COMMISSIONER OF INCOME-TAX VS PRAGATI METAL CORPORATION, 2000 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 2211 (1998)

Income-tax---

----Business expenditure---Tax duty, cess or fee---Deduction only on actual payment---Sums paid after accounting year but before due date for submission of return---Deductible---Sales tax paid within time prescribed by statute though after close of accounting year for which liability arose-- Deductible---Indian Income Tax Act, 1961, S.43-B.

Section 43-B of the Income Tax Act, 1961, as it originally stood provided for deduction of the tax payable by the assessee only in the year in which it was actually paid and not in the year in which the assessee incurred the liability to pay such tax. It did not envisage a situation where the liability to pay tax arose in the previous year but the payment was allowed to be made by the statute within a prescribed time in the subsequent year also. To overcome this; the first proviso was added to section 43-B which provided' that it will not apply 'in relation to any sum which is actually paid by the assessee in the next accounting year, if it is paid on or before the due date for furnishing the. return of income in respect of the previous year in which the liability to pay such sum was incurred and evidence of such payment is furnished by the assessee alongwith the return.

Held, that the Tribunal was right in holding that section 43-B was not applicable to the case of the assessee as he had paid the sales tax within the time prescribed by the statute though after the close of the accounting year for which the liability arose.

Allied Motors (P.) Ltd. v. CIT (1997) 224 ITR 677 (SC) fol.

Srikakollu Subba Rao & Co. v. Union of India (1988) 173 ITR 708 (AP) ref

V.K. Jain for the Commissioner

Maheshwari for the Assessee

JUDGMENT

B.A. KHAN, J.---The Income-tax Appellate Tribunal has referred the following question for our opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal correctly construed section 43-B of the Income Tax Act; 1961, that when under the provisions of the relevant statute the sales tax though fallen due in the accounting year but was payable after the close of the accounting year it was not open to the Income-tax Officer to disallow the tax so payable and actually paid within the time allowed?"

The assessee-firm's liability to pay sales tax of Rs.10,191 arose in the assessment year 1984-85. But the firm paid the, amount within 30 days after the close of the accounting year as permitted by the Sales Tax Act and claimed deduction in the assessment year 1985-86. This was -disallowed by the Income-tax Officer on the strength of section 43-B of the Act and was confirmed by the Appellate Assistant Commissioner in appeal also.

The assessee thereafter, took appeal before the Tribunal which relying upon Srikakollu Subba Rao & Co. v. Union of India (1988) 173 ITR 708 (AP), held that section 43-B was not applicable and that the deduction claimed was wrongly disallowed.

The Revenue then sought reference and that is how we are seized of the matter. Though the issue stands squarely covered by the judgment of the Supreme Court in Allied Motors (P.) Ltd. v. CIT (1997) 224 ITR 677, yet we deemed it appropriate to clarify the position briefly to eliminate scope for any future misconception. .

Section 43-B which is material for our purpose reads, thus:

"43-B. Certain deductions to be only on actual payment.-- 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, by whatever name called, under any law for the time being in force, or ....

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 section 28 of that previous year in which such sum is actually paid by him:

Provided that nothing contained in this section shall apply in relation in 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:

Provided further

Explanation 1.--- ..

Explanation 2.---For the purpose 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. "

Section 43-B was inserted from April 1, 1984, and at that time it did not contain the two provisos. The first proviso was added by the Finance Act of 1987 which came into force from April 1, 1988. Explanation 2 was subsequently added by the Finance Act of 1989 but retrospectively from April 1, 1984.

Section 43-B as it originally stood provided for deduction of the tax payable by the assessee only in the year in which it was actually paid and not in the year in which the assessee incurred the liability to pay such tax. It did not take into regard a situation where the liability to pay the tax arose in the previous year but the payment was allowed to be made by the statute within a prescribed time in the subsequent year also. To overcome this, the first proviso was added to section 43-B which provided that it will not apply in relation to any sum which is actually paid by the assessee in the next accounting year, if it is paid on or before the due date for furnishing the return of income in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee alongwith the return.

Having regard to this, the Tribunal was justified in holding that section 43-B was not applicable because the assessee had actually paid the tax within- the time prescribed by the statute though the liability arose in the previous accounting year.

It is not in dispute before us that the first proviso to the section which came into force from April 1, 1988, was not attracted to the case. But even if any such plea was raised, it stands covered by the Supreme Court judgment (supra) which has given. deeming retrospective effect to the first proviso on the ground that it was inserted to remedy unintended consequences and to make section 43-B workable.

Thus, we answer the reference against the Revenue by holding that the Income-tax Appellate Tribunal had correctly construed and interpreted the provisions of section 43-B and had rightly held 'it inapplicable to the case as the assessee had paid the sales tax within the prescribed time under the statute though after the close of the assessment year for which the liability arose.

M.B.A./4083/FCReference answered