Retrospective proviso to section 43B allows AY 1984-85 tax and PF deductions paid by statutory due dates

HC held that the proviso to section 43B, inserted by the Finance Act, 1987 with effect from 1-4-1988, operates retrospectively and applies to assessment year 1984-85. Interpreting section 43B literally to require tax, provident fund and similar liabilities to be paid within the same financial year would demand an impossibility and render the provision unconstitutional; such result is avoided by giving effect to the later proviso. Explanation 2 to section 43B does not override the proviso. The assessee-firm is entitled to deduction of sales tax (including additional and Central sales tax) and provident fund/family pension contributions if actually paid before the respective statutory due dates, subject to verification from its accounts.

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Issues Involved:
1. Constitutionality of Section 43B of the Income-tax Act, 1961.
2. Retrospective application of the proviso to Section 43B inserted by the Finance Act, 1987.
3. Interpretation of the term "actually paid" in Section 43B.

Summary:

Constitutionality of Section 43B:
Dr. Pal, representing the petitioner, initially contended that Section 43B of the Income-tax Act is ultra vires the Constitution. However, he did not press this argument further, referencing the decisions in *Mysore Kirloskar Ltd. v. Union of India* [1986] 160 ITR 50 (Kar) and *Srikakollu Subba Rao and Co. v. Union of India* [1988] 173 ITR 708 (AP), which upheld the constitutionality of Section 43B.

Retrospective Application of the Proviso:
The core issue was whether the proviso to Section 43B, inserted by the Finance Act, 1987, effective from April 1, 1988, applies retrospectively to the assessment year 1984-85. Dr. Pal argued that Section 43B should be interpreted to allow deductions for statutory dues paid within a reasonable time after the accounting year, aligning with the Finance Minister's statement in Parliament. Mr. Debi Prasad, representing the Central Government, countered that the proviso cannot be applied retrospectively as it came into force on April 1, 1988.

Interpretation of "Actually Paid":
The court examined the literal interpretation of Section 43B, which mandates that deductions for statutory dues like sales tax and provident fund contributions are allowable only if actually paid during the relevant accounting year. The petitioner argued that this interpretation was impractical, as statutory dues for the last quarter of the accounting year could not be paid within that year. The court noted that the provisos to Section 43B, inserted by the Finance Act, 1987, and amended by the Finance Act, 1989, clarified that deductions could be claimed if dues were paid by the due date for filing the return of income u/s 139(1).

The court concluded that the provisos to Section 43B should be construed as retrospective, as they were explanatory and intended to clarify the original provision. This interpretation aligns with the legislative intent to provide relief to assessees who are not unscrupulous dealers.

Conclusion:
The court held that the petitioner was entitled to claim deductions for Bihar sales tax, additional sales tax, and Central sales tax if paid on or before the due date for filing the return of income u/s 139(1). Similarly, deductions for provident fund and family pension scheme contributions were allowable if paid on or before the due date defined in the Explanation below clause (va) of sub-section (1) of section 36. The matter was remitted to the Assessing Officer for fresh assessment in light of this judgment. The application was allowed, and there was no order as to costs.

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