1992 (1) TMI 159 - AT - Income Tax

Summary

Issues Involved:
1. Application of section 43B of the Income-tax Act to the assessee.
2. Determination of whether the assessee qualifies as a dealer under the Sales Tax Acts.
3. Consideration of the assessee's liability towards sales tax.

Detailed Analysis:

1. Application of Section 43B of the Income-tax Act to the Assessee:
The assessee, a Government of India undertaking, challenged the application of section 43B of the Income-tax Act regarding collections made under sales tax. The appellant argued that since it is not a dealer, the provisions of the Sales Tax Acts do not apply, and thus, section 43B should not be invoked. Section 43B stipulates that deductions for tax, duty, cess, or fee are only allowable in the year they are actually paid. The appellant contended that the amounts collected do not bear the character of sales tax and thus should not be disallowed under section 43B.

2. Determination of Whether the Assessee Qualifies as a Dealer Under the Sales Tax Acts:
The appellant cited the Punjab & Haryana High Court's decision in Food Corporation of India v. State of Haryana, which held that the corporation is not a dealer under the Sales Tax Act. The High Court found that the corporation had no freedom in setting purchase or sale prices, as these were fixed by the Central Government. The corporation's role was limited to procuring foodgrains from surplus states and distributing them to deficient states at government-dictated prices. Consequently, the High Court ruled that the provisions of the Sales Tax Acts did not apply to the corporation.

3. Consideration of the Assessee's Liability Towards Sales Tax:
The departmental representative argued that since the appellant collected amounts as sales tax and did not pay them within the accounting year, the disallowance under section 43B was justified. However, the tribunal examined the High Court's ruling and other relevant documents, including government orders on the price and procurement policy of wheat. The tribunal noted that the appellant was a registered dealer under the Central Sales Tax Act and the Haryana General Sales Tax Act but operated under government directives without the freedom of a typical dealer.

The tribunal referenced the Supreme Court's decision in Chittar Mal Narain Das v. CST, which held that compulsory transactions without freedom to bargain could not be considered contracts of sale. The Punjab & Haryana High Court applied this ratio, concluding that the corporation, lacking freedom in procurement and distribution, did not qualify as a dealer under the Sales Tax Act. Consequently, the corporation was not liable for sales tax, and the amounts collected could not be treated as tax or duty under section 43B.

Conclusion:
The tribunal concluded that the assessee, acting as an agency for the government without profit motive or freedom typical of a dealer, was not liable under the Sales Tax Act. Therefore, the amounts collected as sales tax did not constitute a liability payable under any law, and section 43B could not be invoked. The tribunal deleted the addition of Rs. 419.16 lakhs made under section 43B of the Income-tax Act, allowing the appeal in favor of the assessee.