Section 43B of the Income-tax Act, 1961

HIGH COURT OF MADRAS Commissioner of Income-tax, Tamil Nadu v, Chennai v. Nazir Basheer & Co. P.D. DINAKARAN AND P.P.S. JANARTHANA RAJA, JJ. TC (A) NO. 243 OF 2000 February 22, 2006 Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 1989-90 - Assessee claimed deduction of certain sum which was collected from its customers towards possible sales-tax liability and credited to a separate head namely contingency deposit - Whether such crediting could not alter character or nature of collection in hands of assessee and in view of section 43B same was taxable as forming part of assessee’s income - Held, yes FACTS During the assessment year 1989-90, the assessee - company had collected certain sums from various parties towards possible sales tax liability and credited same to a separate head called contingency deposit. In respect of this contingency deposit, the assessee claimed deduction. However, in view of section 43B, the Assessing Officer did not allow the said claim and added the deposit by treating the same as income of the assessee. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer on the ground that the assessee did not keep the money as a separate deposit but used it as its own assets for the purpose of its own business and that the crediting of sales tax collected under a separate head called ‘contingency deposit’ will not alter the character or nature of collection. On further appeal, the Tribunal deleted the impugned additions. On revenue’s appeal : HELD It is settled law that if a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. It is the true nature and quality of the receipt and not the head under which it is entered in the account books which is decisive. [Para 4] In the instant case, the amounts collected by the assessee were amounts which were meant to be utilized by the assessee for meeting its tax liability. Even if the assessee paid over the entire amount received by it as deposit towards sales tax to the State Government, it would still have been open to the assessee to seek refund if the assessee wished to claim such refund on the ground that the tax had been levied at a higher rate than the rate permissible. The fact that the assessee had chosen to adopt the device of labelling a part of the amounts collected towards its sales tax liability as ‘contingency deposit’, could not make a difference. The amount formed part of the assessee’s income. [Para 6] Therefore, the Tribunal was not justified in deleting the addition made in respect of collections of contingency deposit and, consequently, the order of the Tribunal was to be set aside. [Para 7]