Sylvania and Laxman Ltd. Vs. Inspecting Assistant - Court Judgment

Excerpt:
1. this appeal by the assessee is directed against the order dated 30th march, 1988 of cit(appeals)-i, new delhi. the appellant company is engaged in the manufacture and sale of fluorescent tubes and lamps and sale of industrial gases. for the assessment year 1985-86 for which the previous year ended on 30th september, 1984, assessment was completed vide order dated 31-3-1986. during the course of scrutiny of accounts it was observed by the assessing officer that a sum of rs. 29.95 lakhs was payable by the assessee company as on the end of the accounting year on account of sales-tax and contribution to provident fund and esi. assessee was confronted about the applicability of provisions of section 43b. it was pleaded on behalf of the assessee that the amount of sales-tax has been reflected in the balance sheet and that no deduction had been claimed in the profit and loss account in respect of the sales-tax liability and that in any case there was a corresponding liability against the receipt and as such section 43b would not be applicable. considering the explanation furnished on behalf of the assessee as satisfactory the income-tax officer did not invoke provisions of section 43b in respect of outstanding sales-tax as on the close of the accounting year amounting to rs. 26,84,153. however, in respect of outstanding liability on account of provident fund contribution and esi, the assessing officer did not accept the explanation of assessee and by invoking provisions of section 43b, addition of rs. 3,1.1,638 was made. assessee appealed to cit(appeals) against the addition of rs. 3,11,638. the cit(appeals) while being seized of the matter felt that section 43b was attracted in respect of the outstanding sales-tax liability of rs. 26,84,156. he accordingly issued a show-cause notice inviting objections from the assessee as to why the income may not be enhanced by making the disallowance under section 43b by a sum of rs. 26,84,156. assessee objected to the proposed enhancement vide letter dated 18-3-1988. the validity of the notice under section 251(2) of the income-tax act issued by the cit(appeals) was questioned on the ground that it had been issued on wrong premises and on incorrect appraisal of facts. it was pleaded that assumption made by the cit(appeals) that the recovery of sales-tax made by the assessee was a trading receipt was not legally correct. it was also contended that the power of enhancement was to be exercised only in extraordinary circumstances and not as a matter of course. it was claimed that assessee was collecting the sales-tax in fiduciary capacity and the same was being deposited into the treasury as per provisions of sales-tax law within the stipulated time and as such provisions of section 43b were claimed to be inapplicable in this case.2. it was also contended that the tax collected had been paid within the stipulated period under the relevant statutes and as such no disallowance under section 43b was warranted. in this connection reference had been made to the amended provisions of section 43b. the cit(appeals),! however, rejected the contention on behalf of the assessee and held that the amount of sales-tax collected by the assessee formed part of trading receipt and since the amount had not been paid as on the close of the previous year, deduction was not permissible in the year under appeal.3. in respect of provident fund contribution and esi, the cit (appeals) accepted the contention of the assessee partly by holding that disallowance in respect of employees' contribution amounting to rs. 1,41,004 could not be made by invoking section 43b. in respect of assessee's contribution amounting to rs. 1,70,634 the cit(appeals) held that provisions of section 43b were attracted. the net result of the decision of the cit(appeals) was the enhancement of income by a sum of rs. 25,43,152 (rs. 26,84,156-rs. 1,41,004).4. appellant is aggrieved. the learned counsel for the assessee shri p.m. monga, advocate, reiterated the contentions advanced before the cit(appeals). shri monga contended that assessee was collecting sales-tax in fiduciary capacity on behalf of the government. whatever collections were made on account of sales-tax were being credited to a separate account and as and when payments were made to the government, amounts were debited to such account. assessee has been consistently following the system of accounting of reflecting the collections in a separate account and debiting the account as and when payments were made. this system had been accepted by the department in the past and as such it was not open for the revenue to disturb the consistent method of accounting followed by the assessee, it was contended. when assessee had not claimed deduction in the profit and loss account, provisions of section 43b could not be invoked.5. referring to the decision of the supreme court in the case of chowringhee sales bureau (p.) ltd. v. cit [1973] 87 itr 542 and another decision in the case of sinclair murray & co. (p.) ltd. v. cit[1974] 97 itr 615 (sc), learned counsel contended that these decisions are inapplicable to the facts of this case as assessee had not disputed the liability before any authority. according to the learned counsel, where the collection is made in fiduciary capacity and the liability is not disputed the collections made cannot be treated as trading receipts.reliance was placed on the decision of the andhra pradesh high court in the case of cit v. deuatha chandraiah & sons [1985] 154 itr 893. it was contended that an assessee who followed mercantile system of accounting the collection of sales-tax on behalf of its principal did not constitute receipts in the hands of the assessee. it was accordingly pleaded that the collection made by the assessee on account of sales-tax was not a trading receipt. reliance was placed on the following decisions of the tribunal in support of the contention that where the assessee had not claimed a deduction on account of payment of sales-tax on behalf of its principals, section 43b was inapplicable : 6. in the alternative, learned counsel contended that assuming without admission that the realisation of tax by the assessee was a trading receipt, provisions of section 43b could not be invoked, as assessee had made the payment to the government within the time allowed under the relevant statute which undisputedly was before the time allowed for filing of the income-tax return under section 139(1) for the relevant assessment year. our attention was drawn to the proviso to section 43b inserted w.e.f. 1-4-1988 which provides for allowance of deduction in the previous year in respect of unpaid sales-tax if it is paid before the time allowed for the filing of the income-tax return for the relevant previous year. according to shri monga though the proviso was inserted w.e.f. 1-4-1988 it was applicable retrospectively w.e.f.1-4-1984 from the date section 43b has come into force. reliance was placed on the decision of the patna high court in the case of jamshedpur motor accessories stores v. union of india [1991] 189 itr 70. it was pleaded that since special leave petition was granted against the decision of the delhi high court, in the case of sanghi motors v. union of india [1991] 187 itr 703 the decision of the patna high court in the case of jamshedpur motor accessories stores (supra) may be followed more so when special leave petition against that decision was dismissed by the hon'ble supreme court. it was accordingly pleaded that the addition made may be deleted. out of abandon precaution, learned counsel further contended that in the event of decision being against the assessee a direction may be issued for allowance of deduction in the year of payment.7. in respect of employers' contribution to provident fund account and esi account shri monga reiterated the contentions as in respect of sales-tax and pleaded that no addition was warranted.8. the learned departmental representative relied upon the orders of the revenue authorities.9. we have given our careful consideration to the rival contentions.the issue before us is as to whether the amount of sales-tax collected by the assessee is a trading receipt and if so whether provisions of section 43b are attracted in this case. assessee is a dealer under the provisions of the general sales-tax act as well as under the central sales-tax act. as and when goods are sold by the assessee, the liability to pay tax arises as held by the hon'ble supreme court in the case of kedarnath jute mfg. co. ltd. v. cit [1971] 82 itr 363. this is irrespective of the fact whether assessee passes on the liability to the customers or not. it is important to note that the liability under the general sales-tax act as well as under the central sales-tax act is upon the dealer and not upon the customers. we may refer to the provisions of the delhi sales-tax act, 1975. 'dealer' is defined under section 2(e) of the said act to mean any person who carries on business of selling goods in delhi and includes...(.) under section 3 of the said act, the liability to pay the tax is upon the dealer. we may usefully quote section 3 of the said act as under: 3. every dealer whose turnover during the year immediately preceding the commencement of this act exceeds the taxable quantum arid every dealer who at the commencement of this act, is registered or is liable to pay tax under the central sales tax act, 1956, (74 of 1956), shall be liable to pay tax under this act on all sales effected by him on or after such commencement.10. similarly under the central sales-tax act, 1956 'dealer' is defined as a person who carries on the business of buying, selling, supplying or distributing goods...(.) under section 6 of the central sales-tax act, 1956, the liability to pay the taxis on the dealers as is evident from the section which is reproduced hereunder for the sake of facility: 6(1) subject to the other provisions contained in this act, every dealer shall, with effect from such date as the central government may, by notification in the official gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this act on all sales of goods other than electrical energy effected by him in the course of inter state trade or commerce during any year on and from the date so notified.thus it is evident that under the provisions of general sales-tax laws of the relevant states the liability of tax is on the dealers though it is a different matter that the dealers may pass on the liability to the buyers by including it in the price to be recovered.11. we may also point out that section 22 of the delhi sales-tax act, 1975 prohibits persons other than registered dealers to pass on the liability of tax to the buyers.12. when a dealer sells goods to the customers it receives the demanded price. the entire price recovered does not cease to be the price which the buyer has to pay even if the price is expressed as sales price plus sales-tax. once the seller offers goods for sale it is for him to quote a price which may include the tax if he desires to pass it on to the buyer. the buyer has the choice either to agree to the price or not to buy the goods. but if he agrees to buy the goods at the quoted price it is not for him to consider how it is made up. it is in these circumstances we have to consider as to whether the amount collected by the assessee from the buyers in the form of sales-tax constitutes a trading receipt.13. assessee has not included the collection in its books of account as a trading receipt. it has separately entered the sale-tax collections and debited the account as and when payments were made. let us first consider as to whether the entries made in the books of account would debar the assessing officer from determination of the true nature of the receipt. we do not propose to deal with this issue in detail in view of two decisions of the hon'ble supreme court wherein it has been laid down that entries in books of account is not determinative factors of affairs of assessees. reference may be made to the decision in the case of sutlej cotton mills ltd. v. cit l1979] 116 itr 1 (sc). in this case it was held by their lordships an under : it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. the assessee may by making entries which are not in conformity with the proper principle of accounting concealed profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. what is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee.in the case of chowringhee sales bureau (p.) ltd. (supra) their lordships held that it is the true nature and the quality of the receipt and not the head under which it is entered in the account books as 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 officer from treating it as a trading receipt.14. in the case of cit v. bazpur co-operative sugar factory ltd. [1988] 172 itr 321 their lordships of the supreme court held that 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 officer from treating it as a trading receipt. it was further held that 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. reference to the decision of the supreme court in the case of cit v. british paints india ltd. [1991] 188 itr 44 may also be usefully made.in this case their lordships have held that assessee should disclose true picture of profits and gains. if the system adopted does not disclose true and proper income assessing officer is entitled and in fact has duty to adopt proper computation to determine true income. the ratio of the aforementioned decision is that a regular method of accounting adopted by the assessee would not be binding upon the assessing officer if he is of the view that true profits are not reflected by the method adopted by the assessee.15. in view of the aforementioned decisions of the hon'ble supreme court, we are of the considered opinion that the mere fact that the assessee did not treat the receipt as a trading receipt in its books of account would not debar the assessing officer in determining the true nature of the receipts. the fact that in the past the nature of the receipt was not investigated would also not come in the way of the assessing officer's power to determine the true nature of receipt in the year under appeal as it is well established that the principles of estoppel do not apply to income-tax proceedings. in the past it was not important to consider the nature of the receipt nor was it necessary for the assessing officer to make the addition as prior to incorporation of section 43b in the statute, assessee following mercantile system of accounting would get a deduction on account of accrued liability of sales-tax. whereas the collections would be treated as part of the trading receipts, the same would be set off by the corresponding accrued liability. the distinguishing feature in this year is that provisions of section 43b have made it relevant and necessary for the assessing officer to consider the true nature of the receipt on account of sales-tax collections.16. having held that the entries in the books of account would not be a bar for the assessing officer to consider the true nature of the receipt, we now proceed to consider as to whether the amount of sales-tax collection by the assessee is in fact a trading receipt. in the case of chowringhee sales bureau (p.) ltd. (supra) assessee was a private limited company dealing in furniture and were also acting as an auctioneer. in respect of sales effected by it as an auctioneer, in addition to the commission a sum of rs. 32,986 was recovered as a sales-tax. this amount was credited separately in its account books under the head "sales-tax collection account". assessee did not pay the amount of sales-tax to the actual owner of the goods nor did it deposit the amount realised by it as sales tax in state exchequer as it disputed its liability. on these facts it was held by the hon'ble supreme court that the amount realised as sales-tax in its character as an auctioneer formed part of its trading or business receipts.17. in the case of sinclair murry & co. (p.)ltd. (supra) assessee had sold jute in orissa to certain mills and charged sales-tax under a separate head in the bill as "sales-tax buyers a/c...to be paid to the orissa government". the sales-tax was not paid to the orissa government on the ground that sales were inter-state sales. the tribunal held that the amount of tax collected by the assessee did not form part of the sale price as the dealer did not acquire any beneficial interest therein. on reference to the high court, it was held that sales-tax collected was part of trading receipt and was to be included in assessee's total income as the money realised from the purchaser was employed by the assessee for the purposes of making profit and the assessee had not earmarked the amount realised as sales-tax and put it in a different account or deposited it with the government. the supreme court affirmed the decision of the high court and further held that the mere fact that under section 9b(3) of the orissa sales-tax act, 1947, the dealer was compelled to deposit the amount of sales-tax in the state exchequer did not prevent the applicability of the principle laid down by the supreme court in chowringhee sales bureau (p.) ltd.'s case (supra). it was held that the amount collected by the assessee as sales-tax constitute its trading receipt and had to be included in its total income. it may be noted that the decision of chowringhee sales bureau (p.) ltd. (supra) was sought to be distinguished on the ground that under section 9b(3) of the orissa sales-tax act, 1947, amounts realised by any person is tax on sale of any goods were to be deposited in the government treasury within prescribed period if the amount so realised exceeded the amount payable as tax or if no tax was payable in respect thereof. even in the cases of such nature where the assessees under any circumstances were to deposit the sales-tax to the state exchequer, the hon'ble supreme court held that the realisation made by the assessee was nothing but a trading receipt. the patna high court in the case of tata robins frazer ltd. v. cit [1987] 165 itr 347 held that the sales-tax collected by the assessee but not paid to the treasury was assessable as income of the assessee. similar view was taken by the orissa high court in the case of cit v. parikh bros. 168 itr 362 (sic).18. the decision referred to above point towards only one direction that the recoveries of sales-tax made by the assessee be it termed as sale price or tax, is nothing but part of the trading receipts.19. we shall now consider as to whether in the case of devatha chandraiah & sons (supra) cited on behalf of the assessee, andhra pradesh high court has taken a different view. in that case assessee firm acted as commission agent on behalf of the agriculturists and sold their produce. it maintained its accounts on the mercantile system and collected sales-tax from the purchasers and paid it to the government.part of the sales-tax was refunded. on such refund, assessee made suitable entries and also opened a separate account for each agriculturist and credited it with the amount of refund. the ito sought to assess the amount of refund received by the assessee as his income.the aac and the tribunal held that the amount was not assessable in the hands of assessee. on a reference to the high court it was held that the money representing the sales-tax have been received "by the assessee in fiduciary capacity. the money received towards sales-tax by the assessee from the purchasers was received on behalf of the agriculturist principals and that the same did not constitute trading receipts in the hands of the assessee. it was further held that since the assessee followed mercantile system of accounting which created a liability to represent the sales-tax to its principals, as and when it was refunded, the same could not be included in its income.20. it is evident from the facts stated above that the decision of andhra pradesh high court is distinguishable on facts. firstly, the amount of sales-tax had been collected by the assessee on behalf of its principals. it was thus established beyond doubt that assessee had received the amount of sales-tax in a fiduciary capacity. secondly, it was held that assessee had been following the mercantile system of accounting which created a liability to repay the sales-tax to its principals.21. the facts in the case before us are entirely different. assessee has collected sales-tax as a dealer and not on behalf of its principals. as already observed elsewhere in this order the liability of sales-tax is on the dealers under the relevant provisions of sales-tax laws. the assessee had thus made collections on account of sales-tax in its own account and not on behalf of any other person.assessee would be liable to pay tax even if no collections were made from the buyers. the liability of the assessee is not dependent on the recoveries made from buyers in the form of sales-tax. it is a different matter that assessee is permitted to pass on the liability to the buyers in the name of sales-tax though in fact such recovery is nothing but a part of the price paid by the buyer for goods. we are thus of the considered opinion that what the assessee has received in the form of sales-tax is nothing but a trading receipt. that being so, we have now to consider as to whether provisions of section 43b are applicable in this case.22. under section 145 of the income-tax act, the profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. under the mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. several cases had come to the notice of the government where the taxpayers would not discharge their statutory liabilities for long periods of time. however, for the purposes of income-tax assessment they would claim the liability as a deduction on the ground that they maintained books of account on mercantile basis. to curb this practice, section 43b was incorporated w.e.f. 1-4-1984. this section provides for allowance of deduction in respect of statutory liability etc. in the year of payment. section 43b came up for interpretation before the andhra pradesh high court in the case of srikakollu subba rao & co. v. union of india [1988] 173 itr 708. it was contended that in a case where the amount outstanding as on the end of the previous year was not payable under the relevant statute the same could not be disallowed under section 43b. andhra pradesh high court accepted the plea on behalf of the assessee by interpreting the words 'any sum payable' under section 43b to mean a sum in respect of which assessee had incurred a liability and the same had become payable in that year.to supersede the decision of the andhra pradesh high court an explanation namely, explanation 2 to section 43b was inserted by finance act of 1989 with retrospective effect from 1-4-1984 to provide that 'any sum payable' would mean a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. a proviso had earlier been inserted to section 43b by finance act, 1987 w.e.f. 1-4-1988 providing an exception in such cases where the payment was actually made by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year for which the liability to pay such sum was incurred. this was presumably done to avoid hardships in genuine cases. since the proviso was made effective from 1-4-1988, dispute arose between the revenue and the assessees relating to the date from which the proviso would come into force. it was claimed on behalf of the assessees that proviso being clarificatory in nature would be applicable w.e.f. 1-4-1984, i.e., the date from which section 43b came into force. the delhi high court in the case of sanghi motors (supra) repelled the contention by holding that the proviso was applicable w.e.f. 1-4-1988 and not retrospectively. same view was expressed in the case of escorts ltd. v. union of india [1991] 189 itr 81 (delhi). in the case of weston electronics v. union of india [slp no. 6469 of 1991] delhi high court followed its own decision in sanghi motors' case (supra) and escorts ltd.'s case (supra) and reaffirmed the view that proviso to section 43b inserted w.e.f. 1-4-1988 is not applicable retrospectively. a special leave petition has been granted by the hon'ble supreme court in weston electronics' case (supra) against the decision of delhi high court.23. patna high court in the case of jamshedpur motor accessories stores {supra) took a different view by holding that proviso to section 43b would be applicable retrospectively. the calcutta high court in the case of cit v. sri jagannath steel corporation [1991] 191 itr 676 has also expressed the same view as expressed by the patna high court. the allahabad high court in the case of cit v. s.b. foundry [1990] 185 itr 555 has declined to call for the statement of the case against the decision of allahabad bench of the tribunal holding that proviso to section 43b was applicable retrospectively. the supreme court has dismissed the special leave petition against the decision of the patna high court in the case of cit v. jamshedpur motor accessories stores, [slp no. 11793 of 1991]. this is the position of law as on today. since the decisions of the delhi high court in sanghi motors' case (supra) and other cases referred to above have not been reversed by the supreme court and since the jurisdiction of the case falls within delhi high court, we are bound to follow the same and respectfully following hold that proviso to section 43b inserted w.e.f. 1-4-1988 by the finance act of 1987 is applicable for asst. years 1988-89 onwards and not retrospectively. the assessee thus fails on this ground. we may, however, observe that as provided under section 43b assessee would be entitled to deduction in respect of the unpaid sales-tax as on the close of the accounting year in respect of which addition has been made, in the year of payment. the decision of the cit(appeals) in making the disallowance of rs. 26,84,156 under section 43b is, therefore, upheld subject to the above observation.24. with regard to provident fund and esi, the position would be somewhat different. we may have to reproduce section 43b for the sake of facility : 43b. notwithstanding anything contained in any other provisions of this act, a deduction otherwise allowable under this act in respect of- (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 (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, or(c) ** ** ** 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 section 28 of that previous year in which such sum is actually paid by him: provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: explanation 2 : for the purposes of clause (a) as in force at all material times, 'any sum payable' means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.we have already discussed in detail the applicability of provisions of section 43b in regard to deduction on account of sales-tax which is governed under section 43b(a). deduction on account of employers' contribution to any provident fund etc. is governed under section 43b(6). we may state even at the cost of repetition, that explanation 2 to section 43b was incorporated retrospectively to come into force from 1-4-1984 by the finance act of 1989. this was done to overcome the decision of the andhra pradesh high court in the case of srikakollu subba rao & co. (supra) where it was held that any sum payable would mean a sum for which assessee had incurred the liability to pay the amount during the previous year. it is noteworthy that explanation 2 refers to clause (a) of section 43b only and not to other sub-clauses.it seems that the legislature intended to exclude clause (b) from the rigours of explanation 2 as otherwise the legislature would have used the words "for the purposes of this section 'any sum payable' would mean...". in the explanation it has specifically been mentioned that for the purposes of clause (a) 'any sum payable' would mean.... we are thus of the considered view that explanation 2 defining 'any sum payable' is not applicable to the sums referred to in sub-clause (6) of section 43b. that being so the decision of the andhra pradesh high court in the case of srikakollu subba rao & co. (supra) would be applicable. in this case their lordships of the andhra pradesh high court have held that 'any sum payable' would mean a sum for which assessee had incurred the liability to pay during the previous year. it is admitted position that the provident fund contribution remaining unpaid as on the close of the previous year had not become due under the statute by the end of the previous year. the amounts have been paid in the subsequent year within the permissible time. provisions of section 43b could not thus be invoked in respect of the unpaid contribution to the provident fund account. the addition of rs. 1,70,634 is accordingly deleted.25. the next ground of appeal is relating to disallowance of rs. 59,359 in respect of presentation of articles. the income-tax officer had made the disallowance by invoking rule 6b. on appeal, the cit(appeals) has opined that though rule 6b is inapplicable yet deduction could not be allowed without verification. assessee had thus been asked to give details of persons to whom presents were made. some of the items were found to be expensive items costing rs. 16,800 and rs. 10,750. the details were not furnished. the cit(appeals) has thus resorted to an estimate. he allowed a deduction to the tune of rs. 20,000 and made disallowance of rs, 39,359. assessee is aggrieved.26. we have heard the rival contentions. in the absence of evidence in support of the contention that the expenditure was incurred for the purposes of business, the disallowance is warranted. we accordingly confirm the disallowance.27. to 30. [these paras are not reproduced here as they involve minor issues].

Judgment:
1. This appeal by the assessee is directed against the order dated 30th March, 1988 of CIT(Appeals)-I, New Delhi. The appellant company is engaged in the manufacture and sale of fluorescent tubes and lamps and sale of industrial gases. For the assessment year 1985-86 for which the previous year ended on 30th September, 1984, assessment was completed vide order dated 31-3-1986. During the course of scrutiny of accounts it was observed by the Assessing Officer that a sum of Rs. 29.95 lakhs was payable by the assessee company as on the end of the accounting year on account of sales-tax and contribution to provident fund and ESI. Assessee was confronted about the applicability of provisions of Section 43B. It was pleaded on behalf of the assessee that the amount of sales-tax has been reflected in the balance sheet and that no deduction had been claimed in the profit and loss account in respect of the sales-tax liability and that in any case there was a corresponding liability against the receipt and as such Section 43B would not be applicable. Considering the explanation furnished on behalf of the assessee as satisfactory the Income-tax Officer did not invoke provisions of Section 43B in respect of outstanding sales-tax as on the close of the accounting year amounting to Rs. 26,84,153. However, in respect of outstanding liability on account of provident fund contribution and ESI, the Assessing Officer did not accept the explanation of assessee and by invoking provisions of Section 43B, addition of Rs. 3,1.1,638 was made. Assessee appealed to CIT(Appeals) against the addition of Rs. 3,11,638. The CIT(Appeals) while being seized of the matter felt that Section 43B was attracted in respect of the outstanding sales-tax liability of Rs. 26,84,156. He accordingly issued a show-cause notice inviting objections from the assessee as to why the income may not be enhanced by making the disallowance under Section 43B by a sum of Rs. 26,84,156. Assessee objected to the proposed enhancement vide letter dated 18-3-1988. The validity of the notice under Section 251(2) of the Income-tax Act issued by the CIT(Appeals) was questioned on the ground that it had been issued on wrong premises and on incorrect appraisal of facts. It was pleaded that assumption made by the CIT(Appeals) that the recovery of sales-tax made by the assessee was a trading receipt was not legally correct. It was also contended that the power of enhancement was to be exercised only in extraordinary circumstances and not as a matter of course. It was claimed that assessee was collecting the sales-tax in fiduciary capacity and the same was being deposited into the treasury as per provisions of Sales-tax Law within the stipulated time and as such provisions of Section 43B were claimed to be inapplicable in this case.

2. It was also contended that the tax collected had been paid within the stipulated period under the relevant statutes and as such no disallowance under Section 43B was warranted. In this connection reference had been made to the amended provisions of Section 43B. The CIT(Appeals),! however, rejected the contention on behalf of the assessee and held that the amount of sales-tax collected by the assessee formed part of trading receipt and since the amount had not been paid as on the close of the previous year, deduction was not permissible in the year under appeal.

3. In respect of provident fund contribution and ESI, the CIT (Appeals) accepted the contention of the assessee partly by holding that disallowance in respect of employees' contribution amounting to Rs. 1,41,004 could not be made by invoking Section 43B. In respect of assessee's contribution amounting to Rs. 1,70,634 the CIT(Appeals) held that provisions of Section 43B were attracted. The net result of the decision of the CIT(Appeals) was the enhancement of income by a sum of Rs. 25,43,152 (Rs. 26,84,156-Rs. 1,41,004).

4. Appellant is aggrieved. The learned counsel for the assessee Shri P.M. Monga, advocate, reiterated the contentions advanced before the CIT(Appeals). Shri Monga contended that assessee was collecting sales-tax in fiduciary capacity on behalf of the Government. Whatever collections were made on account of sales-tax were being credited to a separate account and as and when payments were made to the Government, amounts were debited to such account. Assessee has been consistently following the system of accounting of reflecting the collections in a separate account and debiting the account as and when payments were made. This system had been accepted by the Department in the past and as such it was not open for the revenue to disturb the consistent method of accounting followed by the assessee, it was contended. When assessee had not claimed deduction in the profit and loss account, provisions of Section 43B could not be invoked.

5. Referring to the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and another decision in the case of Sinclair Murray & Co. (P.) Ltd. v. CIT[1974] 97 ITR 615 (SC), learned counsel contended that these decisions are inapplicable to the facts of this case as assessee had not disputed the liability before any authority. According to the learned counsel, where the collection is made in fiduciary capacity and the liability is not disputed the collections made cannot be treated as trading receipts.

Reliance was placed on the decision of the Andhra Pradesh High Court in the case of CIT v. Deuatha Chandraiah & Sons [1985] 154 ITR 893. It was contended that an assessee who followed mercantile system of accounting the collection of sales-tax on behalf of its principal did not constitute receipts in the hands of the assessee. It was accordingly pleaded that the collection made by the assessee on account of sales-tax was not a trading receipt. Reliance was placed on the following decisions of the Tribunal in support of the contention that where the assessee had not claimed a deduction on account of payment of sales-tax on behalf of its principals, Section 43B was inapplicable : 6. In the alternative, learned counsel contended that assuming without admission that the realisation of tax by the assessee was a trading receipt, provisions of Section 43B could not be invoked, as assessee had made the payment to the Government within the time allowed under the relevant statute which undisputedly was before the time allowed for filing of the income-tax return under Section 139(1) for the relevant assessment year. Our attention was drawn to the proviso to Section 43B inserted w.e.f. 1-4-1988 which provides for allowance of deduction in the previous year in respect of unpaid sales-tax if it is paid before the time allowed for the filing of the income-tax return for the relevant previous year. According to Shri Monga though the proviso was inserted w.e.f. 1-4-1988 it was applicable retrospectively w.e.f.

1-4-1984 from the date Section 43B has come into force. Reliance was placed on the decision of the Patna High Court in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70. It was pleaded that since Special Leave Petition was granted against the decision of the Delhi High Court, in the case of Sanghi Motors v. Union of India [1991] 187 ITR 703 the decision of the Patna High Court in the case of Jamshedpur Motor Accessories Stores (supra) may be followed more so when Special Leave Petition against that decision was dismissed by the Hon'ble Supreme Court. It was accordingly pleaded that the addition made may be deleted. Out of abandon precaution, learned counsel further contended that in the event of decision being against the assessee a direction may be issued for allowance of deduction in the year of payment.

7. In respect of employers' contribution to provident fund account and ESI account Shri Monga reiterated the contentions as in respect of sales-tax and pleaded that no addition was warranted.

8. The learned Departmental Representative relied upon the orders of the revenue authorities.

9. We have given our careful consideration to the rival contentions.

The issue before us is as to whether the amount of sales-tax collected by the assessee is a trading receipt and if so whether provisions of Section 43B are attracted in this case. Assessee is a dealer under the provisions of the General Sales-tax Act as well as under the Central Sales-tax Act. As and when goods are sold by the assessee, the liability to pay tax arises as held by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. This is irrespective of the fact whether assessee passes on the liability to the customers or not. It is important to note that the liability under the General Sales-tax Act as well as under the Central Sales-tax Act is upon the dealer and not upon the customers. We may refer to the provisions of the Delhi Sales-tax Act, 1975. 'Dealer' is defined under Section 2(e) of the said Act to mean any person who carries on business of selling goods in Delhi and includes...(.) Under Section 3 of the said Act, the liability to pay the tax is upon the dealer. We may usefully quote Section 3 of the said Act as under: 3. Every dealer whose turnover during the year immediately preceding the commencement of this Act exceeds the taxable quantum arid every dealer who at the commencement of this Act, is registered or is liable to pay tax under the Central Sales Tax Act, 1956, (74 of 1956), shall be liable to pay tax under this Act on all sales effected by him on or after such commencement.

10. Similarly under the Central Sales-tax Act, 1956 'Dealer' is defined as a person who carries on the business of buying, selling, supplying or distributing goods...(.) Under Section 6 of the Central Sales-tax Act, 1956, the liability to pay the taxis on the dealers as is evident from the section which is reproduced hereunder for the sake of facility: 6(1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter State trade or commerce during any year on and from the date so notified.

Thus it is evident that under the provisions of General Sales-tax laws of the relevant States the liability of tax is on the dealers though it is a different matter that the dealers may pass on the liability to the buyers by including it in the price to be recovered.

11. We may also point out that Section 22 of the Delhi Sales-tax Act, 1975 prohibits persons other than registered dealers to pass on the liability of tax to the buyers.

12. When a dealer sells goods to the customers it receives the demanded price. The entire price recovered does not cease to be the price which the buyer has to pay even if the price is expressed as sales price plus sales-tax. Once the seller offers goods for sale it is for him to quote a price which may include the tax if he desires to pass it on to the buyer. The buyer has the choice either to agree to the price or not to buy the goods. But if he agrees to buy the goods at the quoted price it is not for him to consider how it is made up. It is in these circumstances we have to consider as to whether the amount collected by the assessee from the buyers in the form of sales-tax constitutes a trading receipt.

13. Assessee has not included the collection in its books of account as a trading receipt. It has separately entered the sale-tax collections and debited the account as and when payments were made. Let us first consider as to whether the entries made in the books of account would debar the Assessing Officer from determination of the true nature of the receipt. We do not propose to deal with this issue in detail in view of two decisions of the Hon'ble Supreme Court wherein it has been laid down that entries in books of account is not determinative factors of affairs of assessees. Reference may be made to the decision in the case of Sutlej Cotton Mills Ltd. v. CIT L1979] 116 ITR 1 (SC). In this case it was held by their Lordships an under : It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may by making entries which are not in conformity with the proper principle of accounting concealed profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee.

In the case of Chowringhee Sales Bureau (P.) Ltd. (supra) their Lordships held that it is the true nature and the quality of the receipt and not the head under which it is entered in the account books as 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 Officer from treating it as a trading receipt.

14. In the case of CIT v. Bazpur Co-operative Sugar Factory Ltd. [1988] 172 ITR 321 their Lordships of the Supreme Court held that 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 Officer from treating it as a trading receipt. It was further held that 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. Reference to the decision of the Supreme Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 may also be usefully made.

In this case their Lordships have held that assessee should disclose true picture of profits and gains. If the system adopted does not disclose true and proper income Assessing Officer is entitled and in fact has duty to adopt proper computation to determine true income. The ratio of the aforementioned decision is that a regular method of accounting adopted by the assessee would not be binding upon the Assessing Officer if he is of the view that true profits are not reflected by the method adopted by the assessee.

15. In view of the aforementioned decisions of the Hon'ble Supreme Court, we are of the considered opinion that the mere fact that the assessee did not treat the receipt as a trading receipt in its books of account would not debar the Assessing Officer in determining the true nature of the receipts. The fact that in the past the nature of the receipt was not investigated would also not come in the way of the Assessing Officer's power to determine the true nature of receipt in the year under appeal as it is well established that the principles of estoppel do not apply to income-tax proceedings. In the past it was not important to consider the nature of the receipt nor was it necessary for the Assessing Officer to make the addition as prior to incorporation of Section 43B in the Statute, assessee following mercantile system of accounting would get a deduction on account of accrued liability of sales-tax. Whereas the collections would be treated as part of the trading receipts, the same would be set off by the corresponding accrued liability. The distinguishing feature in this year is that provisions of Section 43B have made it relevant and necessary for the Assessing Officer to consider the true nature of the receipt on account of sales-tax collections.

16. Having held that the entries in the books of account would not be a bar for the Assessing Officer to consider the true nature of the receipt, we now proceed to consider as to whether the amount of sales-tax collection by the assessee is in fact a trading receipt. In the case of Chowringhee Sales Bureau (P.) Ltd. (supra) assessee was a private limited company dealing in furniture and were also acting as an auctioneer. In respect of sales effected by it as an auctioneer, in addition to the commission a sum of Rs. 32,986 was recovered as a sales-tax. This amount was credited separately in its account books under the head "Sales-tax Collection Account". Assessee did not pay the amount of sales-tax to the actual owner of the goods nor did it deposit the amount realised by it as sales tax in State exchequer as it disputed its liability. On these facts it was held by the Hon'ble Supreme Court that the amount realised as sales-tax in its character as an auctioneer formed part of its trading or business receipts.

17. In the case of Sinclair Murry & Co. (P.)Ltd. (supra) assessee had sold jute in Orissa to certain mills and charged sales-tax under a separate head in the bill as "Sales-tax Buyers A/c...to be paid to the Orissa Government". The sales-tax was not paid to the Orissa Government on the ground that sales were inter-State sales. The Tribunal held that the amount of tax collected by the assessee did not form part of the sale price as the dealer did not acquire any beneficial interest therein. On reference to the High Court, it was held that sales-tax collected was part of trading receipt and was to be included in assessee's total income as the money realised from the purchaser was employed by the assessee for the purposes of making profit and the assessee had not earmarked the amount realised as sales-tax and put it in a different account or deposited it with the Government. The Supreme Court affirmed the decision of the High Court and further held that the mere fact that under Section 9B(3) of the Orissa Sales-tax Act, 1947, the dealer was compelled to deposit the amount of sales-tax in the State exchequer did not prevent the applicability of the principle laid down by the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case (supra). It was held that the amount collected by the assessee as sales-tax constitute its trading receipt and had to be included in its total income. It may be noted that the decision of Chowringhee Sales Bureau (P.) Ltd. (supra) was sought to be distinguished on the ground that under Section 9B(3) of the Orissa Sales-tax Act, 1947, amounts realised by any person is tax on sale of any goods were to be deposited in the Government treasury within prescribed period if the amount so realised exceeded the amount payable as tax or if no tax was payable in respect thereof. Even in the cases of such nature where the assessees under any circumstances were to deposit the sales-tax to the State exchequer, the Hon'ble Supreme Court held that the realisation made by the assessee was nothing but a trading receipt. The Patna High Court in the case of Tata Robins Frazer Ltd. v. CIT [1987] 165 ITR 347 held that the sales-tax collected by the assessee but not paid to the treasury was assessable as income of the assessee. Similar view was taken by the Orissa High Court in the case of CIT v. Parikh Bros. 168 ITR 362 (sic).

18. The decision referred to above point towards only one direction that the recoveries of sales-tax made by the assessee be it termed as sale price or tax, is nothing but part of the trading receipts.

19. We shall now consider as to whether in the case of Devatha Chandraiah & Sons (supra) cited on behalf of the assessee, Andhra Pradesh High Court has taken a different view. In that case assessee firm acted as commission agent on behalf of the agriculturists and sold their produce. It maintained its accounts on the mercantile system and collected sales-tax from the purchasers and paid it to the Government.

Part of the sales-tax was refunded. On such refund, assessee made suitable entries and also opened a separate account for each agriculturist and credited it with the amount of refund. The ITO sought to assess the amount of refund received by the assessee as his income.

The AAC and the Tribunal held that the amount was not assessable in the hands of assessee. On a reference to the High Court it was held that the money representing the sales-tax have been received "by the assessee in fiduciary capacity. The money received towards sales-tax by the assessee from the purchasers was received on behalf of the agriculturist principals and that the same did not constitute trading receipts in the hands of the assessee. It was further held that since the assessee followed mercantile system of accounting which created a liability to represent the sales-tax to its principals, as and when it was refunded, the same could not be included in its income.

20. It is evident from the facts stated above that the decision of Andhra Pradesh High Court is distinguishable on facts. Firstly, the amount of sales-tax had been collected by the assessee on behalf of its principals. It was thus established beyond doubt that assessee had received the amount of sales-tax in a fiduciary capacity. Secondly, it was held that assessee had been following the mercantile system of accounting which created a liability to repay the sales-tax to its principals.

21. The facts in the case before us are entirely different. Assessee has collected sales-tax as a dealer and not on behalf of its principals. As already observed elsewhere in this order the liability of sales-tax is on the dealers under the relevant provisions of sales-tax laws. The assessee had thus made collections on account of sales-tax in its own account and not on behalf of any other person.

Assessee would be liable to pay tax even if no collections were made from the buyers. The liability of the assessee is not dependent on the recoveries made from buyers in the form of sales-tax. It is a different matter that assessee is permitted to pass on the liability to the buyers in the name of sales-tax though in fact such recovery is nothing but a part of the price paid by the buyer for goods. We are thus of the considered opinion that what the assessee has received in the form of sales-tax is nothing but a trading receipt. That being so, we have now to consider as to whether provisions of Section 43B are applicable in this case.

22. Under Section 145 of the Income-tax Act, the profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Under the mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. Several cases had come to the notice of the Government where the taxpayers would not discharge their statutory liabilities for long periods of time. However, for the purposes of income-tax assessment they would claim the liability as a deduction on the ground that they maintained books of account on mercantile basis. To curb this practice, Section 43B was incorporated w.e.f. 1-4-1984. This section provides for allowance of deduction in respect of statutory liability etc. in the year of payment. Section 43B came up for interpretation before the Andhra Pradesh High Court in the case of Srikakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708. It was contended that in a case where the amount outstanding as on the end of the previous year was not payable under the relevant statute the same could not be disallowed under Section 43B. Andhra Pradesh High Court accepted the plea on behalf of the assessee by interpreting the words 'any sum payable' under Section 43B to mean a sum in respect of which assessee had incurred a liability and the same had become payable in that year.

To supersede the decision of the Andhra Pradesh High Court an Explanation namely, Explanation 2 to Section 43B was inserted by Finance Act of 1989 with retrospective effect from 1-4-1984 to provide that 'any sum payable' would mean a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. A proviso had earlier been inserted to Section 43B by Finance Act, 1987 w.e.f. 1-4-1988 providing an exception in such cases where the payment was actually made by the assessee on or before the due date applicable in his case for furnishing the return of income under Sub-section (1) of Section 139 in respect of the previous year for which the liability to pay such sum was incurred. This was presumably done to avoid hardships in genuine cases. Since the proviso was made effective from 1-4-1988, dispute arose between the revenue and the assessees relating to the date from which the proviso would come into force. It was claimed on behalf of the assessees that proviso being clarificatory in nature would be applicable w.e.f. 1-4-1984, i.e., the date from which Section 43B came into force. The Delhi High Court in the case of Sanghi Motors (supra) repelled the contention by holding that the proviso was applicable w.e.f. 1-4-1988 and not retrospectively. Same view was expressed in the case of Escorts Ltd. v. Union of India [1991] 189 ITR 81 (Delhi). In the case of Weston Electronics v. Union of India [SLP No. 6469 of 1991] Delhi High Court followed its own decision in Sanghi Motors' case (supra) and Escorts Ltd.'s case (supra) and reaffirmed the view that proviso to Section 43B inserted w.e.f. 1-4-1988 is not applicable retrospectively. A Special Leave Petition has been granted by the Hon'ble Supreme Court in Weston Electronics' case (supra) against the decision of Delhi High Court.

23. Patna High Court in the case of Jamshedpur Motor Accessories Stores {supra) took a different view by holding that proviso to Section 43B would be applicable retrospectively. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676 has also expressed the same view as expressed by the Patna High Court. The Allahabad High Court in the case of CIT v. S.B. Foundry [1990] 185 ITR 555 has declined to call for the Statement of the case against the decision of Allahabad Bench of the Tribunal holding that proviso to Section 43B was applicable retrospectively. The Supreme Court has dismissed the Special Leave Petition against the decision of the Patna High Court in the case of CIT v. Jamshedpur Motor Accessories Stores, [SLP No. 11793 of 1991]. This is the position of law as on today. Since the decisions of the Delhi High Court in Sanghi Motors' case (supra) and other cases referred to above have not been reversed by the Supreme Court and since the jurisdiction of the case falls within Delhi High Court, we are bound to follow the same and respectfully following hold that proviso to Section 43B inserted w.e.f. 1-4-1988 by the Finance Act of 1987 is applicable for asst. years 1988-89 onwards and not retrospectively. The assessee thus fails on this ground. We may, however, observe that as provided under Section 43B assessee would be entitled to deduction in respect of the unpaid sales-tax as on the close of the accounting year in respect of which addition has been made, in the year of payment. The decision of the CIT(Appeals) in making the disallowance of Rs. 26,84,156 under Section 43B is, therefore, upheld subject to the above observation.

24. With regard to provident fund and ESI, the position would be somewhat different. We may have to reproduce Section 43B for the sake of facility : 43B. Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of- (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 (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, or(c) ** ** ** 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 Section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum referred to in Clause (a) or Clause (c) or Clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under Sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Explanation 2 : For the purposes of Clause (a) as in force at all material times, 'any sum payable' means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.

We have already discussed in detail the applicability of provisions of Section 43B in regard to deduction on account of sales-tax which is governed under Section 43B(a). Deduction on account of employers' contribution to any provident fund etc. is governed under Section 43B(6). We may state even at the cost of repetition, that Explanation 2 to Section 43B was incorporated retrospectively to come into force from 1-4-1984 by the Finance Act of 1989. This was done to overcome the decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao & Co. (supra) where it was held that any sum payable would mean a sum for which assessee had incurred the liability to pay the amount during the previous year. It is noteworthy that Explanation 2 refers to Clause (a) of Section 43B only and not to other Sub-clauses.

It seems that the Legislature intended to exclude Clause (b) from the rigours of Explanation 2 as otherwise the Legislature would have used the words "for the purposes of this section 'any sum payable' would mean...". In the Explanation it has specifically been mentioned that for the purposes of Clause (a) 'any sum payable' would mean.... We are thus of the considered view that Explanation 2 defining 'any sum payable' is not applicable to the sums referred to in Sub-clause (6) of Section 43B. That being so the decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao & Co. (supra) would be applicable. In this case their Lordships of the Andhra Pradesh High Court have held that 'any sum payable' would mean a sum for which assessee had incurred the liability to pay during the previous year. It is admitted position that the provident fund contribution remaining unpaid as on the close of the previous year had not become due under the Statute by the end of the previous year. The amounts have been paid in the subsequent year within the permissible time. Provisions of Section 43B could not thus be invoked in respect of the unpaid contribution to the provident fund account. The addition of Rs. 1,70,634 is accordingly deleted.

25. The next ground of appeal is relating to disallowance of Rs. 59,359 in respect of presentation of articles. The Income-tax Officer had made the disallowance by invoking Rule 6B. On appeal, the CIT(Appeals) has opined that though Rule 6B is inapplicable yet deduction could not be allowed without verification. Assessee had thus been asked to give details of persons to whom presents were made. Some of the items were found to be expensive items costing Rs. 16,800 and Rs. 10,750. The details were not furnished. The CIT(Appeals) has thus resorted to an estimate. He allowed a deduction to the tune of Rs. 20,000 and made disallowance of Rs, 39,359. Assessee is aggrieved.

26. We have heard the rival contentions. In the absence of evidence in support of the contention that the expenditure was incurred for the purposes of business, the disallowance is warranted. We accordingly confirm the disallowance.

27. to 30. [These paras are not reproduced here as they involve minor issues].