1989 (9) TMI 155 - AT - Income Tax

Issues Involved:
1. Collection of sales-tax and additional sales-tax by the assessee and the timing of payments.
2. Allowability of deductions for sales-tax and additional sales-tax under Section 43B of the Income Tax Act, 1961.
3. Interpretation of Section 43B, its proviso, and Explanation.
4. Retrospective application of Explanation 2 to Section 43B.

Issue-wise Detailed Analysis:

1. Collection of Sales-tax and Additional Sales-tax by the Assessee and the Timing of Payments:
The primary issue revolves around the collection of sales-tax and additional sales-tax by the assessee from their customers during the relevant accounting periods and the subsequent timing of payments. The assessees claimed deductions for these payments on the grounds that the collections were credited to a separate account and shown as a liability in the balance sheet, although not debited to the profit & loss account.

2. Allowability of Deductions for Sales-tax and Additional Sales-tax under Section 43B of the Income Tax Act, 1961:
The Income-tax Officers (ITOs) rejected the assessees' claims for deductions, arguing that the collections made during the accounting period but not paid to the State Government during the same period were not allowable as deductions. They cited the Supreme Court case of Chowringhee Sales Bureau P. Ltd. vs. CIT, which held that such collections formed part of the trading receipts. Additionally, the ITOs stated that the claims were hit by Section 43B of the IT Act, 1961, which mandates that certain deductions are only allowable on an actual payment basis.

3. Interpretation of Section 43B, its Proviso, and Explanation:
The AAC disagreed with the ITOs, holding that the collection of sales-tax and additional sales-tax paid within the prescribed time limit under the Orissa Sales-tax Act did not become a trading receipt and was not subject to Section 43B. The Revenue challenged this view before the Tribunal. The Tribunal needed to consider whether the AAC's view was correct in light of the recent amendments to Section 43B introduced on 1st April 1984.

Shri A.K. Roy, representing the assessees, argued that Section 43B does not override its proviso and that the proviso clarifies the main section. He contended that the liability of the assessee exists regardless of actual payment and that the legislative intention should be interpreted accordingly. Roy cited various judgments, including H.E.H. Nizam's Religious Endowment Trust vs. CIT, to support his arguments. He also emphasized that the Explanation to Section 43B should be considered along with the proviso and the main enactment.

The Departmental Representative, Shri S.C. Kanungo, countered that the mischief of Section 43B is not taken away by the proviso and that the Explanation was not considered in the Hyderabad Bench's decision in Nageswara Rice Working Co. vs. ITO. He argued that Section 43B was inserted to discourage tax evasion and that amendments to the section over the years have reinforced this intent.

4. Retrospective Application of Explanation 2 to Section 43B:
Explanation 2, inserted by the Finance Act, 1989 with retrospective effect from the assessment year 1984-85, defines 'any sum payable' and extends the scope of 'sums payable' to include amounts that have not become payable under relevant law. This Explanation nullified earlier liberal interpretations by the Tribunal and the Andhra Pradesh High Court for the assessment years 1984-85 to 1987-88.

The Tribunal concluded that Section 43B, enacted from 1st April 1984, prohibited the allowance of any tax on an accrual basis, allowing deductions only on a payment basis. The main section and the Explanation applied from 1st April 1984, while the proviso applied from 1st April 1988. Therefore, for the assessment years 1984-85 to 1987-88, sales-tax was not deductible even if paid within the permitted time under the relevant law, due to Explanation 2.

Judgment:
The Tribunal held that the Revenue's appeals succeeded, and the assessees' claims were disallowed. The Tribunal emphasized that the plain meaning of Section 43B, as amended, indicated that payments made after the accounting period were not allowable. The appeals by the Revenue were allowed, and the appeals by the assessees were dismissed. The Tribunal referenced the decision in the case of M/s. Kelvinator of India Ltd. vs. IAC to support its conclusion.

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