2006 (1) TMI 98 - HC - Income Tax

Jurisdiction of the High Court in a reference - Whether, Tribunal erred in law in not holding that the amounts of sales tax on printing receipts collected by the assessee formed part of the assessee s trading receipts - In the instant case, the issue is whether the addition can be made under section 43B of the Act or not. Above question of law raised by the Revenue deals only with the question whether sales tax collected but not paid would form part of the business or trading receipts. The question raised does not bring out the real controversy in issue. It does not deal with the real issue. It is well-settled law that the jurisdiction of the High Court in a reference is in the nature of advisory jurisdiction and only such issues can be and are answered as arise properly on the facts and the questions referred to the High Court. The Revenue in the appeal did not bring out the real controversy in this case. In view of the above, we return the question referred to us unanswered.

Summary

Issues:
Interpretation of section 43B of the Income-tax Act regarding the treatment of sales tax collected but not paid as trading receipts.

Analysis:
The High Court of Madras addressed the question of law raised by the Revenue regarding the treatment of sales tax collected by the assessee but not paid, under section 43B of the Income-tax Act. The case involved the assessment year 1987-88, where the assessee, engaged in printing work, held an amount towards sales tax as a contingent deposit. The Assessing Officer added this amount under section 43B, which was disputed by the assessee. The Commissioner of Income-tax (Appeals) ruled in favor of the assessee, and the Tribunal upheld this decision, stating that section 43B could not be applied since the assessee did not claim the amount as a deduction under the Act.

The Revenue contended that the sales tax collected but not deposited should be treated as per section 43B, emphasizing that the amount was never paid to the Government and was shown as a contingent deposit. However, the court examined the provisions of section 43B, which allow deductions only when the sum payable is actually paid by the assessee. The court highlighted that section 43B was inserted to discourage taxpayers from claiming deductions for amounts not paid, even if incurred in the relevant previous year. As the assessee did not claim the sales tax amount as a deduction, section 43B was deemed inapplicable.

The court referred to the decision in India Carbon Ltd. v. Inspecting Assistant CIT, which held that section 43B does not apply when the assessee does not claim the amount collected as a deduction. The court emphasized that the real issue was whether section 43B could be invoked, not whether the sales tax formed part of trading receipts. Additionally, the court noted that the Revenue's question did not address the actual controversy in the case, as the jurisdiction of the High Court in a reference is advisory and limited to issues arising from the facts and questions referred. Therefore, the court declined to answer the question raised by the Revenue and observed that the tax effect in the case was minimal.

In conclusion, the High Court of Madras clarified the application of section 43B of the Income-tax Act in cases where sales tax collected but not paid is held as a contingent deposit. The court emphasized that section 43B only applies when the assessee claims the amount as a deduction, and in the absence of such claim, the provision is not triggered. The court's decision highlighted the importance of correctly framing questions of law in appeals and references to ensure the real issues in dispute are addressed effectively.