2002 (1) TMI 30 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 43B of the Income-tax Act, 1961 regarding outstanding sales tax liability payment.

Analysis:
The case involved a dispute over the addition made under section 43B of the Income-tax Act, 1961, concerning the outstanding sales tax liability of an assessee for the assessment year 1987-88. The assessee, a registered firm, had claimed a liability of Rs. 85,788 for sales tax, which was disallowed by the Assessing Officer due to payment being made after the close of the accounting year. The Commissioner of Income-tax (Appeals) upheld this disallowance. However, the Tribunal allowed the claim based on a decision in CIT v. Bimal Mrishna Sil and Bros. [1992] 108 CTR 197 (Cal). The assessee's counsel argued that as per the apex court's decision, if the sales tax liability is paid within the grace period allowed under the relevant provisions of the sales tax, the deduction under section 43B cannot be denied.

The Tribunal considered the decision in Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC), which discussed the retrospective effect of the Explanation to section 43B. The Explanation clarified that if the amount was paid within 30 days of the end of the quarter, even if beyond the accounting year, the deduction could not be disallowed. The Supreme Court held that the amendment to section 43B with the first proviso and Explanation 2 was intended to remove any ambiguity regarding the term 'any sum payable' under clause (a) of section 43B. The retrospective effect of Explanation 2 aimed to align the provisions to prevent undue hardship to the assessee.

Based on the principles established in the Allied Motors case and the retrospective effect of the Explanation, the High Court concluded that no interference was warranted in the Tribunal's decision. Therefore, the High Court ruled in favor of the assessee and against the Revenue, affirming the Tribunal's order and allowing the deduction for the outstanding sales tax liability under section 43B for the relevant assessment year 1987-88.