1992 (1) TMI 355 - AT - VAT and Sales Tax

Summary

Issues Involved:

1. Applicability of Section 43B to sales-tax liability.
2. Applicability of Section 43B to provident fund and ESI contributions.
3. Disallowance of expenses on presentation of articles.

Issue-wise Detailed Analysis:

1. Applicability of Section 43B to Sales-tax Liability:

The appellant company, engaged in the manufacture and sale of fluorescent tubes and lamps and sale of industrial gases, faced scrutiny regarding a sum of Rs. 29.95 lakhs payable as sales-tax, provident fund, and ESI contributions. The Assessing Officer (AO) did not invoke Section 43B for the outstanding sales-tax liability of Rs. 26,84,153 but did for provident fund and ESI contributions, adding Rs. 3,11,638 to the income. Upon appeal, the CIT(A) issued a show-cause notice proposing to enhance the income by disallowing the sales-tax amount under Section 43B, ultimately enhancing the income by Rs. 25,43,152.

The appellant argued that the sales-tax amount was collected in a fiduciary capacity and not claimed as a deduction in the profit and loss account, thus Section 43B should not apply. However, the CIT(A) rejected this, holding that the sales-tax collected formed part of the trading receipt and since it was unpaid at the close of the year, the deduction was not permissible.

The Tribunal upheld the CIT(A)'s decision, referencing Supreme Court rulings in *Chowringhee Sales Bureau (P.) Ltd. v. CIT* and *Sinclair Murray & Co. (P.) Ltd. v. CIT*, which held that sales-tax collections are trading receipts. The Tribunal also noted that the entries in the books of account do not determine the true nature of the receipt, citing *Sutlej Cotton Mills Ltd. v. CIT* and *CIT v. British Paints India Ltd.*. Thus, the sales-tax collections were deemed trading receipts, and Section 43B was applicable, disallowing the unpaid amount as a deduction.

2. Applicability of Section 43B to Provident Fund and ESI Contributions:

For the provident fund and ESI contributions, the CIT(A) partially accepted the appellant's contentions, disallowing only the employer's contribution of Rs. 1,70,634 under Section 43B. The Tribunal noted that Explanation 2 to Section 43B, which defines "any sum payable," applies only to clause (a) and not to clause (b) concerning employer contributions to provident funds. Citing *Srikakollu Subba Rao & Co. v. Union of India*, the Tribunal held that since the unpaid contributions had not become due under the statute by the end of the previous year and were paid within the permissible time, Section 43B could not be invoked. Consequently, the addition of Rs. 1,70,634 was deleted.

3. Disallowance of Expenses on Presentation of Articles:

The AO disallowed Rs. 59,359 for presentation articles under Rule 6B, which the CIT(A) partially upheld, allowing only Rs. 20,000 due to lack of verification. The Tribunal confirmed the disallowance, citing the absence of evidence to support that the expenditure was incurred for business purposes.

Conclusion:

The Tribunal upheld the CIT(A)'s enhancement of income by Rs. 25,43,152 under Section 43B for unpaid sales-tax but deleted the addition of Rs. 1,70,634 for provident fund contributions. The disallowance of Rs. 39,359 for presentation articles was also confirmed due to insufficient evidence.