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TMI Blog1989 (2) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of tax or duty and the market cess was neither tax nor duty. He, therefore, accepted the assessee's contention to the extent of Rs. 3,258. However, with regard to the balance amount of Rs. 11,301 he expressed his opinion that the assessee cannot claim this deduction in appeal because he had already agreed to be assessed thereon. 3. It is against this finding that the assessee has come on appeal. Now it is quite clear in view of this Bench's decision in the case of ITO v. Sree Dhanalakshmi Rice Co. [1986] 19 ITD 601 that the market cess is neither tax nor duty and would not come under the purview of section 43B. That being so, the entire amount of Rs. 14,560 should have been allowed as business expenditure. The reason given by the Commissioner (Appeals) for not entertaining the assessee's appeal for deleting this amount is that the assessee had already added back the market cess in the return disclosing it as income and it would not be proper to take up the matter in appeal. Now the proposition that an amount agreed to be assessed cannot be agitated later in appeal has its limitations. Where certain facts have to be ascertained and on ascertaining the facts, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The assessee on further appeal had made three different pleas. The first plea made by him is what was already stated before the Commissioner (Appeals). As per this submission, the prohibition in section 43B would apply only when a tax or duty has already fallen due for payment within the accounting year and the assessee has not paid it. It, therefore, follows according to the assessee, that where the payment has not fallen due, the provisions of section 43B would not apply. The second submission is that any tax or duty payable and which is outstanding after 1-4-1984 would be hit by this section. In other words, where a provision for payment is made and the payment also is effected before 31-3-1984 it will not attract the provisions of section 43B. The third submission is that the provisions would be applicable only in respect of expenditure or liability claimed after 1-4-1984. In support of these propositions, the assessee had relied on certain authorities. 7. The first proposition which we consider is that the expression "any sum payable" found in section 43B would refer to a sum which has already fallen due for payment. It will not affect a liability where the payment has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language of the section, the assessee would not be entitled to get deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. The Legislature has also taken care by providing an Explanation that the assessee shall not be entitled to any deduction under s. 43B of the Act in respect of such sum in computing the income of the previous year in which such sum is clearly paid by him in case a deduction in respect of any such sum was allowed in the previous year. It is, therefore, clear that the assessee shall not be entitled to get the benefit twice i.e., at the time when the liability arises and also at the time when the actual payment is made In view of the specific language of the section that deduction of the amount as mentioned in clauses (a) and (b) of section 43B would be allowed in the previous year in which such sum is paid, there is no scope for any doubt that such sum can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee. " [Emphasis supplied] The above passage makes it clear that the emphasis in section 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Estate Duty Act. It was held that the word is to be understood in the context and in the light of the Chapter for which the provision has been made. They pointed out that the word "paid" must be taken to mean payable. Otherwise, it was observed an unsatisfactory state of affairs would result. 10. The object of introducing section 43B can be found out from the Finance Minister's speech as well as the notes on the clauses. . "Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employers' contribution to provident fund, Employees' State Insurance Scheme for long period of time. For the purpose of their Income-tax assessments, they nonetheless claim the liability as deduction even as they taken resort to legal action, thus depriving the Government of its dues while enjoying the benefit of nonpayment. To curb such practices I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid. This would result in a revenue gain of Rs. 100 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 14. The provisions of section 43B were inserted by the Finance Act, 1983 and it was given effect from 1-4-1984. It is on the statute book from 1-4-1984. The question is whether this provision which has come into the statute book on 1-4-1984 would be applicable to the assessment of 1984-85 irrespective of the date on which the impugned expenditure was incurred. The Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 had observed as follows : "It is well settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year." That being the settled position, it is quite clear that the law as it stood on 1st April, 1984 would be applicable for the asst. year 1984-85. It is immaterial when the expenditure was incurred by the assessee. What is to be seen is that what provision of law would be applicable to the asst. year. On that point, it is quite clear that the law as it stands on 1-4-1984 which includes section 43B would be applicable. This position as laid down by the Supreme Court cannot be altered merely because different assessees have different accounting years and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows and so long as the previous year followed by the assessee would be relevant for the assessment year, 1976-77, the provisions of section 40A(8) would apply to that particular assessee. We have already noted that the Legislature had given the assessees one year's notice by introducing the said provision in the Finance Act, 1975 though it was applicable for the assessment year 1976-77. Therefore, the submission of Sri Dastur that an assessee should be given adequate notice to arrange his affairs, though legally not correct, is still factually invalid because the Parliament did give one year's advance notice to the assessees to arrange their affairs. The Parliament has plenary powers to legislate prospectively as well as retrospectively and there is no limitation on the Parliament's power to direct from which date a particular fiscal provision would operate. It is true that in some cases the Parliament does specify a date from which date the said provision is to come into force. For example, under section 40A(3) in respect of disallowance of payment of Rs. 2,500 or more not paid by a crossed cheque, the Parliament did specify that payments made after 31-3-1969 would be hit by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x amounting to Rs. 13,000 I express my inability to agree with my learned Brother for the following reasons. 3. The assessment year involved is 1984-85 for which the previous year ended by 20-12-1983. Milling paddy and selling rice and other by-products is the business carried on by the assesses. The assessee is a partnership firm comprised of seven partners and admittedly the assessee made a provision of Rs. 13,000 liable to pay towards sales-tax. It was stated before us that the provision represents the liability to pay sales-tax in respect of the sales made in the last month of the accounting year and this sales-tax is due for payment only by 15-1-1984. It was claimed that since it was not fallen due in the accounting year the prohibition in s. 43B of I.T. Act will not be applicable. This contention was negatived by the income-tax Officer as well as CIT(A), Visakhapatnam. The correctness and the legality of this action on the part of the lower authorities is questioned before us in this assessee's appeal. 4. In CIT v. Isthmian Steamship Lines [1951] 20 ITR 572, the Supreme Court held that in, income-tax matters the law to be applied is the law in force in the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by way of tax or duty under any law for the time being in force, or (b) ... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him." Now in this case though the previous year ended on 20-12-1983 the sales tax was paid on 15-1-1984. Both 20-12-1983 and 15-1-1984 fall much prior to 1-4-1984 from which date only section 43B comes into operation. Section 43B is not a charging section. The consequences of the said section are penal inasmuch as it speaks of disallowance of provisions made towards tax or duty payable for which the liability was incurred or became payable. In my opinion, firstly, section 43B applies to the provisions made only on or from 1-4-1984 and it does not concern itself with either payments or provisions made prior to that date. This provision which deals with disallowance which is otherwise admissible should be strictly construed. Even assuming for a while that s. 43B would have to be applied as the subject matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows at pages 289-290 : 'It is well to bear in mind that in the Statement of Objects and Reasons introducing the Taxation Laws (Amendment) Bill, 1984, it has been specifically mentioned that the amendments introduced in the Bill are intended mainly to streamline procedure in the interest of better work management, avoid inconvenience to taxpayers, reduce litigation, remove certain anomalies in and rationalise some of the provisions of these enactments and counteract tax avoidance and tax evasion. We consider that the present amendment to s. 40(b) of the Act through Explanations 2 and 3 above referred to is to avoid inconvenience to taxpayers, reduce litigation and in that view, the spirit of Explanations 2 and 3 introduced by the Taxation Laws (Amendment) Bill, 1984, should be followed with respect to the preceding assessment years also in order to avoid unnecessary litigation. It cannot be gainsaid that the Legislature was fully aware of the conflict of judicial opinion in this matter among the various High Courts in the country, and the present amendment to section 40(b) through Explanations 2 and 3 following the decisions of some High Courts, is good only from the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amy Rice Mill v. ITO [IT Appeal No. 106 (Hyd.) of 1985 dated 22-9-1986] for assessment year 1984-85 I along with Sri G. Santhanam the learned Accountant Member held the following, while allowing a similar provision made by the assessee: "It is authoritatively held by the Hon'ble Supreme Court that the sales-tax liability arises as and when the sales took place and the assessee who follows the mercantile system of accounting is entitled to deduct from the profit and loss account of the business such liability (sales-tax) which had accrued during the period for which the profit and loss accounts are being computed. Now, we have to compute the profit and gains of the assessee-firm and while computing the profit and gains the sales-tax liability i.e. incurred by the assessee on the sales effected or paid during the relevant accounting year constitutes allowable deduction as per the abovesaid Supreme Court decision. Thus, the decision was not at all altered by s. 43B which came into effect only from 1-4-1984 and it does not apply prior to 1-4-1984. Incurring liability is one thing and payment of amounts in discharge of that liability is another. The date of payment does not have any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which had to be allowed as a deduction under sec. 37 of the Income-tax Act notwithstanding the provisions of section 43B. The Income-tax Officer as well as the Commissioner of Income-tax (Appeals) rejected this contention and disallowed the claim. 3. When the matter came in appeal before the Tribunal, the learned Members of the Tribunal who heard the appeal could not agree upon the conclusion. While the learned Accountant Member in a very detailed order held that the provisions of sec. 43B were clearly attracted and that the amount was not allowable as a deduction, the learned Judicial Member in an equally detailed order took the opposite view. That was how a difference of opinion arose between the Members which has been referred to the Third Member. The points of difference referred to the Third Member precisely are : 1. "Whether, on the facts and in the circumstances of the case, can the provisions of section 43B would be applicable to the sales-tax dues in respect of the accounting year ended 31-12-1983 and which fell for payment in January, 1984 ?" 2. "Can the amendment to section 43B by the Finance Act, 1987, be taken into account in interpreting the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee files monthly returns in A2 forms. Referring to rule 17 of the Andhra Pradesh Sales Tax Rules, 1957, which categorically provided that the tax in relation to the return shall be paid before the 25th of the succeeding month, the High Court held that not only should the liability to pay the tax or duty be incurred in the accounting year but the amount also should be statutorily payable in the accounting year and that the amount payable after 25 days did not, become payable within the accounting year. It is now an undisputed fact in this case that the sum in question was not statutorily required to be paid before the end of the accounting year but was payable only a little thereafter with the result that the amount did not statutorily become payable in the accounting year. Therefore, to the facts of this case the decision of the Andhra Pradesh High Court clearly applies and applying with respect the decision of the Andhra, Pradesh High Court, I hold that the view taken by the learned Judicial Member is the correct view although I am not discussing the other reasons advanced by him nor do I wish to go into the reasons advanced by the learned Accountant member so as to adjudge their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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