Section 43B applies to sales tax but not to levies payable after year-end or to market cess.

Section 43B of the Income-tax Act was upheld as constitutionally valid because its classification of statutory levies had a rational nexus with preventing retention of collected amounts, and it imposed only a reasonable restriction on business. The provision was held applicable to sales tax, but it could not be used to disallow sales tax or other levies that were statutorily payable only after the close of the relevant accounting year. Market cess was treated as neither tax nor duty for section 43B, so disallowance on non-payment was not sustainable.

---

---

Issues: (i) whether section 43B of the Income-tax Act, 1961 is unconstitutional as violative of articles 14 and 19(1)(g) of the Constitution of India; (ii) whether section 43B applies to sales tax; (iii) whether section 43B can be invoked to disallow sales tax and other levies that were incurred in the accounting year but were statutorily payable only after the close of that year; and (iv) whether "market cess" falls within section 43B.

Issue (i): whether section 43B of the Income-tax Act, 1961 is unconstitutional as violative of articles 14 and 19(1)(g) of the Constitution of India.

Analysis: The provision was enacted to curb the practice of claiming deductions for collected statutory levies while retaining the amounts without remittance to the exchequer. The classification of taxes and duties for special treatment was held to have a rational nexus with that objective. The provision was also found not to impose an impermissible restriction on the freedom to carry on business, and at the highest amounted to a reasonable restriction.

Conclusion: The challenge to the constitutional validity of section 43B failed and the provision was upheld.

Issue (ii): whether section 43B applies to sales tax.

Analysis: Sales tax is an allowable business expenditure under the Act, and once that is so, the requirement of actual payment under section 43B governs it in the same manner as other taxes.

Conclusion: Section 43B applies to sales tax.

Issue (iii): whether section 43B can be invoked to disallow sales tax and other levies that were incurred in the accounting year but were statutorily payable only after the close of that year.

Analysis: The provision speaks of a sum "payable" and was treated as operating where the liability had not only arisen but the amount was also statutorily payable during the relevant accounting year. Where the statute itself fixed payment after the accounting year, the disallowance under section 43B was held inapplicable.

Conclusion: Sales tax for March 1984, being statutorily payable after the close of the accounting year, could not be disallowed under section 43B.

Issue (iv): whether "market cess" falls within section 43B.

Analysis: "Market cess" was treated as neither tax nor duty for the purpose of section 43B, and the disallowance made solely on the ground of non-payment was not sustainable.

Conclusion: Section 43B does not apply to market cess.

Final Conclusion: The constitutional challenge and the challenge to the applicability of section 43B to sales tax failed, but relief was granted in respect of market cess and sales tax that was statutorily payable after the accounting year.

Ratio Decidendi: A statutory provision requiring actual payment for deduction is valid where the classification bears a rational nexus to the object of preventing retention of collected public levies, but it cannot be applied to amounts that are not statutorily payable within the relevant accounting year, and it does not extend to levies that are not taxes or duties.

---