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TMI Blog1997 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the relevant sales tax law is to be disallowed under section 43B of the Income-tax Act, 1961, while computing the business income of the said previous year ? " The relevant assessment year is 1984-85, the relevant accounting period during the year ending on June 30, 1983. The assessee filed the return declaring an income of Rs. 1,91,940. The Income-tax Officer, however, disallowed, inter alia, deduction claimed by the assessee of an amount of Rs. 5,78,240 which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. This amount was payable within 30 days of the end of the quarter. The deduction which was claimed by the assessee was disallowed by the Income-tax Officer under section 43B of the Income-tax Act, 1961, which was inserted in the statute with effect from April 1, 1984. The assessee filed an appeal before the Commissioner of Income-tax (Appeals), inter alia, in respect of this disallowance. However, the appeal was dismissed. The assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal also dismissed the appeal on the basis of the judgments of the Delhi High Court in the case of Sanghi Moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective effect from April 1, 1984. In these references and appeals we are concerned with the application of section 43B as it stood before the provisos were added. Prior to the insertion of section 43B in the Income-tax Act, 1961, income chargeable under the head " Profits and gains " of business or profession was computable in accordance with the method of accounting regularly employed by the assessee as per section 145 of the Income-tax Act, 1961. An assessee who had adopted the mercantile system of accounting would be entitled to account for his income and expenditure on the basis of accrual and not on the basis of actual receipt or disbursement. After the insertion of section 43B, however, even if the assessee had regularly adopted the mercantile system of accounting, the amount of tax payable by the assessee could be deducted only in the year in which the sum was actually paid and not in the year in which the assessee incurred the liability to pay that tax. Hence, an assessee (as in the present case), who had collected sales tax in the last quarter of the previous accounting year and deposited it in the treasury within the statutory period falling in the next accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other, undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any provident fund, or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him. The Budget Speech of the Finance Minister for the year 1983-84, is to the same effect. Section 43B was, therefore, clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this misc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia, as follows :--- " 24. Under the existing provisions of section 43B of the Income-tax Act, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a statutory liability which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duly, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date for furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within that previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. Certain courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 43B of the Income-tax Act, 1961, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a ' statutory liability ' which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within the previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. 15.2. Certain courts have interpreted the provisions of section 43B in a manner which may negate the very operation of this section. The interpretation given by these courts revolves around t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration, so that a reasonable interpretation can be given to the section as a whole. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7, the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70. It has held the amendment inserting first p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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