Commissioner of Income-tax Vs. Mansukhlal Prahjibhai and Co. - Court Judgment

S.K. Kulshrestha, J.

1. The Income-tax Appellate Tribunal, Nagpur Bench, Nagpur, has referred the following questions for the opinion of this court, as arising out of the order dated February 13, 1992, of the Tribunal in ITA No. 641/Nag. of 1987, for the assessment year 1985-86 :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs. 1,12,269 made by the assessing officer by disallowing the liability towards Mandi tax payment by invoking the provisions of Section 43B of the Income-tax Act, 1961 ?

2. Whether the Tribunal was correct in law to hold that Mandi tax was a fee and as such fell outside the purview of the provisions of Section 43B ?

3. Whether the Tribunal was correct in law to hold that the decision of the Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO : [1986]162ITR240(Guj) and the decision of the Income-tax Appellate Tribunal, Indore Bench, Indore, in the case of Gulabchand Kailashchand were not applicable ?'

2. The respondent-assessee was a dealer in kirana and general goods, grains and other items. The assessee claimed the liability of Rs. 1,12,269 towards payment of Mandi tax from the business profit during the accounting period relevant to the assessment year 1985-86. It was, however, not disputed that this amount was not paid but only provision for meeting the liability was made. The Assessing Officer disallowed the claim in view of the provisions of Sections 43B of the Income-tax Act, 1961. Against the order of the Assessing Officer, an appeal was preferred to the Commissioner of Income-tax (Appeals) which was allowed by him on the ground that the tax did not fall within the 'purview of Section 43B and deduction could be claimed since the accounts were maintained on the mercantile basis. The Department filed an appeal against the decision of the Commissioner of Income-tax (Appeals) contending that liability could not be allowed in view of the provisions, of Section 43B of the Act, which was dismissed on the ground that there was distinction between a tax and a fee and since in the case of the assessee, it was a fee and not a tax, the provisions of Section 43B were not applicable. The Department thus raised the above questions for being referred under Section 256(1) of the Act and accordingly the said questions have been referred for the opinion of this court.

3. We have heard learned counsel for the parties and perused the record.

4. Section 43B as it stood during the period relevant to the assessment year in question provided that notwithstanding anything contained in any other provision of the Act, a deduction otherwise allowable under the Act in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed only in computing the income of the previous year in which such sum is actually paid by the assessee. By an amendment by the Finance Act, 1988, sums payable towards cess and fee were also included which clearly indicates that the provisions as they stood at the relevant time did not include or encompass cess or fee. The short question that falls for our consideration, therefore, is whether the Mandi tax or market fee is a tax or a fee as in case it is a fee, the provisions of Section 43B, as it then stood, would not apply. The levy of tax is for the purpose of general revenue and there is no element of quid pro quo between a taxpayer and the public authority whereas a fee is generally levied for special services rendered. The Supreme Court in Kewal Krishan Puri v. State of Punjab : [1979]3SCR1217 , has held that such amounts charged are 'fees' having the requisite element of quid pro quo.

5. From the above decision it is clear that notwithstanding the nomenclature applied, the amount for which the provision was made was 'fee' and not tax and, therefore, the provisions of Section 43B, in the year in question, were not attracted. In this view of the matter, the addition of Rs. 1,12,269 was rightly deleted by the Commissioner of Income-tax (Appeals) and the order was rightly upheld by the Tribunal. Question No. 1 is, therefore, answered against the Revenue and in favour of the assessee. As a corollary, questions Nos. 2 and 5 are also answered against the Revenue and in favour of the assessee.