2007 (9) TMI 364 - HC - Income Tax

Business Expenditure- Whether on the facts and in the circumstances of the case, the Tribunal was justified in law to hold that deduction claimed by the assessee towards unpaid liability of sales tax at Rs. 49,697 were allowable deduction under section 43B of the Income-tax Act ? held that- the provisions envisaged under section 43B are clarificatory and retrospective. Since the amount was paid within the permissible date as per the explanation to section 43B, the view taken by the tribunal.

Issues Involved:
1. Justifiability of deduction claimed by the assessee towards unpaid liability of sales tax under section 43B of the Income-tax Act.
2. The applicability and interpretation of section 43B, including its provisos and amendments.
3. The impact of judicial precedents on the interpretation of section 43B.
4. The relevance of the tax impact in the context of litigation policy by the Central Board of Direct Taxes (CBDT).

Detailed Analysis:

1. Justifiability of Deduction Claimed by the Assessee Towards Unpaid Liability of Sales Tax:
The primary issue revolves around whether the Tribunal was justified in allowing the deduction claimed by the assessee for unpaid sales tax liability amounting to Rs. 49,697 under section 43B of the Income-tax Act. The Tribunal had initially allowed the deduction, but the Commissioner of Income-tax (Appeals) and the Assessing Officer had disallowed it, leading to a series of appeals.

2. The Applicability and Interpretation of Section 43B:
Section 43B, inserted by the Finance Act, 1983, mandates that certain deductions are allowable only in the year in which the sum is actually paid by the assessee. The relevant part of section 43B states:
"43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-(a) any sum payable by the assessee by way of tax, duty, cess or fee...shall be allowed only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him."
The proviso added by the Finance Act, 1987, allows deductions if the payment is made before the due date for filing the return of income under section 139(1).

3. The Impact of Judicial Precedents on the Interpretation of Section 43B:
The Tribunal relied on decisions from the Calcutta High Court in CIT v. Sri Jagannath Steel Corporation and the Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India. These judgments interpreted section 43B as being retrospective in operation and clarificatory, allowing deductions for payments made before the due date for filing returns, even if made after the accounting period. The Tribunal followed this judicial opinion, which was challenged by the Revenue citing Supreme Court decisions in Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murray and Co. P. Ltd. v. CIT, which held that collected but unpaid sales tax forms part of business receipts and is taxable.

4. The Relevance of the Tax Impact in the Context of Litigation Policy by the CBDT:
The court also considered the tax impact, which was Rs. 15,508. Referring to the CBDT circular aimed at reducing litigation for cases with low tax impact, the court noted the policy decision to not pursue such cases. The Division Bench of the Bombay High Court in CIT v. Pithwa Engineering Works and the Madhya Pradesh High Court in CIT v. Shri Rameshchand Rathore had previously underscored this policy.

Conclusion:
The court concluded that the Tribunal's view, supported by judicial precedents from the Calcutta and Patna High Courts, was correct. The proviso to section 43B, being clarificatory and retroactive, allowed the deduction as the payment was made within the permissible date. Additionally, the low tax impact further justified not pursuing the case. Therefore, the reference was answered in the affirmative, in favor of the assessee and against the Revenue.

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