuna Flour & Oil Mills (P.) Ltd., the assessee herein. The assessment year is 1984-85 for which the previous year ended on 31-3-1984. The assessee carries on business in running a flour mill where it manufactures wheat products such as atta, suji, maida, etc., out of wheat. The factory of the assessee is situated at Katihar in the State of Bihar and its registered office is at Calcutta.
3 to 16. [These paras are not reproduced here as they involve minor issues.] 17. This takes us to the assessee's appeal in ITA No. 1658 (Cal.)/89 which is directed against the order of the CIT, WB-IV, Calcutta dated 3-3-1989 passed under Section 263 of the Income-tax Act, 1961. By this order, the CIT considered the assessment order passed by the ITO on 27-3-1987 as erroneous insofar as it was prejudicial to the interests of the revenue, since the Assessing Officer had omitted to bring to charge a sum of Rs. 2,07,514 representing market fee on wheat products realised by the assessee from the various parties during the year under consideration. After considering the assessee's objections to the show-cause notice issued by him, the CIT did not agree with the assessee's contentions. He held that the market fee realised by the assessee was really in the course of running of the business of the assessee and was a trading receipt, as held by the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615. He rejected the assessee's plea distinguishing the fee realised by the assessee under the Bihar Agricultural Produce Markets Act, 1960 and the tax referred to in the two cases decided by the Supreme Court, as untenable. The CIT held following these two decisions of the Supreme Court that the receipts in question were clearly revenue receipts in the hands of the assessee and that these amounts could be allowed to the assessee in the year of payment only. He further held that the assessee could not give any reason as to how even though it was a statutory and specific liability, as argued by it. it had not paid the same during the current year or in the earlier year. He pointed out that the demand notice filed by the assessee did not relate to the assessment year under consideration and that the date of payment shown by the assessee was also a subsequent date and year. The CIT, therefore, held that the market fee realised by the assessee of Rs. 2,07,514 should be taken as a revenue receipt and should be taken into account in the computation of the assessee's total income for this year, and on that basis the total income in the hands of the assessee would come to Rs. 94,660 instead of the total loss determined by the ITO at Rs. 1,12,850. Accordingly, the CIT directed the Assessing Officer to give effect to his order by issuing a proper demand notice and challan in respect of the income of the assessee which he had computed at Rs. 94,660. Aggrieved by this order of the CIT, the assessee has come up on appeal to the Tribunal.
18. At the time of hearing of this appeal, Shri R.N. Bajoria, the learned Counsel for the assessee did not press Ground No. 1 in the grounds of appeal objecting to the jurisdiction of the CIT under Section 263 of the Act. Accordingly, the said ground is rejected as not pressed.
19. The learned Counsel next addressed arguments on the remaining three grounds i.e., Ground Nos. 2 to 4. According to Shri Bajoria, the market fee collected by the assessee-company did not represent any trading receipt in the hands of the assessee, that according to the mercantile system of accounting regularly followed by the assessee, there was a statutory liability on the part of the assessee to pay this amount to the Market Committee and that, therefore, no portion of this amount of Rs. 2,07,514 could either be considered or added as forming part of the income of the assessee. Shri Bajoria further submitted that the CIT did not consider or decide about the applicability of Section 43B of the Act to this amount nor about the admissibility of the assessee's claim for deduction on the method of accounting followed by it, namely, mercantile system of accounting. In support of his submissions Shri Bajoria took us through the papers in the assessee's paper book containing 23 pages and pointed out that the amount collected by the assessee was under the Bihar Agricultural Produce Markets Act, 1960, that under Section 27 of this Act a market fee of 1 per cent is levied in respect of wheat products such as wheat atta, suji and maida which were specified items No. 14,15 and 16 under the head 'Cereals' in the Schedule to the Acton page 5 of the assessee's paper book. The learned Counsel next referred us to Rule 82 of the Bihar Agricultural Produce Markets Rules, 1975 according to which the Market Committee was empowered to levy and collect market fee on agricultural produce bought or sold in the market area at the rate of Re. 1 per Rs. 100 worth of agricultural produce. The learned Counsel pointed out that under Section 27, Sub-section (2), this market fee, called in Hindi 'bazar fee', is to be collected from the purchaser and paid over to the Market Committee by the seller. In this connection, the learned Counsel referred to Sub-rule (iii) of rule 82 which requires the seller who is a licensee to realise the market fee from the buyer and to deposit the same within a week of its realisation to the Market Committee. The learned Counsel then referred us to 'the assessee's reply to the show-cause notice under Section 263 of the Act and pointed out that none of the objections raised by the assessee in its reply had been met by the CIT.20. The learned Counsel next argued that there was a clear distinction between the market fee levied by a Market Committee under the Bihar Agricultural Produce Markets Act, 1960 and 'tax'. He next submitted that similar levies of market fee under other State enactments such as Rajasthan Agricultural Produce Markets Act, 1961 have been held to be not forming part of the sale price for computing the taxable turnover of the assessee under the Sales Tax Act. For this he relied on the decision of the Rajasthan High Court in the case of CTO v. Trilok Chand Prem Prakash [1987] 6/7 STC 432. The learned Counsel next referred to the provisions of the Constitution of India and the famous decision of the Supreme Court in Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 to bring out a distinction between a tax and a fee. He also relied on the decision of the Hyderabad Bench of the Appellate Tribunal in the case of ITO v. Sree Dhanalakshmi Rice Co. [1986] 19 ITD 601.
The learned Counsel next referred to the decision of the Allahabad High Court in the case of CIT v. Sita Ram Sri Kishan Das [1983] 141ITR 685 wherein it has been held that the market fee realised by the assessee in that case, which maintained its accounts on the mercantile system and which had to be paid to the Mandi or to the constituents from whom it was realised, did not form part of the trading receipt or income of the assessee and that the assessee held the market fee for and on behalf of the State Government as a trustee. He pointed out that this decision of the Allahabad High Court has followed the decision of the Supreme Court in the case of CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 relating to the nature of "dharmada", which had been held to be not taxable in the hands of the assessee collecting it. The learned counsel next referred to the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 at page 367 and submitted that on the authority of this decision, the amount in question is not liable to be included in the hands of the assessee as a trading receipt but is allowable as a deduction as it is a statutory liability payable by the assessee on the mercantile system of accounting. He further relied on the decision of the Calcutta High Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. C7T[1977] 110ITR 385 and submitted that according to this decision, the amounts collected by the assessee as sales tax formed part of its trading receipts. However, the liability to pay sales tax arose the moment as sale or purchase was effected and an assessee who maintained accounts on the mercantile system was entitled to deduction of his estimated liability to sales tax, even though they had not been paid to the Sales-tax authorities. Finally, Shri Bajoria submitted that this decision of the Calcutta High Court was directly in favour of the assessee on the second issue, namely, that the assessee is entitled to deduction on the mercantile system of accounting of this statutory liability under the Bihar Agricultural Produce Markets Act, 1960. The learned Counsel relied on the decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708 to contend that the market fee in question would not be hit by the provisions of Section 43B of the Act. He, therefore, argued that the CIT was not right in his conclusion that the assessment order in question was erroneous insofar as it was prejudicial to the interests of the revenue and that, therefore, his order passed under Section 263 of the Act deserved to be cancelled.
21. Shri Tripathy, the learned Departmental Representative relied on the findings of the CIT in his order under Section 263 of the Act and argued that under rule 82(iii) of the Bihar Agricultural Produce Markets Rules, 1975 the assessee had to pay within a week of its collection the market fee and that the assessee had not so paid, the assessee was not entitled to deduction on the mercantile system of accounting as claimed by it and that it would be allowed only on actual payment basis as contemplated by Section 43B of the Act. In this connection, Shri Tripathy relied on the amendment brought about by the insertion of 'market fee' in Section 43B of the Act by the Finance Act of 1988 with effect from 1-4-1989 and submitted that this amendment clarified the legal position and that, therefore, the market fee in question was nothing but a tax. He argued that when the assessee collected the market fee it was part of its trading receipt and would, therefore, be liable to tax in its hands for the purpose of computation of income and that the assessee would be entitled to the deduction of this amount as and when it actually paid the amount to the Market Committee which was admittedly not in the year under appeal. He, therefore, argued that the order of the CIT was correct both on law and facts and that the same should be upheld.22. Shri Bajoria, the learned Counsel, in his reply submitted that any default committed by the assessee in paying the market fee to the Market Committee under rule 82(iii) would not absolve the assessee's liability to pay this amount under the statute and, therefore, the assessee is entitled to deduction on the authority of the decisions already relied on by him.
23. We have carefully examined the above submissions in the light of the authorities relied on by both slides as set out above.
24. In our view, the market fee collected by the assessee in the present case under the Bihar Agricultural Produce Markets Act, 1960 does not represent a trading receipt. This position is now well settled by the decisions of the Rajasthan High Court and the Allahabad High Court referred to above, namely, Trilok Chand Prem Prakash's case (supra) and Sita Ram Sri Kishan Das's case (supra). The distinction between a tax and a fee is very well known and it is sufficient to refer to the latest decision of the Supreme Court in the case of Om Parkash Agarwal. Giri Raj Kishori [1987] 164ITR 376. In fact, this decision of the Supreme Court has been followed by the Andhra Pradesh High Court in the case of Sri Kakollu Subba Rao & Co. (supra) at p. 718 to hold that the provisions of Section 43B of the Act would have no application to market case collection. We are, therefore, unable to agree with the learned Departmental Representative that the market fee is nothing but a tax and that the amendment brought about in Section 43B of the Act by including "fee" and "cess" within the scope of Section 43B with effect from 1-4-1989 is a clarificatory amendment.
25. we arc also unable to accept the contention that any default committed by the assessee under Rule 82(iii) of the Bihar Agricultural Produce Markets Rules, 1975 would absolve the assessee's liability to pay the statutory dues which really belong to the Market Committee. The decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co.
Ltd. (supra) as well as the decision of the Calcutta High Court in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) provide a complete answer to the objection of the Revenue to the allowance of the assessee's claim for deduction of this amount. We, therefore, respectfully follow these decisions which are in favour of the assessee and hold that the sum of Rs. 2,07,514 representing market fee collections is not liable to tax in the hands of the assessee and that, at any rate, it would be allowable as an admissible deduction on the mercantile system of accounting which is being regularly followed by the assessee. It, therefore, follows that the assessment order sought to be revised by the CIT was not erroneous insofar as it was prejudicial to the interests of the revenue and the CIT erred in revising the said order under Section 263 of the Act. Accordingly, we cancel the order passed by the CIT under Section 263 of the Act and allow the assessee's appeal.