TaxTMI 
TaxTMI 
TaxTMI 
2006 (3) TMI 262
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....e date applicable in its case for furnishing the return under section 139(1) of the Act, albeit payment was made beyond due date prescribed in section 36(1)(va) of the Act for making the contribution to the employee's account in the relevant fund under the law. Question posed before the Tribunal was whether deduction can be allowed in respect of the said payment in view of amendment in proviso to section 43B by the Finance Act, 2003 by holding the same as retrospective. 3. The question whether a statutory provision has retrospective effect or not depends primarily on the language in which it is couched. In the case of statutes which are merely declaratory or which relate to only matters of procedure, it may have retrospective effect if the manifest purpose compels one to construe the Act as such. It is, therefore, sine qua non to examine the purpose of enactment. 4. As per the prescription of section 145 of the Act profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Where the assessee follows mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and....
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....d that he has actually made a payment towards such liability in that year. 8. Section 43B of the Act was further amended by the Finance Act, 1987. Two provisos were added w.e.f. 1-4-1988, namely:- "Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Provided further that no deduction shall, in respect of am sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36." 9. The scope of the amendment was explained in the Memorandum Explaining the Provisions in Finance Bill, 1987 (165 ITR St. 156) as under: "Under the existing provisions of section 43B of the Income-tax Act, any statutory liability outstanding as on the last day of th....
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....uring the previous year" occurring in the second proviso to section 43B be deleted. * ** * * Unlike other payments referred to in section 43B of the Income-tax Act, the deduction regarding employer's contribution, if denied in a year, is not available as a deduction in any subsequent year also. On account of various reasons like postal delay, strikes or long holidays, the payment of employer's contributions to the respective authorities is delayed even though the payment by a cheque or draft is tendered before the due date. To avoid any hardship being caused in such cases, it is proposed to provide that, if any sum payable by an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, if made by a cheque, draft or any other mode, has been tendered by the due date, and the actual payment has been realized within fifteen days of the due date, deduction shall be allowed." 12. By section 21 of the Finance Act, 2003 following amendments were incorporated in section 43B of the Act: "(a) in clause (e),- (i) and (ii) (b) in the first proviso, the words, brackets and letters 'referred....
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....turn of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Explanation 1.- For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 2.- For the purposes of clause (a), as in force at all material times, 'any sum payable' means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. Explanation 3.- For the removal of doubts it is hereby dec....
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....l investment corporation' means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36." 15. If the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the mens legis, i.e., the intention of the law, as evinced in the statute. The key to the opening of every law is the reason and spirit of law. To be literal in meaning is to see the body and miss the soul. The judicial key to interpretation is the composite perception of the Deha (body) and the Delhi (soul) of the provision. 16. To decipher the real meaning of a word is a difficult task. Words, in addition to a normal meaning, have a penumbra, a dim fringe. Cases falling within the periphery of penumbra or fringe Fare apt to give rise to a sharp difference of opinion. There is no possibility of mistaking midnight for noon; but at what precise moment twilight becomes darkness is hard to deter....
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....er and in phases. In para 144 it is stated that most of the suggestions made by the Task Force to eliminate procedural complexities, reduce paper work, simplify tax administration and to enhance efficiency, also integrate such tax proposals as the system can at present absorb. Further the Hon'ble Finance Minister proposed the whole basket of reforms in tax administration based on Kelkar Committee's report. 20. Final report of Kelkar Committee was published in 126 Taxman (St.) 1. Relevant extract in regard to the removal of total disallowance of late payment of labour welfare payments al para 5.7 of the report at page No. 122 is reproduced as under: "In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and state and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and interest to State and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due ....
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.... did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund etc. for long periods of time but claimed deduction in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. 23. The first proviso, which was inserted by the Finance Act, 1987 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also the first proviso has to be read into section 43B from its inception along with Explanation 2 without the first proviso. Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The first proviso supplies an obvious omission. But for this proviso the ambit of section 43B become....
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.... to pay such sum was incurred. This differential treatment was abrogated by the Finance Act, 2003 by omitting the second proviso and in first proviso omitting the words, brackets and letters in clause (a) or clause (c) or clause (d) or clause (e) or clause (f). 27. In the case of Allied Motors (P.) Ltd. Hon'ble Supreme Court treated the first proviso to section 43B as inserted by the Finance Act, 1987 as retrospective in operation for and from assessment year 1984-85. On parity of reasoning the proviso which is now amended by the Finance Act, 2003 can also be treated as retrospective qua the payment of tax and duty. Dispute only concerns about the retrospectivity of the provision qua the payment of contribution to provident fund etc. No objection was raised by the ld. D.R. in respect of the retrospectivity of the payment qua the sales tax in view of the decision of the Apex Court. If that be the position, how part of this proviso could be said to be prospective and part of it retrospective? The proviso was inserted to help the execution of the main section and not to hinder its course. 28. Ld. D.R. made a reference to the decision of the Hon'ble Madras High Court rendered....
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....d to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole". 31. The object of section 43B was to ensure that the deduction claimed was in relation to an amount which had in fact been paid by the assessee and that the payment that is required to be made is made within the time allowed by the law. It would be clearly unjust to disallow deduction of such payment in the assessment of the income of the assessee. This injustice was realised by the Parliament itself which deleted the reference to "the previous year" in the second proviso. The object that was accomplished by the amendment was to give effect to the true intention behind the introduction of the section. That amendment is, therefore, required to be regarded as retrospective qua the amendment incorporated by the Finance Act, 1987. 32. In the case of Salem Co-operative Sugar Mills Ltd. v. CIT [2004] 266 ITR 166 (Mad.) Hon'ble High ....