Prospective application of section 43B amendment bars disallowance of interest payable to a State Financial Corporation for an earlier year.

Section 43B disallows specified deductions only on actual payment, but the amendment extending clause (d) to interest on borrowings from a State Financial Corporation applied prospectively from 1 April 1991. Because the relevant previous year ended on 31 March 1989, the enlarged wording did not govern that assessment year. On that basis, disallowance of the interest for assessment year 1989-90 was not justified, and the assessee's relief was upheld.

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Issues: Whether interest payable to a State Financial Corporation could be disallowed under section 43B of the Income-tax Act, 1961 for the assessment year 1989-90, in view of the amendment enlarging clause (d) to cover such institutions from 1 April 1991.

Analysis: Section 43B allowed deduction of specified sums only on actual payment. As originally enacted, clause (d) covered interest on loans or borrowings from a public financial institution. Explanation 4, as it then stood, linked that expression to section 4A of the Companies Act, 1956. The later amendment by the Finance Act, 1990 expressly enlarged clause (d) to include interest on loans or borrowings from a State Financial Corporation and a State Industrial Investment Corporation with effect from 1 April 1991. The relevant previous year ended on 31 March 1989, so the expanded wording did not apply to the year in question.

Conclusion: The disallowance under section 43B was not justified for assessment year 1989-90, and the relief granted to the assessee was upheld.

Final Conclusion: The Revenue's appeal failed because the amendment extending the actual-payment rule to interest payable to State Financial Corporations operated only prospectively from 1 April 1991.

Ratio Decidendi: An amendment extending section 43B to cover interest payable to State Financial Corporations applies only from its stated effective date and cannot be used to disallow such interest for an earlier assessment year.

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