Section 43B clarificatory relief for statutory dues, while employee welfare contributions remain deductible only on timely payment.

Section 43B was treated as a payment-based restriction on deductions, but the first proviso was regarded as clarificatory and retrospective for statutory dues such as sales tax, turnover tax, purchase tax and municipal taxes, so deduction was available where payment was made within the time allowed under section 139(1). For employees' welfare contributions, including ESI and provident fund, the second proviso read with section 36(1)(va) and section 2(24)(x) required actual payment within the due date prescribed under the relevant fund law, so allowability depended strictly on timely discharge of the liability.

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Issues: (i) Whether the first proviso to section 43B of the Income-tax Act, 1961, inserted by the Finance Act, 1987, with effect from 1 April 1988, applied to assessment year 1984-85 in respect of sales tax, turnover tax, purchase tax and municipal taxes; (ii) whether the disallowance relating to employees' contribution liabilities, including ESI and provident fund, could be deleted under section 43B and the matter remitted for reconsideration.

Issue (i): Whether the first proviso to section 43B of the Income-tax Act, 1961, inserted by the Finance Act, 1987, with effect from 1 April 1988, applied to assessment year 1984-85 in respect of sales tax, turnover tax, purchase tax and municipal taxes.

Analysis: The amendment was treated as clarificatory and declaratory of the legislative intent. The object of section 43B was to prevent deduction of statutory liabilities remaining unpaid despite mercantile accounting, but the proviso was introduced to remove the hardship caused by the original provision. Where the statutory dues were actually discharged within the time allowed under section 139(1), the benefit of deduction could not be denied merely because the assessment year was earlier than 1988-89.

Conclusion: The first proviso to section 43B applied retrospectively, and the assessee was entitled to the benefit in respect of sales tax, turnover tax, purchase tax and municipal taxes if payment was made within the prescribed time.

Issue (ii): Whether the disallowance relating to employees' contribution liabilities, including ESI and provident fund, could be deleted under section 43B and the matter remitted for reconsideration.

Analysis: Contributions falling under clause (b) of section 43B were governed by the second proviso, read with section 36(1)(va) and section 2(24)(x). For these items, deduction was available only if actual payment was made within the due date prescribed under the relevant fund law, rule, order or notification. On that construction, the Tribunal was right in holding that the claim was allowable only if the liabilities were discharged within the statutory due date.

Conclusion: The disallowance issue was to be decided by applying the second proviso and the linked provisions governing employee welfare contributions, and the Tribunal's approach was upheld.

Final Conclusion: The reference was answered in favour of the assessee on the first issue, and the Tribunal's overall approach was sustained on the statutory payment-based allowability of the remaining items.

Ratio Decidendi: The provisos inserted into section 43B to remove hardship operate retrospectively as clarificatory amendments for statutory dues covered by the first proviso, but employee welfare contributions under clause (b) are deductible only on actual payment within the due date prescribed by the relevant law and the Income-tax Act.

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