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TMI Blog2011 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.322.46 lacs actually paid by it during the previous year relevant to the assessment year 1996-97 and the Tribunal was justified in law in disallowing the deduction on the ground that liability for payment of the said amount was incurred not in the assessment year 1997-97 but in the subsequent assessment year "ii) Whether in interpreting the scope and manner of the explanation to Section 73 of the Act the statutory fiction introduced for treating the loss arising from the business of purchasing and selling of shares as loan from speculation business is confined are restricted only for the purpose of Section 73 of the Act and whether the said fiction which is specifically created for the particular purpose can be extended or applied to other provisions of the Act when the parliament itself in clear and unambiguous terms restricted the operation of the said explanation to Section 73? "iii) Whether in a case where the transaction arising from the business of purchasing and selling of shares does not come within the ambit and scope of Section 43(5) of the Act defining speculative transaction, the loss arising from the purchase and sale of shares can be treated as los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of excise duty but upheld the action of the Assessing Officer in respect of other points involved in the said appeal. e) Being dissatisfied, the appellant preferred an appeal before the Income-tax Appellate Tribunal against the other findings of the Commissioner of Income-tax (Appeals), while the Department preferred an appeal before the Tribunal against the allowance of deduction of excise duty in respect of Rs.322.46 lakh. f) By the order impugned herein the Tribunal below has dismissed the appeal preferred by the appellant and allowed the appeal preferred by the Revenue. Being dissatisfied, the appellant has come up with the present appeal. As indicated earlier, the appellant has restricted its claim on the point No.1 relating to deduction of Rs.322.46 lakh under Section 43B of the Act which was the subject-matter of the appeal preferred by the Revenue before the Tribunal. After going through the order impugned in this appeal, we find that the Tribunal held that there was no liability incurred by the assessee for payment of the excise duty in the Assessment Year 1996-97 and the said payment was made only as an advance payment to be adjuste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36 and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date. Explanation [1] : For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 2 : For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. Explanation 3 : Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred liability in the previous year for the payment even though such sum might not have been payable within that year under the relevant law. In the case before us, the assessee has undoubtedly paid the duty in the previous year and such payment was made consequent upon the liability incurred in that very year but in view of the fact that it follows the mercantile system of accounting, the amount is legally payable in the next year. Thus, the case clearly comes under the purview of Section 43B (a) of the Act read with Explanation 2 added thereto. The position would have been different if the amount was not paid in the previous year and in such a case the appellant would not have been eligible to get the benefit. The object of the legislature is to give the benefit of deduction of tax, duty, etc. only on payment of such amount liability of which the assessee had incurred and not otherwise. Thus, even if the tax or duty is payable in the next year in view of the system of accounting followed by the assessee, if the liability was ascertained in the previous year and the tax was also paid in the said previous year, there is no scope of depriving the assessee of such benefit. &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso some of the High Courts, in order to prevent undue hardship to the assessee, had taken, the view that Section 43-B would not be attracted unless the sum payable by the assessee by way of tax, duty, cess or fee was payable in the same accounting year. If the tax was payable in the next accounting year, Section 43-B would not be attracted. This was done in order to prevent any undue hardship to assessees such as the ones before us. The memorandum of reasons takes note of the combined effect of Section 43-B and the first proviso inserted by the Finance Act, 1987. After referring to the fact that the first proviso now removes the hardship caused to such tax payers it explains the insertion of Explanation 2 as being for the purpose of removing any ambiguity about the term 'any sum payable' under Clause (a) of Section 43-B. This Explanation is made retrospective. The Memorandum seems to proceed on the basis that Section 43-B read with the proviso takes care of the hardship situation and hence Explanation 2 can be inserted with retrospective effect to make clear the ambit of Section 43-B(a). Therefore, Section 43-B(a), the first proviso to Section 43-B and Explanation 2 have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the date by which such sum is statutorily payable....." The departmental understanding also appears to be that Section 43-B, the proviso and Explanation 2 have to be read together as expressing the true intention of Section 43-B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of Section 43-B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of Section 43-B. The proviso supplies an obvious omission. But for this proviso the ambit of Section 43-B becomes unduly wide bringing within its scope those payments which were not intended to be prohibited from the category of permissible deductions." Moreover, in the light of the purposive and objective interpretation of the said provision, and the mischief sought to be remedied through the insertion of the Explanation 2, it becomes abundantly clear that the said claim is allowable only in the year of payment. At this stage, it will be profitable to refer to the following observation of the Supreme Court in the case of K. P. Varghese vs. ITO, reported in AIR 1981 SC 1922 where it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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