1986 (7) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 43B of the Income-tax Act, 1961.
2. Treatment of sales tax collections as trading receipts.
3. Timing of liability and payment of sales tax.

Summary:

1. Applicability of Section 43B of the Income-tax Act, 1961:
The assessee-firm, a wholesale dealer in rice, sugar, and provisions, contested the ITO's application of section 43B, which mandates that tax or duty payable to the government is deductible only upon actual payment. The ITO argued that the sales tax collected but not paid by the end of the accounting year should be included in the assessee's income. The Commissioner (Appeals) upheld the ITO's decision, but the Tribunal found that section 43B was inapplicable since the due dates for the sales tax payments were after the end of the accounting year.

2. Treatment of Sales Tax Collections as Trading Receipts:
The ITO treated the sales tax collections as part of the trading receipts, citing the Supreme Court's decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT, which held that sales tax collections are trading receipts. The assessee argued that they acted as a trustee for the State Government and did not claim any deduction for sales tax in computing taxable income. The Tribunal, however, held that sales tax collections are indeed trading receipts but noted that the liability to pay the tax had not yet arisen by the end of the accounting year.

3. Timing of Liability and Payment of Sales Tax:
The Tribunal examined the timing of the liability and payment of sales tax. According to the Kerala General Sales Tax Act, 1963, the due dates for the sales tax collected in July and part of August were 20th August and 20th September, respectively. Since the accounting year ended on 16th August, the Tribunal concluded that the liability had not yet become due and payable by the end of the accounting year. Therefore, section 43B did not apply, and the amount of Rs. 1,35,502 could not be included in the assessee's income for the assessment year 1984-85.

Conclusion:
The Tribunal allowed the appeal, holding that section 43B was inapplicable as the sales tax liability had not become due by the end of the accounting year, and thus, the amount of Rs. 1,35,502 could not be taxed in the hands of the assessee for the assessment year under consideration.