Section 43B actual-payment rule governs sales-tax interest, while pre-return payment of tax remains deductible

Interest forming part of a statutory sales-tax liability was treated as subject to section 43B's actual-payment rule, so the outstanding interest remained disallowable and the revisional order was sustained on that point. By contrast, sales-tax paid before the due date for filing the return was held allowable because the proviso to section 43B operated retrospectively, and the earlier disallowance could not stand once payment had been made within that time. The appeal was therefore allowed in part, with the assessee succeeding only on the unpaid sales-tax issue.

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Issues: (i) whether interest outstanding on sales-tax liability was disallowable under section 43B of the Income-tax Act, 1961 and could be treated as a deductible business expenditure; (ii) whether unpaid sales-tax liability paid before the due date for filing the return was allowable in view of section 43B.

Issue (i): whether interest outstanding on sales-tax liability was disallowable under section 43B of the Income-tax Act, 1961 and could be treated as a deductible business expenditure.

Analysis: The liability for interest was held to partake of the character of the underlying sales-tax liability. The principle of strict construction of taxing statutes was accepted, but it did not support allowing a claim where the statutory scheme required actual payment. The reasoning applied section 43B on the footing that interest on sales-tax, like the tax itself, could not be allowed unless paid within the prescribed time. The revision under section 263 was therefore sustainable on this point.

Conclusion: The disallowance of the outstanding interest was upheld and the assessee failed on this issue.

Issue (ii): whether unpaid sales-tax liability paid before the due date for filing the return was allowable in view of section 43B.

Analysis: The proviso to section 43B was treated as retrospective, and sales-tax paid before filing the return was held allowable as a deduction. The earlier disallowance could not be sustained where the amount stood paid before the return due date. The revisional finding that the assessment order was erroneous and prejudicial to the Revenue on this aspect was not accepted.

Conclusion: The allowance of the unpaid sales-tax liability was upheld and the assessee succeeded on this issue.

Final Conclusion: The revisional order was sustained only to the extent of the outstanding interest disallowance and was set aside on the issue of unpaid sales-tax paid before the return due date; the appeal was therefore allowed in part.

Ratio Decidendi: For purposes of section 43B, interest that forms part of a statutory sales-tax liability is subject to the actual-payment requirement, while sales-tax paid before the return-filing due date is allowable where the proviso operates retrospectively.

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