Cash expenditure limits and deeming fictions: cash market fee payments were disallowed, while recovery-only tax fiction did not trigger section 43B.

Cash payment of market fees above the prescribed limit remained disallowable under section 40A(3) because the assessee paid in cash and failed to prove any accepted exception such as business exigency or lack of banking facilities; the disallowance was sustained. Interest payable to the Government of Haryana on arrears of purchase tax, though treated as tax for collection and recovery under section 59(2) of the Haryana Act, was not converted into tax under the Income-tax Act; the deeming fiction was confined to recovery and section 43B did not apply, so the amount was outside that disallowance provision.

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Issues: (i) whether cash payment of market fees exceeding the prescribed limit was disallowable under section 40A(3) of the Income-tax Act, 1961; (ii) whether interest payable to the Government of Haryana on arrears of purchase tax, treated as tax for collection and recovery under section 59(2) of the Haryana General Sales Tax Act, 1973, was hit by section 43B of the Income-tax Act, 1961.

Issue (i): whether cash payment of market fees exceeding the prescribed limit was disallowable under section 40A(3) of the Income-tax Act, 1961.

Analysis: Section 40A(3) disallows expenditure paid otherwise than by crossed cheque or bank draft when the prescribed monetary limit is exceeded, subject to exceptions where business exigency or lack of banking facilities is shown. The concurrent factual finding was that the assessee made the payment in cash and failed to establish any acceptable exception. The subsequent rejection of the market committee certificate as an afterthought also supported the factual basis of disallowance.

Conclusion: The payment was rightly held to be hit by section 40A(3) and the disallowance was sustained, against the assessee.

Issue (ii): whether interest payable to the Government of Haryana on arrears of purchase tax, treated as tax for collection and recovery under section 59(2) of the Haryana General Sales Tax Act, 1973, was hit by section 43B of the Income-tax Act, 1961.

Analysis: The deeming provision in section 59(2) treats interest as tax only for collection and recovery under the State Act. Such a statutory fiction does not convert the amount into tax under the Income-tax Act. Applying the principle that a deeming clause must be confined to its purpose, the interest remained a distinct liability and could not be brought within section 43B merely because it was deemed tax for recovery under the sales tax law.

Conclusion: The amount of interest was not taxable within section 43B and the issue was answered in favour of the assessee.

Final Conclusion: The reference was answered by sustaining the disallowance under section 40A(3), while holding that the impugned interest did not attract section 43B because the deemed-tax fiction under the State sales tax law was limited to recovery.

Ratio Decidendi: A statutory amount deemed to be tax only for collection and recovery under another enactment does not become tax under section 43B of the Income-tax Act, 1961, whereas cash expenditure above the prescribed limit remains disallowable under section 40A(3) absent a proved exception.

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