2013 (7) TMI 662 - HC - Income Tax

Additional cess and cess surcharge - Tax u/s 43B - CIT made disallowance u/s 43B holding that cess and cess surcharge is tax u/s 43B - Tribunal deleted disallowance - Held that - Finance Bill, 1988 provides that cess or fee by whatever name called, which have been imposed by any statutory authority including a local authority, would also be allowed as a deduction only if they were actually paid - There was really no generic difference between a tax and a fee inasmuch as both are compulsory exactions of money by public authority - Tax recovered by a public authority invariably goes into the consolidated fund which is ultimately utilized for all public purposes whereas a cess levied by way of a fee is not intended to be and does not become a part of the consolidated fund - claim of expenditure on the basis of accrued liability to pay cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958 could not be disallowed by the revenue authorities by invoking Section 43B as it was applicable to the assessment year 1985-86 - Decided in favour of assessee. Dialoowance u/s 43B - Deposits from non governmental buyers - CIT held deposit as trading receipts and made disallowance u/s 43B - Tribunal deleted disallowance - Held that - Where an amount is received merely by way of deposit, on the express understanding or undertaking as in these cases, the company held the money as a mere custodian, and on the fulfilment of the condition became a trustee for the depositor. It is sufficient to state that when once the tax authorities determined that the proceeds of the sales in question were not within the taxable turnover of the company, the beneficial ownership became vested in the depositors and the company ceased to have any right to continue to hold the moneys - Following decision of The State of Mysore and Another Versus Mysore Spinning and Manufacturing Co., Ltd. and Another 1960 (9) TMI 59 - SUPREME COURT OF INDIA - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 43B of the Income Tax Act, 1961 to cess and cess surcharge.
2. Treatment of deposits collected from non-governmental buyers of cement.
3. Treatment of unclaimed balances/wages/bonus written off by the assessee.
4. Deduction entitlement for Extra Shift Allowance relating to transformers.
5. Deletion of interest charge under Section 216 based on the reasonableness of advance tax estimates.

Detailed Analysis:

Re: Question No. 1

The core issue was whether the payment of additional cess and cess surcharge under the Tamil Nadu Panchayats Act, 1958, could be considered a tax or duty under Section 43B of the Income Tax Act, 1961, for the assessment year 1985-86. The tribunal had ruled that cess and cess surcharge were not taxes or duties and thus not covered by Section 43B. The revenue argued that the amendment to Section 43B(a) by the Finance Act, 1988, which included "cess or fee," was clarificatory and retrospective. However, the court found that the amendment was prospective, effective from April 1, 1989, and did not apply to earlier assessment years. The court also distinguished cess from tax, noting that cess under the Tamil Nadu Panchayats Act did not exhibit the characteristics of a tax, such as being part of the consolidated fund. Consequently, the court affirmed that the assessee's claim for expenditure on cess and cess surcharge could not be disallowed under Section 43B for the assessment year 1985-86.

Re: Question No. 2

The issue was whether deposits collected from non-governmental buyers of cement towards possible sales tax on packing and freight charges could be treated as trading receipts. The tribunal had ruled that these deposits were not trading receipts and should not be included in the assessable income. The court upheld this view, emphasizing that the deposits were collected on a refundable basis, separately ledgerized, and the buyers were treated as depositors. The court distinguished this case from others where amounts collected "as sales tax" were treated as trading receipts. The deposits in question were not collected as sales tax but as security deposits pending a Supreme Court decision on the levy of sales tax on packing and freight charges. Thus, the court affirmed that these deposits could not be treated as trading receipts.

Re: Question No. 5

The question was whether the tribunal was correct in deleting the charge of interest under Section 216 based on the reasonableness and bona fides of the assessee's advance tax estimates. The court found that this issue was a factual determination by the tribunal, which had concluded that the estimates were reasonable and bona fide. Therefore, no question of law arose for consideration, and the court returned this question unanswered.

Conclusion

Questions Nos. 3, 4, and 5 were returned unanswered. Question Nos. 1 and 2 were answered in the affirmative, in favor of the assessee and against the revenue. The reference was answered accordingly.

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