2010 (12) TMI 370 - HC - Income Tax

Disallowance - whether the omission of second proviso to Section 43B of the Income Tax Act, 1961 by the Finance Act, 2003 w.e.f. 1.4.2004, would have retrospective operation - Hon ble Supreme Court in Commissioner of Income Tax v. Alom Extrusions Ltd. (2009 -TMI - 35073 - SUPREME COURT) has held that the omission of the second proviso to Section 43B of the Act, by the Finance Act, 2003 operated retrospectively with effect from April 1, 1988 and not prospectively from April 1, 2004 as the amendment was to remove the difficulties which were there in the existing provision of Section 43B of the Act - Decided in the favour of assessee

Summary

Issues:
1. Whether the omission of the second proviso to Section 43B of the Income Tax Act, 1961 by the Finance Act, 2003, with effect from 1.4.2004, will have retrospective operation?

Analysis:
The High Court considered the appeal where the assessee had filed a return for the assessment year 2001-02, declaring an income and sought deduction of Provident Fund and ESI. The Assessing Officer denied the deduction under Section 43B of the Income Tax Act, 1961, for amounts not paid within due dates. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the denial, leading to the present appeal by the assessee.

The Court framed the substantial question of law regarding the retrospective operation of the omission of the second proviso to Section 43B of the Income Tax Act, 1961 by the Finance Act, 2003, effective from 1.4.2004. The Court referred to a Supreme Court judgment in Commissioner of Income Tax v. Alom Extrusions Ltd., which held that the omission of the second proviso to Section 43B operated retrospectively from April 1, 1988, not prospectively from April 1, 2004. The amendment aimed to address existing difficulties in the provision. Therefore, the Court concluded that the contrary view taken by the Tribunal could not be sustained.

Consequently, the Court allowed the appeal, answering the substantial question of law in favor of the assessee. The omission of the second proviso to Section 43B of the Income Tax Act, 1961 by the Finance Act, 2003 was held to have retrospective operation from April 1, 1988, based on the Supreme Court's interpretation.