Statutory set-off as deemed payment under section 43B allows deduction of adjusted sales tax liability.

Sales tax liability adjusted under the Bombay Sales Tax Rules was treated as deemed payment for deduction under section 43B of the Income-tax Act, because the set-off mechanism in rules 41D and 45(3) legally operated as discharge of the admitted tax liability. The absence of cash outflow did not defeat deduction where the statutory scheme itself recognised the adjustment as payment. The objection based on double deduction was rejected, as the set-off reflected the incentive structure of the sales tax rules rather than a second claim. The amount adjusted was therefore deductible under section 43B.

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Issues: Whether sales tax liability adjusted or set off under the Bombay Sales Tax Rules could be treated as payment for deduction under section 43B of the Income-tax Act, 1961.

Analysis: Section 43B allows deduction of tax, duty, cess or fee only on actual payment, but the statutory scheme in rule 41D and rule 45(3) of the Bombay Sales Tax Rules, 1959 creates an entitlement to adjust the sales tax payable against the corresponding amount by way of set-off in the return itself. The adjustment operates as a legal fiction of payment and functions like a deemed discharge of the liability. As the amount was an admitted tax liability and was validly adjusted under the sales tax scheme, the benefit could not be denied merely because no cash outflow occurred. The contention of double deduction was rejected because the adjustment itself represented the statutory incentive mechanism and not a second deduction.

Conclusion: The amount adjusted under the Bombay Sales Tax Rules constituted deemed payment and was deductible under section 43B. The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: A statutory set-off or adjustment that legally operates as deemed payment of a tax liability satisfies the requirement of actual payment under section 43B of the Income-tax Act, 1961.

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