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Issues Involved:
1. Disallowance of unpaid sales tax u/s 43B of the Income-tax Act, 1961. 2. Interpretation of the first proviso to section 43B and Explanation 2 inserted by the Finance Act, 1989. Summary: Issue 1: Disallowance of unpaid sales tax u/s 43B of the Income-tax Act, 1961 The Income-tax Officer (ITO) disallowed Rs. 21,580 out of the deduction claimed by the assessee on account of sales tax, arguing that it was not paid during the relevant accounting year, thus not allowable as per section 43B of the Income-tax Act, 1961. The CIT(A) deleted this disallowance, stating that the amount represented sales tax liability for the last quarter ending 31st March 1984, payable on 7th May 1984 as per Rule 31 of the Sales Tax Rules. The payment was made by cheque on 7th May 1984, making the disallowance invalid. Issue 2: Interpretation of the first proviso to section 43B and Explanation 2 inserted by the Finance Act, 1989 The learned Departmental Representative (D.R.) argued that section 43B allows liability in respect of any tax or duty only in the year it is actually paid. He cited the recent amendment by the Finance Act, 1989, which inserted Explanation 2 with retrospective effect from 1-4-1984, defining "any sum payable" as a sum for which the assessee incurred liability in the previous year, even if not payable within that year under the relevant law. The D.R. contended that this amendment nullifies prior decisions and supports the disallowance of the unpaid sales tax. The learned counsel for the assessee argued that section 43B was not intended to disallow government dues paid within the time allowed under respective laws. The first proviso to section 43B, effective from 1-4-1988, clarifies that if the tax is paid before the due date for furnishing the return u/s 139(1), no disallowance should be made. The counsel emphasized that the legislative intention was to disallow only disputed or delayed payments, not those paid within the prescribed time. The Tribunal, after considering the submissions, noted that the amount of Rs. 21,580 was paid by cheque on 7th May 1984, in accordance with Rule 31 of the Gujarat Sales Tax Rules. The Tribunal referred to the Budget speech and memorandum explaining the provisions of the Finance Bill 1983, which indicated that section 43B was introduced to prevent disallowance of government dues not discharged in time. The Tribunal concluded that the first proviso to section 43B, inserted by the Finance Act, 1987, was meant to clarify the legislative intention and should apply from A.Y. 1984-85. The Tribunal upheld the CIT(A)'s order, allowing the deduction of Rs. 21,580, as it was paid before the due date for furnishing the return u/s 139(1). Separate Judgment by Judicial Member: Shri K.R. Dixit, Judicial Member, agreed with the conclusion but added that the first proviso to section 43B, effective from 1-4-1988, and Explanation 2, enacted by the Finance Act, 1989, should be read harmoniously. He emphasized that the proviso was intended to cover cases from 1-4-1984, and denying the benefit for A.Y. 1984-85 to 1987-88 would be unreasonable and discriminatory. He concluded that the assessee should be entitled to the deduction in the year the liability was incurred, as in the present case. Conclusion: The departmental appeal was dismissed, and the CIT(A)'s order allowing the deduction of Rs. 21,580 was upheld.
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