1991 (1) TMI 105 - HC - Income Tax

High Court interpretation: Sales tax deduction allowed only on actual payment.

Escorts Limited Versus Union Of India And Others (and Other Writ Petitions)

The High Court upheld the validity of a notice issued under section 154 of the Income-tax Act seeking to withdraw a deduction allowed under section 43B ... Business Expenditure, Sales Tax, Special Provision Restricting Allowance Issues involved: Challenge to notice issued u/s 154 of the Income-tax Act seeking to withdraw deduction allowed u/s 43B.Summary:The petitioner appealed before the Commissioner of Income-tax (Appeals) for the assessment year 1985-86, arguing against the inclusion of amounts collected as sales tax in its income. The Commissioner allowed the deduction under section 43B based on a decision of the Andhra Pradesh High Court. Subsequently, a notice u/s 154 was issued to withdraw this deduction after an amendment to the Income-tax Act. The petitioner argued that different interpretations of section 43B exist, citing a decision of the Patna High Court.In a separate case, the High Court interpreted section 43B as requiring the deduction for sales tax only when the payment is actually made, not when the liability is incurred. The Court disagreed with the Patna High Court's interpretation, emphasizing that clear language in the statute should guide interpretation, not subjective views on harshness. The Court also rejected the retrospective application of the proviso and upheld the validity of Explanation 2 under section 43B.The Court found the notice u/s 154 valid, stating that any ambiguity in interpretation was resolved by the insertion of Explanation 2. The petitioner was advised to address concerns within the tax authority rather than through constitutional proceedings. Ultimately, the petition was dismissed based on the above reasoning.