1987 (6) TMI 73 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 43B of the Income-tax Act, 1961.
2. Distinction between "due" and "payable" under Section 43B.
3. Relevance of Supreme Court and High Court decisions.
4. Interpretation of tax liabilities under mercantile accounting.

Detailed Analysis:

1. Applicability of Section 43B of the Income-tax Act, 1961:
The primary issue in these appeals is the applicability of Section 43B of the Income-tax Act, 1961, to the amounts claimed as deductions by the assessees for the assessment year 1984-85. Section 43B, introduced by the Finance Act, 1983, with effect from 1-4-1984, mandates that certain deductions, including taxes and duties, are only allowable on actual payment, overriding the mercantile system of accounting. The assessees had not paid these amounts during the previous year but had only made provisions for them in their accounts.

2. Distinction between "due" and "payable" under Section 43B:
The assessees argued that the amounts of entry tax and turnover tax were "due" but not "payable" and thus Section 43B should not apply. They relied on the Supreme Court's order dated 30-1-1984, which allowed payment in installments, to support their claim. However, the revenue contended that there is no significant difference between "due" and "payable" under Section 43B, and both terms denote the same idea. The Tribunal agreed with the revenue, stating that the word "payable" is used to describe the nature of the sum and also means "due."

3. Relevance of Supreme Court and High Court decisions:
The assessees cited several judicial decisions to support their case. They referred to the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT, which held that the liability to pay tax arises when the sales or purchases are made, even if the actual payment is contested. The Tribunal noted that this decision supports the applicability of Section 43B, as the liability for entry tax and turnover tax had arisen during the previous year. The Tribunal also considered the Kerala High Court decision in L.J. Patel & Co. v. CIT but found it inapplicable as it did not involve Section 43B.

4. Interpretation of tax liabilities under mercantile accounting:
The Tribunal acknowledged that under the mercantile system of accounting, the assessees would normally be entitled to deductions for liabilities incurred during the previous year. However, Section 43B overrides this system, requiring actual payment for the deduction to be allowable. The Tribunal emphasized that Section 43B is a special provision with a non obstante clause, which takes precedence over Section 37 of the Act. The Tribunal found that the assessees had incurred the liability but had not made actual payments, thus falling within the mischief of Section 43B.

Conclusion:
The Tribunal concluded that the amounts of entry tax and turnover tax claimed by the assessees were payable during the previous year but had not been actually paid. Therefore, these amounts fall within the scope of Section 43B, and the deductions were rightly disallowed by the departmental authorities. The appeals were dismissed, confirming the orders of the authorities below. The Tribunal's decision was supported by the principles laid down by the Supreme Court and the interpretation of Section 43B in light of its legislative intent to ensure actual payment of taxes and duties for deductions.