1991 (5) TMI 85 - AT - Income Tax

Assessee Carrying On Business, Backward Area, Bench Of Tribunal, High Court, Industrial Undertaking, Profits And Gains

Issues Involved:
1. Interpretation of provisions of section 43B of the Income-tax Act, 1961 as amended by the Finance Act, 1987 and the Finance Act, 1989.
2. Applicability of section 43B to sales-tax liability for the last quarter.
3. Whether the benefit of the proviso to section 43B is retrospective.
4. Determination of whether a ship-breaking business qualifies as an industrial undertaking under sections 80HH and 80-I of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Interpretation of provisions of section 43B of the Income-tax Act, 1961 as amended by the Finance Act, 1987 and the Finance Act, 1989:

The common point in these appeals relates to the interpretation of section 43B of the Income-tax Act, 1961, as amended by the Finance Act, 1987, and the Finance Act, 1989. Section 43B, inserted with effect from 1-4-1984, stipulates that a deduction otherwise allowable under the Act in respect of any sum payable by the assessee by way of tax under any law shall be allowed only in the year in which such sum is actually paid. The amendments introduced a proviso effective from 1-4-1988, allowing deductions if the sum is paid on or before the due date for furnishing the return of income under section 139(1) for the relevant year. Explanation 2, inserted with retrospective effect from 1-4-1984, clarified that "any sum payable" means a sum for which the liability was incurred in the previous year, even if it was not payable within that year under the relevant law.

2. Applicability of section 43B to sales-tax liability for the last quarter:

In all three cases, the assessees maintained separate sales-tax accounts where sales-tax collected was credited, and sales-tax paid to the government was debited. The balance was carried to the balance sheet and not to the profit and loss account. The Income-tax Officer (ITO) added the unpaid sales-tax liability to the total income of the assessees, considering it a trading receipt as per the Supreme Court's decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT. The ITO disallowed the liability under section 43B since it was not paid within the relevant accounting year. However, it was argued that for the last quarter, the liability was statutorily payable in the subsequent accounting year, making the unamended provisions of section 43B inapplicable, as upheld by the Andhra Pradesh High Court in Srikakollu Subba Rao & Co. v. Union of India.

3. Whether the benefit of the proviso to section 43B is retrospective:

The Tribunal at Ahmedabad consistently held that the proviso to section 43B, inserted by the Finance Act, 1987, should apply retrospectively from assessment year 1984-85. This view was supported by the Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India, which held that the proviso was explanatory and intended to remove hardship, thus applicable retrospectively. Conversely, the Delhi High Court in Sanghi Motors v. Union of India and Escorts Ltd. v. Union of India held that the proviso applied only from assessment year 1988-89 onwards. The Special Bench of the Tribunal at Delhi, bound by the Delhi High Court's decision, ruled against the assessee. However, the Ahmedabad Tribunal chose to follow the Patna High Court's decision, favoring the assessee, due to the conflicting High Court decisions and the principle of adopting a view favorable to the taxpayer.

4. Determination of whether a ship-breaking business qualifies as an industrial undertaking under sections 80HH and 80-I of the Income-tax Act, 1961:

In ITA No. 1387/Ahd/1988, the issue was whether the assessee's ship-breaking business qualified as an industrial undertaking eligible for deductions under sections 80HH and 80-I. The CIT(A) allowed the deduction, following the decision in the case of M/s. Rama Ship Breakers and a Bombay High Court ruling that ship-breaking is a manufacturing activity. The Tribunal upheld this view, rejecting the Department's appeal.

Conclusion:

The Tribunal directed the ITO to allow deductions for sales-tax liability for the last quarter if the liability was discharged by actual payment before the due date for filing the return under section 139(1). The Tribunal also upheld the CIT(A)'s decision that the ship-breaking business qualified as an industrial undertaking eligible for deductions under sections 80HH and 80-I. The appeals were decided in favor of the assessees, following the consistent view at Ahmedabad and the Patna High Court's decision.

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