2006 (3) TMI 262 - AT - Income Tax

Payment towards contribution to Provident Fund before the due date - Whether amendment in proviso to section 43B by Finance Act, 2003 could be construed to be curative, as such retrospective in nature? - HELD THAT - As per the prescription of section 43B of the Act, deduction for statutory payments pertaining to labour, taxes etc. are to be allowed as deductions, if they are actually paid during the financial year. However, to mitigate the unintended hardship it is stipulated in the proviso that taxes are deemed to have been paid during the B financial year even if they are paid by the due date of filing of return. In the case of statutory payment relating to labour, it was sine qua non to make the payment anytime before the last date for payment of labour-related liability. It was represented before the Government that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes etc. The deduction if denied in a year could not be claimed in subsequent year. On account of various reasons like postal delay, strikes or long holidays, the payment of employer's contributions to the respective authorities at times delayed even though the payment tendered before the due date. Having regard to this unintended hardship, by the Finance Act, 2003 in the first proviso of section 43B, the words, brackets and letters referred to in clause (c) or clause (d) or clause (e) or clause (f) have been omitted and second proviso was also omitted. Legislature removed the differentiation between employee welfare payments and others. Uniform criteria was prescribed for the allowability of the claim. The amendment was made to eliminate unintended consequences that caused undue hardship to the taxpayers. Therefore, amendment in proviso to section 43B by Finance Act, 2003 was curative in nature. Accordingly, it should be applied retrospectively. As regards the intervener, we have not examined the facts of the case. The regular Bench while deciding these appeals may keep in view the principles laid down in this case. In the result, appeal of the assessee stands allowed.

Issues Involved:

1. Whether the amendment in the proviso to section 43B by the Finance Act, 2003 could be construed to be curative, and thus retrospective in nature.

Issue-wise Detailed Analysis:

1. Retrospective Nature of Amendment in Section 43B by Finance Act, 2003:

The core issue before the Tribunal was whether the amendment to the proviso of section 43B by the Finance Act, 2003, which allowed for the deduction of contributions to Provident Fund if paid before the due date for filing the return of income, could be considered retrospective.

The Tribunal noted that the question of whether a statutory provision is retrospective depends primarily on the language of the statute and its purpose. The Tribunal examined the legislative intent and the purpose behind the enactment of section 43B and its amendments over the years.

Historical Context and Legislative Intent:

Section 43B was introduced by the Finance Act, 1983, to curb the practice of taxpayers claiming deductions for statutory liabilities on an accrual basis without actually discharging these liabilities. The section mandated that such deductions would only be allowed in the year of actual payment.

Subsequent amendments, including the addition of provisos by the Finance Act, 1987, and later amendments, aimed to address the practical difficulties and unintended hardships faced by taxpayers. Notably, the first proviso allowed deductions for taxes and duties paid before the due date for filing the return of income, while the second proviso imposed stricter conditions for contributions to employee welfare funds.

Amendment by Finance Act, 2003:

The Finance Act, 2003, further amended section 43B by omitting the second proviso and modifying the first proviso. This amendment aimed to remove the differential treatment between various types of statutory payments and to provide uniform criteria for their deductibility.

Judicial Interpretation and Precedents:

The Tribunal referred to the Supreme Court's decision in Allied Motors (P.) Ltd. v. CIT, which held that a proviso intended to remedy unintended consequences and make the provision workable should be treated as retrospective. The Tribunal applied this reasoning to the 2003 amendment, concluding that it was curative in nature and intended to eliminate undue hardship.

Analysis of Contemporaneous Exposition:

The Tribunal also considered the contemporaneous exposition, including the Finance Minister's Budget Speech and the Kelkar Committee's recommendations, which supported the view that the amendment was intended to simplify tax administration and reduce procedural complexities.

Conclusion:

The Tribunal concluded that the amendment to the proviso of section 43B by the Finance Act, 2003, was curative and should be applied retrospectively. This interpretation aligned with the legislative intent to provide relief to taxpayers and ensure that statutory liabilities are deductible when actually paid.

Impact on the Case at Hand:

The Tribunal held that the assessee's payment of contributions to the Provident Fund, made before the due date for filing the return of income, should be allowed as a deduction. The appeal of the assessee was allowed, and the principles laid down in this judgment were to be considered by the regular Bench in deciding similar cases.

Final Judgment:

The Tribunal allowed the appeal of the assessee, confirming that the amendment to section 43B by the Finance Act, 2003, was retrospective and curative in nature.

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