First proviso to section 43B remedial and retrospective April 1984; timely paid sales tax deductible for AYs 1984-85 to 1987-88

The HC held that the first proviso to section 43B is remedial, curative and declaratory and therefore relates back to April 1, 1984; consequently an assessee who discharged the sales-tax liability for the last quarter by actual payment on or before the due date for filing the return is entitled to deduct that liability for AYs 1984-85 to 1987-88. The proviso is not to be treated as effective only from April 1, 1988; treating it retrospectively avoids absurdity and undue hardship to taxpayers and does not cause loss to the Revenue, decision for assessee.

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Issues Involved:
1. Whether the sales tax liability for the last quarter is allowable as a deduction if paid before the due date for filing the return u/s 139(1) for assessment years 1984-85 to 1987-88.

Summary:

Issue 1: Allowability of Sales Tax Liability as Deduction
The Income-tax Appellate Tribunal referred the question of whether the sales tax liability for the last quarter is allowable as a deduction if paid before the due date for filing the return u/s 139(1) for assessment years 1984-85 to 1987-88. The Tribunal held that such liability is deductible provided it is paid before the due date for filing the return. The Tribunal rejected the Revenue's contention that the proviso to section 43B should not be given retrospective effect, citing consistent views from the Ahmedabad Bench and other High Courts.

Legal Provisions and Interpretations:
Section 43B of the Income-tax Act, 1961, mandates that deductions for statutory liabilities like tax, duty, cess, or fee are allowed only in the year they are actually paid. The first proviso to section 43B, inserted by the Finance Act, 1987, mitigates the hardship by allowing deductions if the liability is discharged by actual payment before the due date for filing the return u/s 139(1). Explanation 2, inserted by the Finance Act, 1989, clarifies that "any sum payable" means a sum for which the liability is incurred in the previous year, even if not payable within that year.

Contentions of the Parties:
The Revenue argued that the first proviso should not be given retrospective effect as it was explicitly stated to be effective from April 1, 1988. They contended that the proviso is substantive and not merely explanatory or declaratory. The assessee argued that the proviso is remedial and curative, intended to correct an inadvertent omission, and should be applied retrospectively from April 1, 1984, to avoid absurd and unjust results.

Court's Analysis and Conclusion:
The court examined the object and purpose of section 43B and the proviso, noting that the proviso was introduced to remove the hardship caused by the original section, which made it practically impossible to pay the sales tax for the last quarter within the previous year. The court held that the proviso is remedial and curative, intended to correct an inadvertent omission, and should be applied retrospectively from April 1, 1984. This interpretation aligns with the legislative intent and avoids absurd results, ensuring that taxpayers who discharge their liabilities within the prescribed time are not unfairly disadvantaged.

The court concluded that the first proviso to section 43B is retrospective and applies from the date section 43B came into operation, i.e., April 1, 1984. The question was answered in the affirmative, in favor of the assessee and against the Revenue. The reference was disposed of with no order as to costs.

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