1996 (4) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 43B of the Income-tax Act, 1961.
2. Retrospective application of the proviso to Section 43B.
3. Deduction of sales tax liability incurred but not paid within the accounting year.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 43B of the Income-tax Act, 1961:
The primary issue revolves around whether the Tribunal correctly construed Section 43B of the Income-tax Act, 1961. Section 43B was inserted by the Finance Act, 1983, to permit certain deductions only on the actual payment of the amount. It states that deductions otherwise allowable under the Act in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed only in computing the income of the previous year in which such sum is actually paid by the assessee. The Tribunal had allowed the deduction of Rs. 40,453, which was paid after the close of the accounting year but within the statutory period allowed. However, the High Court found that the provision of Section 43B did not admit of any ambiguity and was clearly prohibitory in nature, requiring the deduction to be allowed only if the amount had been actually paid in the accounting year itself.

2. Retrospective Application of the Proviso to Section 43B:
The court examined whether the proviso added by the Finance Act, 1987, with effect from April 1, 1988, could be applied retrospectively. The proviso allowed deductions if the sum was paid before the due date for furnishing the return of income under Section 139(1) of the Act. The court noted that the proviso was intended to mitigate the hardship occasioned by Section 43B, but it was clear from the language of the proviso and the date of its effect that it was meant to be prospective. The court referenced the Supreme Court's interpretation in S. Sundaram Pillai v. Pattabiraman, which clarified that a proviso may have multiple functions but generally does not apply retrospectively unless explicitly stated.

3. Deduction of Sales Tax Liability Incurred but Not Paid Within the Accounting Year:
The respondent-assessee claimed deductions for various taxes, including a significant amount of sales tax that had fallen due but was not actually paid within the accounting year. The Income-tax Officer disallowed the deduction based on the interpretation of Section 43B, which was confirmed by the Commissioner of Income-tax (Appeals). The Tribunal, however, allowed the deduction for the amount paid after the close of the accounting year but within the statutory period. The High Court disagreed with the Tribunal's interpretation, emphasizing that the harshness of the provision was no ground for diluting its rigour. The court held that the deduction was rightly disallowed by the Income-tax Officer because the amount had not been actually paid within the accounting year.

Conclusion:
The High Court concluded that the Tribunal did not correctly construe Section 43B of the Income-tax Act, 1961. The deduction claimed by the assessee was rightly disallowed by the Income-tax Officer because the sales tax liability, although incurred in the accounting year, had not been actually paid within that year. The reference was answered in favor of the Revenue and against the assessee.