Prem Prakash Gupta v. ITO – ITAT Jaipur Ruling on Turnover Definition for Stamp Vendors 

Introduction

The concept of turnover under the Income-tax Act often appears straightforward, until it is applied to agency-based businesses. For licensed stamp vendors, where sales are made on behalf of the government, the question becomes critical: Should turnover include the gross value of stamps sold or only the commission earned? 

The decision in Prem Prakash Gupta v. ITO (ITAT Jaipur, 29 January 2015) provides authoritative guidance on this matter, offering valuable lessons for both taxpayers and professionals. 

Factual Background 

The assessee, Prem Prakash Gupta, was a government-appointed licensed stamp vendor in Jaipur. His role was purely facilitative: 

• Procuring stamp papers from the treasury at government-fixed rates; 

• Selling them to the public; 

• Remitting the entire sale proceeds to the treasury; 

• Retaining only a fixed statutory commission as income. 

During the relevant year (A.Y. 2008–09), his gross receipts exceeded ₹40 lakh, but his commission income remained below the Section 44AB audit threshold. Believing that “turnover” referred only to commission income in his case, he did not have his accounts audited. 

Stand of Assessing Officer 

The Assessing Officer (AO) took the position that: 

1. The entire value of stamp sales constituted the assessee’s turnover; 

2. As this “turnover” exceeded ₹40 lakh, a tax audit under Section 44AB was mandatory; 

3. Failure to conduct the audit attracted a penalty of ₹1,00,000 under Section 271B. 

The AO categorised the assessee as a Pucca Arahtia (principal trader) rather than a Kachha Arahtia (commission agent), citing that the assessee bore certain business risks, such as loss from spoiled stamp papers not being reimbursed by the government. 

The Commissioner of Income-tax (Appeals) upheld the AO’s view. 

Tribunal’s Findings 

The Tribunal held that the sale of stamp papers by licensed vendors is a government assigned function to facilitate the stamp sales at various locations. The government appoints licensed agents which are remunerated at a prescribed fee scale/commission, which is mentioned in the written submissions and the stamp rules. The stamps are sold by the assessee on behalf of the government, which is further reflected by the fact that if the license is cancelled for any reason, all the unsold stamp, stamp papers, seals etc. are to be returned to the treasury which are reimbursed, thus the government retains over all control over the stamps.

The CBDT circular and ICAI guidelines further corroborate the stand taken by the assessee. In any case, it cannot be denied that the assessee was any bona fide belief that his case is not liable to audit of the books as the value of stamp is not his turnover and has a role of commission agent. The Tribunal thus ultimately held that the assessee was functioning as a Kachha Arahtia and that his turnover for Section 44AB purposes was his commission income, not the gross sales value of stamps. Since his commission income was below the audit threshold, Section 44AB was not applicable, and hence the penalty under Section 271B was deleted. 

To download the full order of case –

https://counselvise.com/direct-tax/judgements/ita-287-jpr-2014-14-prem-prakash-gupta-jaipur-ito-jaipur

Related Case Law

SMT. KAVITHA SUBBRARAYALU,CHENNAI V. INCOME TAX OFFICER, NON-CORPORATE WARD -19(6), CHENNAI – https://counselvise.com/direct-tax/judgements/smt-kavitha-subbrarayalu-chennai-income-tax-officer-non-corporate-ward-19-6-chennai

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