Magadh Stock Exchange Association v. The Commissioner of Income-tax-I, Patna / The Assistant/ Deputy Commissioner of Income-tax, Circle-1, Patna
[Citation -2020-LL-0902-26]

Citation 2020-LL-0902-26
Appellant Name Magadh Stock Exchange Association
Respondent Name The Commissioner of Income-tax-I, Patna / The Assistant/ Deputy Commissioner of Income-tax, Circle-1, Patna
Court HIGH COURT OF PATNA
Relevant Act Income-tax
Date of Order 02/09/2020
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags mercantile system of accounting • constitutional validity • method of accounting • statutory liability • actual expenditure • actual payment • due date • securities transaction tax
Bot Summary: 02-09-2020 2/9 200 ITR 759, as affirmed by the Hon ble Apex Court in SLP No.13038 of 1994, titled as Inspecting Assistant Commissioner of Income Tax v. India Carbon Ltd. vide order dated 23.08.1996 and subsequent decision dated 22.05.2003 passed in Commissioner of Income-Tax v. India Carbon Ltd. 2003 262 ITR 327, decision of Madras High Court in CIT vs. Everest Litho Press, 285 ITR 297(Madras); decision of Delhi High Court in CIT v. Noble and Hewitt Pvt. Ltd. 305 ITR 324, the illegality and perversity in the order is sought to be argued. In Allied Motors Ltd. versus Commissioner of Income Tax, Delhi, 3 SCC 472, the Hon ble Apex Court in paragraph 6 has gone into the legislative intent and history of enactment of Section 43-B. It observed that:- Patna High Court CWJC No.12043 of 2011 dt. In any event, we find the issue is no Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 6/9 longer res Integra for Constitutional validity of Section 43B, more particularly Clause thereof, stands affirmed by the Hon ble Apex Court in Civil Appeal No.3545 of 2009 titled as Union of India Ors. After discussing the legislative intent, the Court categorically held Section 43B to be a mixed bag with new and dissimilar entries inserted therein, from time to time, to cater to different fiscal scenarios. Even on an earlier occasion, the Court affirmed the view of the Revenue that furnishing of a Bank Guarantee is not the same as making payment stipulated under Section 43B of the Act Commissioner of Income Tax, Udaipur, Rajasthan vs. Mcdowell and Company Limited, 10 SCC 755. Given binding precedents of Hon'ble the Apex Court, we need not refer to the binding effect of the decisions rendered by different High Courts cited by the learned counsel for the petitioner.


IN HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.12043 of 2011 Magadh Stock Exchange Association through its Director Sri Yashwir Singh, aged about 40 years, son of Late Soham Singh, Resident of 9th Floor, Ashiana Plaza, Budh Marg, in town and District of Patna. Petitioner/s Versus 1. Commissioner Of Income Tax-I, Central Revenue Building, Bir Chand Patel Path, Patna. 2. Assistant/ Deputy Commissioner of Income Tax, Circle-1 3rd Floor, Lok Nayak Bhawan, Dakbunglow Road,Patna-800001. Respondent/s Appearance : For Petitioner/s : Mr. Ajay Kumar Rastogi, Advocate For Respondent/s : Mrs. Archana Sinha @ Archana Shahi, Advocate CORAM: HONOURABLE CHIEF JUSTICE and HONOURABLE MR. JUSTICE S. KUMAR C.A.V. JUDGMENT (Per: HONOURABLE CHIEF JUSTICE) Date : 02-09-2020 In this petition filed under Articles 226 and 227 of Constitution of India, petitioner lays challenge to order of assessment dated 26.12.2008 as affirmed by Commissioner of Income Tax-I, Patna vide order dated 20.01.2011. 2. During hearing, emphatically, petitioner laid challenge to virus of provisions of Section 43B of Income-Tax Act, 1961. We allowed learned counsel to address on same. Also on strength of decisions rendered by Gauhati High Court in India Carbon Ltd. v. Inspecting Assistant Commissioner of Income-Tax and another [1993] Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 2/9 200 ITR 759 (Gau), as affirmed by Hon ble Apex Court in SLP (C) No.13038 of 1994, titled as Inspecting Assistant Commissioner of Income Tax v. India Carbon Ltd. vide order dated 23.08.1996 and subsequent decision dated 22.05.2003 passed in Commissioner of Income-Tax v. India Carbon Ltd. [2003] 262 ITR 327 (Gau), decision of Madras High Court in CIT vs. Everest Litho Press, (2006) 285 ITR 297(Madras); decision of Delhi High Court in CIT v. Noble and Hewitt (I) Pvt. Ltd. (2008) 305 ITR 324 (Delhi), illegality and perversity in order is sought to be argued. 3. Opposing petition, Mrs. Archana Sinha, learned counsel for Revenue seeks reliance upon decision of Hon ble Apex Court in M/s Chowringhee Sales Bureau (P) Ltd. Versus C.I.T. West Bengal, (1973) 1 SCC 46. 4. Briefly facts set out are as under:- 5. For assessment year 2006-07, petitioner filed its return of income showing total income at Nil. return dated 17.01.2007 was selected for scrutiny through CASS. After issuance of due notice and compliance of procedural formalities, Income Tax Officer vide order dated 26.12.2008 disallowed amount of Rs.17,87,530/- deducted as Security Transaction Tax (STT) against transaction of trading of one M/s Bharuka Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 3/9 Financial Services Ltd. Officer found said amount of STT not to be deposited with authorities, and as such provisions of Section 43B of Income-Tax Act, 1961 was squarely attractable. As such, entire amount was assessed towards income of assessee. Commissioner of Income-Tax has affirmed such order. 6. Apex Court in M/s Chowringhee Sales Bureau (P) Ltd. (supra) while dealing with case where assessee had neither deposited realized amount of sales tax with State exchequer nor returned same to concerned party, added such amount to be part of business income. It is based on strength of this decision, Revenue seeks to defend impugned orders. 7. Noticeably, decision does not deal with provisions with which we are concerned. 8. Relevant portion of Section 43 B reads as under:- 43B. Certain deductions to be only on actual payment.- Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of (a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, or Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 4/9 (c) any sum referred to in Clause (ii) of sub- section (1) of section 36, or (d) any sum payable by assessee as interest on any loan or borrowing from any public financial institution or State financial corporation or State industrial investment corporation, in accordance with terms and conditions of agreement governing such loan or borrowing, or (e) any sum payable by assessee as interest on any loan or advances from scheduled bank [or co- operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank] in accordance with terms and conditions of agreement governing such loan or advances, or (f) any sum payable by assessee as employer in lieu of any leave at credit of his employee, or (g) any sum payable by assessee to Indian Railways for use of railway assets, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this Section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-section (1) of section 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return. .... (Emphasis supplied) 9. In Allied Motors (P) Ltd. versus Commissioner of Income Tax, Delhi, (1997) 3 SCC 472, Hon ble Apex Court in paragraph 6 has gone into legislative intent and history of enactment of Section 43-B. It observed that:- Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 5/9 To understand circumstances in which Section 43B came to be inserted in Income Tax Act and mischief which it sought to prevent, it is necessary to look at memorandum explaining provisions in Finance Bill of 1983 [(1983) 140 ITR (St.) 160] :- "59. Under Income Tax Act, profits and gains of business and profession are computed in accordance with method of accounting regularly employed by assessee. Broadly stated, under mercantile system of accounting, income and outgo are accounted for on basis of accrual and not on basis of actual disbursements or receipts. for purposes of computation of profits and gains of business and profession, Income-tax Act defines word 'paid' to mean 'actually paid or incurred' according to method of accounting on basis of which profits or gains are computed. 60. Several cases have come to notice where tax payers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc. for long period of time, extending sometimes to several years. For purpose of their income-tax assessments, they claim liability as deduction on ground that they maintain accounts on mercantile or accrual basis. On other hand they dispute liability and do not discharge same. For some reason or other undisputed liabilities also are not paid. To curb this practice, it is proposed to proved that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by assessee as employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for welfare of computing income of that previous year in which such sum is actually paid by him." 10. To our mind, said Section is exception to mercantile system of accounting. It is explicitly added to correct mischief of claiming deductions without payment of taxes due even at later stage. expression used is "same is actually paid by him." In any event, we find issue is no Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 6/9 longer res Integra for Constitutional validity of Section 43B, more particularly Clause (f) thereof, stands affirmed by Hon ble Apex Court in Civil Appeal No.3545 of 2009 titled as Union of India & Ors. Exide Industries Limited & Anr. decided on April 24, 2020. 11. After discussing legislative intent, Court categorically held Section 43B to be mixed bag with new and dissimilar entries inserted therein, from time to time, to cater to different fiscal scenarios. It was enactment designed to prevent fraud upon Revenue, and as such required liberal construction in its favour. Court also held that sub-section (1) of Section 145 explicitly provides method of accounting is prerogative falling in domain of assessee who is well within its rights to follow mercantile system of accounting. In mercantile system of accounting, assessment of income is made based on accrual of liability and not based on actual expenditure in lieu thereof. However, Section 43B is not provision to place embargo upon autonomy of assessee in adopting particular method of accounting, nor deprive him of any lawful deduction. Instead, it merely operates as additional condition for availment of deduction qua specified head. Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 7/9 12. It further observed that Section 43B bears heading certain deductions to be only on actual payment . It opens with non-obstante clause. As per settled principles of interpretation, non-obstante clause assumes overriding character against any other provision of general application. It declares that within sphere allotted to it by Parliament, it shall not be controlled or overridden by any other provision unless expressly provided for. Out of allowable deductions, legislature consciously earmarked certain deductions from time to time and included them in ambit of Section 43B so as to subject such deductions to conditionality of actual payment. Such conditionality may have inevitable effect of being different from theme of mercantile system of accounting on accrual of liability basis qua specific head of deduction covered therein and not to other heads. But that is matter for legislature and its wisdom in doing so. (Emphasis supplied) 13. And after elaborately discussing issue, eventually, Court observed that Notably, this regulatory measure is in sync with other deductions specified in Section 43B, which are also present and accrued liabilities. To wit, liability in lieu of tax, duty, cess, bonus, commission etc. also Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 8/9 arise in present as per mercantile system, but assessees used to defer payment thereof despite claiming deductions there against under guise of mercantile system of accounting. Resultantly, irrespective of category of liability, such deductions were regulated by law under aegis of Section 43B, keeping in mind peculiar exigencies of fiscal affairs and underlying concerns of public Revenue. 14. Even on earlier occasion, Court affirmed view of Revenue that furnishing of Bank Guarantee is not same as making payment stipulated under Section 43B of Act [Commissioner of Income Tax, Udaipur, Rajasthan vs. Mcdowell and Company Limited, (2009) 10 SCC 755]. 15. Hence on both counts, we see no reason to accept contentions of petitioner- (a) Constitutional validity of Act already stands affirmed by Hon ble Apex Court in Exide Industries Limited (supra). (b) On second submission, undisputedly, petitioner had not deposited amount deducted as STT with authorities, and it is not his case that same stood paid back/returned to person from whom it stood deducted. It is admitted case of petitioner that since petitioner was adopting mercantile system of accounting; he was not Patna High Court CWJC No.12043 of 2011 dt. 02-09-2020 9/9 supposed to take any action. Even on this count, given law discussed above, more so Exide Industries Limited (supra). (supra) and Mcdowell (supra), orders cannot be said to be perverse and illegal warranting interference by this Court. 16. Given binding precedents of Hon'ble Apex Court, we need not refer to binding effect of decisions rendered by different High Courts cited by learned counsel for petitioner. 17. writ petition stands dismissed. 18. No order as to costs. 19. Interlocutory Application, if any, shall stand disposed of. (Sanjay Karol, CJ) S. Kumar, J: I agree ( S. Kumar, J) K.C.Jha/- AFR/NAFR AFR CAV DATE 21.08.2020 Uploading Date 07.09.2020 Transmission Date Magadh Stock Exchange Association v. Commissioner of Income-tax-I, Patna / Assistant/ Deputy Commissioner of Income-tax, Circle-1, Patna
Report Error