Income-tax---

----Business expenditure---Deduction only on actual payment---Scope of S.43-B---Sales tax---Tribunal not considering whether payment was covered by proviso to S.43-B---Matter remanded---Indian Income Tax Act, 1961, S.43-B.

Section 43-B of the Income Tax Act, 1961, was interested by the Finance Act, 1983, with effect from 1st April, 1984. In respect of the items set out in the four clauses of the said section, it virtually supersedes the provisions of section 145 and provides that deduction shall be allowed only on the basis of actual payment, irrespective of the method of accounting adopted by the assessee. So, from the assessment year 1984-85, even in the case of an assessee who is following the mercantile system of accounting, a liability which accrued during the accounting period relevant to the assessment year in question is not liable to be deducted in the computation of the profits of the assessee unless the provisions of section 43-B of the Act are complied with. The first proviso to section 43-B added with effect from April 1, 1988, provides that nothing contained in section 43-B shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee alongwith such return:

Held. (i) that the assessment year involved was 1986-87. Therefore, the provisions of section 43-B of the Act were applicable;

(ii) that it was necessary that the contention, that the assessee had paid the sales tax liability which had been incurred during the previous year within the due date for payment of the same or at any rate, before the due date for filing the return under subsection (1) of section 139 of the Act, had to be considered.

Chief Commissioner (Administration) v. Sanjay Sales Syndicate (1992) 197 ITR 255 (Kar.); Chowringhee Sales Bureau (P.) Ltd. v. CIT (1973) 87 ITR 542 (SC); CIT v. Chandulal Venichand (199,4) 209 ITR 7 (Guj.) CIT v. Pyarilal Kasam Manji & Co. (1992) 198 ITR 110 (Orissa) and Jamshedpur Motor Accessories Stores v. Union of India (1991) 189 ITR 70 (Pat.) ref.

Premjit Nagendran, K.V. Narayanan end Sathish Moorthy for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

G. SIVARAJAN, J.---This is a reference at the instance of the assessee under section 256(1) 'of the Income Tax Act, 1961. The following three questions were referred to this Court for its decision:

"(1) Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the amount of sales tax remaining unpaid on March 31, 1986, could be disallowed under the provisions of section 43-B of the Income Tax Act?

(2)Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that sales tax collectible, being a part of the assessee's trading receipts, also forms part of the revenue account and liable to tax?

(3)Whether, the Tribunal was justified in holding that the Commissioner of Income-tax (Appeals) could not have adjudicated on the claim of the assessee, ignoring the amendment to section 43-B made with retrospective effect?"

The assessee is engaged in the business of manufacture and sale of T.V. sets, components, etc. The assessment year concerned is 1986-87, the relevant accounting period ended on March 31, 1986. In the accounts for the year 1986-87, the assessee made a provision for sales tax to the tune of Rs.9,34,174.56 representing the sales tax liability under the Kerala General 'Sales Talc Act, the Tamil Nadu General Sales Tax Act and the Bombay Sales Tax Act due for the month of March, 1986, and payable on or before April 20, 1986. According to the assessee, they had paid the said sum on or before the due date, i.e., April 20, 1986. The assessee had not credited the said sales tax collection to the trading account nor did they debit the said amount for tax liability. The assessing authority proposed to treat the said amount as a trading receipt and to disallow the claim for deduction of the said amount by applying the provisions of section 43-B of the Act. Notwithstanding the objections raised, the assessing authority completed that assessment as proposed.

Being aggrieved, the assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals)-I, Cochin, who, by his order, dated August 29, 1989, confirmed the said addition. The assessee took up the matter in second appeal before the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam. The Appellate Tribunal also confirmed the said addition. It is against this order of the Income-tax Appellate Tribunal that the assessee has sought reference of the three questions set out in paragraph 1 of the judgment.

Though three questions have been referred to this Court for its decision, question No.l alone requires to be considered. The third question, according to us, is a facet of question No.l itself and the second question is covered by the decision of the Supreme Court in Chowringhee Sales Bureau's case (1973) 87 ITR 542 and other decisions.

Coming to question No.l the question for consideration is whether the Tribunal is justified in holding that the amount of sales tax remaining unpaid on March 31, 1986, could be allowed under the provisions of section 43-B of the Income Tax Act, 1961. Section 43-B of the Income Tax Act, 1961, was inserted by the Finance Act, 1983, with effect from April 1, 1984. In respect of the items set out in the four clauses of the said section, it virtually supersedes the provisions of section 145 and provides that deduction shall be allowed only on the basis of actual payment, irrespective of the method of accounting adopted by the assessee. So, from the assessment year 1984-85, even in the case of an assessee, who is following the mercantile system of accounting, a liability which had accrued during the accounting period relevant to the assessment year in question is not liable to be deducted in the computation of the profits of the assessee unless the provisions -of section 43-B of the Act are complied with. As already stated, the assessment year with which we are concerned in this case is 1986-87. Therefore, the provisions of section 43-B of the Act are squarely applicable to the present case.

Though the assessee has taken so many contentions, the main contention pressed before us is that the sales tax liability relates to the period March, 1986, that the due date for payment of the said amount is only April 20, 1986, that the assessee had paid the said amount on or before the due date and, therefore, the first proviso to section 43-B of the Act entitles the assessee for deduction of the said amount in the computation of income liable to tax under the Income Tax Act. As a step in aid of the said submission, learned counsel for the assessee submitted that the first proviso to section 43-B is a procedural provision and, therefore, even though it has been given effect to only from April 1, 1988, it applies to all pending assessments and since the assessment was pending on the date of incorporation of the first proviso to section 43-B (the assessment was completed only on March 9, 1989, as could be seen from Annexure "A"), the said provision applied and, therefore, the assessee is entitled to deduction of the entire sum of Rs.9,34,174.56. The assessing authority has not considered the said contention of the assessee. But the first appellate authority, it is seen, has rejected the said contention of the assessee holding that the first proviso to section 43-B is not procedural in nature. The first proviso to section 43-B provides that nothing contained in section 43-B shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due (late applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

As already stated, the assessee's contention throughout is that they had paid the sales tax liability which has been incurred during the accounting period on or before the due date, i.e., April 20, 1986. So, if the first proviso to section 43-B is applicable, according to the assessee, the said amount cannot be disallowed in the computation of income for the purpose .of assessment. So also the assessee had contended that Explanation 2 to section 43-B introduced by the Finance Act, 1989, with effect from April 1, 1984, cannot be applied to the assessment year in question. Though the first appellate authority has considered both the contentions, it is seen that the Income-tax Appellate Tribunal did not consider the said contentions. What the Appellate Tribunal has said is that the Commissioner of Income-tax (Appeals) while considering the appeals filed by the assessee was bound to take note of the amendment made subsequently with retrospective effect and in the light of the said amendment, the assessing authority was justified in disallowing the sales tax collections in the assessment in question. The Appellate Tribunal has not considered the two contentions raised by the assessee mentioned supra independently, with reference to the facts and figures. The scope and applicability of the amendments effected by the Direct Tax Laws (Amendment) Act, 1987, the Finance Act, 1988, and Finance Act, 1989, have to be considered in the matter of computation of income in relation to the sales tax collections made during theaccounting period, but not paid within the said period. According to us, the contentions of the assessee with reference to the first proviso to section 43-B and Explanation 2 thereto have to be considered by the Tribunal with reference to the amendments mentioned hereinabove. For considering the said amendments, it is also necessary that the contention that the assessee had paid the sales tax liability which had been incurred during the previous year within the due date for payment of the same or at any rate, before the due date for filing the return under subsection (1) of section 139 of the Income Tax Act has to be considered. '

Learned counsel for the assessee submitted before us that the Gujarat High Court in CIT v. Chandulal Venichand (1994) 209 ITR 7, the Orissa High Court in CIT v. Pyarilal Kasam Manji & Co. (1992) 198 ITR 110, the Karnataka High Court in Chief Commissioner (Administration) v. Sanjay Sales Syndicate (1992) 197 ITR 225 and the Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India (1991) 189 ITR 70 have taken the view that the proviso to section 43-B of the Income Tax Act, 1961, incorporated by the Finance Act, 1987, with effect from April 1, 1988, relates back to the date when section 43-B came into operation, i.e. from April 1, 1984 and, therefore, the said proviso applied to the fats of the case. In view of the course which we are adopting, we do not think it necessary to express any opinion with reference to the submissions made on either side.

In these circumstances, we decline to answer the first question. We set aside the order of the Income-tax Appellate Tribunal, Cochin Bench, passed in I.T.A. No.643/(Coch) of 1989, dated March 16,1990, and direct the Tribunal to consider the matter afresh in the light of the above observations and in accordance with law.

A copy of this judgment under the seal of this Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal,

Cochin Bench.

M.B.A./1413/FC Order accordingly.