2011 (8) TMI 463 - HC - Income Tax

Sec.43-B of the Income Tax Act 1961 - first proviso was inserted w.e.f. 1989 but it was curative in nature and has to be given retrospective effect - Department opposed the contention and submitted that the aforesaid proviso has been inserted by Finance Act 1988 w.e.f. 1.4.1989 so it is prospective in nature - As in the case of Allied Motors (P.) Ltd 1997 (3) TMI 9 - SUPREME Court - first proviso makes it clear that the section will not apply in relation to any sum which is actually paid by the assessee in the next accounting year if it is paid on or before the due date for furnishing the return of income in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with the return - held in the above case that that the aforesaid proviso was inserted to give effect to the provisions as contained in section 43B of the Act and was retrospective in nature - Thus held that Tribunal was not justified in sustaining the addition of sales tax liability which was actually paid by the assessee within the statutory period - Decided in the favour of Petitioner

Summary

Issues:
Interpretation of Section 43B of the Income Tax Act, 1961 regarding sales tax liability deduction.

Analysis:
The case involved a reference by the Income Tax Appellate Tribunal regarding the addition of sales tax liability amounting to Rs. 51,918. The main issue was whether the Tribunal was justified in sustaining this addition under Section 43B of the Income Tax Act, 1961. The petitioner argued that the first proviso inserted in 1989 was curative and retrospective, citing relevant judgments. On the other hand, the Department contended that the proviso was prospective unless specifically stated otherwise.

Regarding the facts of the case, the petitioner firm made a provision for sales tax liability in the accounting year 1984-85 but paid the tax amount on 31.5.1984. The assessing officer disallowed the deduction, leading to the addition of Rs. 51,918 to the income. The petitioner appealed to the CIT(A) and the Income Tax Appellate Tribunal, which were unsuccessful, prompting the reference to the High Court for opinion.

The High Court analyzed the issue in light of the Apex Court judgment in Allied Motors (P.) Ltd.'s case, which clarified the application of Section 43B. The Court emphasized that under this section, tax payable could only be deducted in the year of actual payment, not when the liability was incurred. The first proviso was added in 1988 to address certain anomalies, making it clear that the section would not apply if the sum was paid in the next accounting year before the due date of filing the return. The Court highlighted that the proviso was inserted to give retrospective effect to Section 43B.

The Court also referred to the Whirlpool of India Ltd.'s case, where the Apex Court reiterated the retrospective nature of the proviso. Based on the settled legal position, the High Court concluded that the Tribunal was not justified in sustaining the addition of Rs. 51,918 on account of sales tax liability, as the amount was actually paid within the statutory period and before the due date of filing the return for the relevant year. The High Court directed the office to communicate this answer to the Tribunal for further action.