1998 (11) TMI 123 - HC - Income Tax

High Court affirms interpretation of Income-tax Act, rules in favor of assessee on sales tax disallowance

Commissioner Of Income-Tax Versus Pragati Metal Corporation

The High Court held that section 43B of the Income-tax Act was correctly interpreted by the Tribunal in a case concerning the disallowance of sales tax ... Duty, Cess, Actual Payment Issues involved: Interpretation of section 43B of the Income-tax Act, 1961 regarding the disallowance of sales tax paid after the close of the accounting year.Analysis:The case involved the interpretation of section 43B of the Income-tax Act, 1961, regarding the disallowance of sales tax paid after the close of the accounting year. The assessee-firm's liability to pay sales tax arose in the assessment year 1984-85, but the amount was paid within 30 days after the close of the accounting year as permitted by the Sales Tax Act and claimed as a deduction in the assessment year 1985-86. The Income-tax Officer disallowed the deduction under section 43B, which was confirmed by the Appellate Assistant Commissioner. The Tribunal, relying on a previous case, held that section 43B was not applicable, and the deduction claimed was wrongly disallowed.The central question before the High Court was whether the Tribunal correctly construed section 43B in this case. Section 43B mandates that deductions for sums payable by the assessee, including taxes, shall only be allowed when actually paid, irrespective of the year in which the liability was incurred. The first proviso, added in 1988, allows for payment in the next accounting year if made before the due date for filing income tax returns. The Tribunal's decision was based on the fact that the assessee had paid the tax within the prescribed time, even though the liability arose in the previous accounting year.The High Court, in its analysis, noted that the first proviso to section 43B, which came into force in 1988, was not applicable to the case. However, even if such a plea was raised, it was covered by a Supreme Court judgment that gave retrospective effect to the proviso to remedy unintended consequences and make section 43B workable. Therefore, the High Court held that the Tribunal correctly interpreted section 43B and deemed it inapplicable to the case as the assessee had paid the sales tax within the prescribed time under the statute, albeit after the close of the assessment year for which the liability arose. The reference was answered against the Revenue, affirming the Tribunal's decision.