Deemed payment of deferred sales tax allows deduction under section 43B where State law creates a loan-conversion fiction.

Deferred sales tax under an approved State deferment scheme was treated as deemed payment once the State amendment and circulars created a deeming fiction on conversion into loan. On that basis, section 43B of the Income-tax Act did not permit disallowance of the deduction, because the State law itself deemed the liability to have been paid for the relevant purpose. The court also noted supporting authority that unpaid sales tax covered by such a scheme is not hit by section 43B. The assessee's deduction was therefore allowable and the revenue's challenge failed.

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Issues: Whether sales tax deferred under the State deferment scheme was to be treated as deemed payment for the purpose of deduction under section 43B of the Income-tax Act, and whether the revenue could disallow the claim on the footing that the conversion into loan occurred later.

Analysis: The assessee had availed the deferment facility under the State sales-tax law. The relevant Board circulars and the State amendment introduced a deeming provision that treated the deferred tax, upon conversion into loan under the notified scheme, as having been paid for the purposes of section 43B. The Court relied on the statutory amendment and the prior view that where the State law creates such a deeming fiction, the bar in section 43B does not operate to deny deduction. It also noticed supportive authority holding that unpaid sales tax covered by such a scheme is not liable to disallowance under section 43B.

Conclusion: The deferred sales tax was rightly treated as deemed paid and was allowable as deduction under section 43B. The revenue's challenge failed.

Ratio Decidendi: Where the State sales-tax law, as amended, deems deferred tax to have been paid upon conversion into loan under an approved deferment scheme, the amount cannot be disallowed under section 43B of the Income-tax Act.

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