1990 (11) TMI 91 - HC - Income Tax

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 ... Interpretation of statutes - Scope of term 'actually paid' in Section 43B - partnership firm - maintaining mercantile system of accounting - Whether the proviso to section 43B of the Income-tax Act, 1961 ('Act'), inserted by the Finance Act, 1987, with effect from April 1, 1988, shall apply to an assessment proceeding in respect of the assessment year 1984-85 ? - HELD THAT:- If we interpret section 43B as inserted by the Finance Bill, 1983, to mean that deduction could be claimed only if payment of sales tax, provident fund, etc., was made in fact during the financial year of the assessee, we will require the assessee to do an impossibility, for, in this case, the petitioner could not have cleared its tax, provident fund, etc., liability for the financial year January to December, 1983, in December, 1983 itself. If it is to be literally interpreted, it must be struck down as it provides for doing an impossible act. But it can be upheld by holding that an assessee, like the petitioner, for the assessment year 1984-85 was entitled to have the benefit of the provisos introduced subsequent to 1984-85. Upon a contextual interpretation of statutes, the proviso to section 43B of the Act should be construed as retrospective in its operation and Explanation 2 thereto should be held to be subject to the said proviso. Explanation 2 appended to section 43B of the Act does not control the proviso thereto. Such a construction will not only be in consonance with the rule of harmonious construction but shall advance the object and purport of insertion of the said proviso by the Finance Act, 1987. In Srikakollu Subba Rao and Co. [1988 (3) TMI 46 - ANDHRA PRADESH HIGH COURT], the original section 43B inserted by the Finance Act, 1983, was interpreted. It was held in that case that not only should the liability to pay the tax or duty be incurred in the accounting year, but the amount also should be statutorily payable in the accounting year under the relevant Sales Tax Act and other relevant Acts. Parliament took notice of such interpretation and introduced Explanation 2 which has been quoted above with effect from April, 1984, to nullify such an interpretation.. It is, therefore, held that the petitioner was entitled to claim deduction of such sum on account of Bihar sales tax, additional sales tax and Central sales tax, if actually paid by it on or before the due date applicable to it for furnishing its return of income under sub-section (1) of section 139. With regard to the amount on account of provident fund and family pension scheme, if it was paid on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, the petitioner shall be entitled to claim deduction of the same. Keeping in view the interpretation that we have put on section 43B, for the purpose of allowing the claim of deduction made by the petitioner as sales tax, additional sales tax, Central sales tax, provident fund and family pension scheme, the assessment year of which was 1984-85, the factual position shall have to be ascertained from the books of account of the petitioner. 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.