1988 (3) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Constitutionality of Section 43B of the Income-tax Act, 1961.
2. Applicability of Section 43B to sales tax.
3. Temporal application of Section 43B.
4. Disallowance of "market cess" under Section 43B.
5. Disallowance of sales tax for March 1984 under Section 43B.

Summary:

1. Constitutionality of Section 43B:
The primary contention was that Section 43B is unconstitutional as it violates Articles 14 and 19(1)(g) of the Constitution. The petitioners argued that the provision discriminates against statutory liabilities like taxes and duties by allowing deductions only on actual payment, unlike other business expenses. The court rejected this argument, stating that the Legislature acted reasonably to curb the misuse of public funds by businessmen who collected taxes but did not remit them to the government. The court found no hostile discrimination or arbitrariness in the provision, and it upheld the validity of Section 43B, aligning with the Karnataka High Court's decision in Mysore Kirloskar Ltd. v. Union of India [1986] 160 ITR 50.

2. Applicability of Section 43B to Sales Tax:
The petitioners contended that sales tax should not fall under Section 43B as it is not specifically designated as an item of expenditure in computing business profits. The court dismissed this argument, clarifying that once sales tax is allowed as an expenditure u/s 37, the provision of actual payment u/s 43B applies equally to sales tax.

3. Temporal Application of Section 43B:
The petitioners argued that Section 43B, effective from April 1, 1984, should not apply to deductions for liabilities incurred up to March 31, 1984. The court disagreed, stating that the provision applies from the assessment year 1984-85, covering the previous financial year ending March 31, 1984.

4. Disallowance of "Market Cess" under Section 43B:
In some writ petitions, the disallowance of "market cess" was challenged on the ground that it is neither a tax nor a duty. The court upheld this contention, referencing the Supreme Court decision in Om Parkash Agarwal v. Giri Raj Kishori [1987] 164 ITR 376, and directed the Income-tax Officers to modify the assessments accordingly.

5. Disallowance of Sales Tax for March 1984 under Section 43B:
The petitioners argued that sales tax for March 1984, payable by April 25, 1984, should not be disallowed u/s 43B. The court found merit in this argument, noting that Section 43B applies only if the tax or duty is statutorily payable within the accounting year. The court directed the Income-tax Officers to verify and allow the sales tax for March 1984 if it was payable after the accounting year.

Conclusion:
Writ Petition No. 7207 of 1984 was dismissed without costs. All other writ petitions were partly allowed to the extent indicated, without costs. Advocate's fee was set at Rs. 250 in each case.