TaxTMI 
TaxTMI 
1995 (7) TMI 26
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....r and from the assessment year 1984-85. Scope and effect of originally inserted section 43B have been explained in the following portion of the Memo Explaining the Provisions in the Finance Bill, 1983 and Department's Circular No. 372 dated December 8, 1983 : "(xxvi) Disallowance of unpaid statutory liability--Section 43B.-- 35.1. Under section 145 of the Income-tax Act, 1961, profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated under the mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. For the purposes of computation of profits and gains of business or profession, section 43(2) of the Income-tax Act defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed. 35.2. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long....
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....ndments have been explained in the following portion of the Memorandum Explaining the Provisions of the Finance Bill, 1989 and Department's Circular No. 550 dated January 1, 1990, as under : " Amendment of provisions relating to certain deductions to be allowed only on actual payment-- 15. 1. Under the existing provisions of section 43B of the In cometax Act, 1961, a deduction for any sum payable by way of tax, duty, cess or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction in respect of a 'statutory liability ' which is not paid in time. The Finance Act, 1987, inserted a proviso to section 43B to provide that any sum payable by way of tax or duty, etc., liability for which was incurred in the previous year will be allowed as a deduction, if it is actually paid by the due date of furnishing the return under section 139(1) of the Income-tax Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid wi....
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....ditions of the agreement such loan or borrowing, is to be allowed (irrespective of the previous year in which the liability to pay such sums was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. On a perusal of the language of section 43B, it is clear that it opens with a non obstante clause and which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, section 43B will have overriding effect. Keeping this in mind, if one examines the language of the section, it clearly brings out the intention of the Legislature that the deduction in respect of any tax or duty, etc., under any law would be an allowable deduction in computing the income under section 28 of that previous year in which such sum is actually paid by the assessee. The intention is made more specific by providing that it would be so irrespective of the previous year in which that liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by the assessee. ....
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....as a deduction from the income. With a view to improve the liquidity position of the public financial institutions and to prevent misuse of the limited resource of finance available to trade and industry' section 45B of the Income-tax Act has been amended to provide that any sum payable as interest on any loan or borrowing from any public financial institutions in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall not be allowed as a deduction if the same is not actually paid before the due date applicable in his case of furnishing the return of income. As per the new Explanation 3 to section 43B of the Income-tax Act, the term 'public financial institution' shall have the same meaning as assigned to it in section 4A of the Companies Act, 1956 (1 of 1956)." By the Finance Act, 1990, clause (d) of section 43B has been amended and Explanation 4 has been substituted with effect from April 1, 1991, in relation to the assessment years 1991-92 and subsequent years. Clause (d) has been amended with a view to improve the liquidity position of the said financial institutions. As a result of such amendment, any sum payable by the assessee as i....
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....f that previous year in which such interest is actually paid by him. In this connection, the Department's Circular No. 372 dated December 8, 1983, and No. 550 dated January 1, 1990, referred to hereinabove and Explanation 2 explaining the word "any sum payable" clarifies the position. The argument of the assessee that "interest payable under the Customs Act is not a statutory liability" does not appeal to me. A statutory, liability is one that depends for its existence on the provisions of the statute and not on the contract of the parties. Interest payable was in the nature of penalty for illegally retaining possession of the warehouse and as such the amount payable was a statutory liability. Questions Nos. 1 and 2 are answered against the assessee and in favour of the Department. Question No. 3 does not call for any answer. RUMA PAL J.--On the application of the assessee, three questions have been referred for determination under section 256(2) of the Income-tax Act, 1961 (hereafter referred to as "the Act"). The questions are : " 1. Whether, on the facts and in the circumstances of the case, and proper interpretation of law, the Income-tax Appellate Tribunal was justified in....
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....e : Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), at page 366). But an inroad was made into this right of the assessee by the introduction of section 43B by the Finance Act, 1983. The section was subjected to further change in 1989. However, we are concerned with the section as it stood during the assessment year in question, namely, 198586. Then section 43B read as follows : "43B. Certain deductions to be only on actual payment.--Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-- (a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or (b) any sum payable by the assessee as 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, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him." Therefore....
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....er the Customs Act. As far as import is concerned the taxable event under section 12 read with section 2(23) of the Customs Act occurs upon the goods entering India. On the other hand, as far as the liability to pay interest is concerned, that arises only when the imported goods are warehoused and are not removed within the "free period" prescribed under the statute. The relevant section is section 61, sub-section (2), which reads : "(2) Where any warehoused goods, specified in clause (a) of sub-section (1), remain in a warehouse beyond the period of one year, by reason of extension of the aforesaid period or otherwise, interest at such rate, as specified in section 47 shall be payable on the amount of duty on the warehoused goods for the period from the expiry of the period of one year till the date of the clearance of the goods from the warehouse." Thus, the incidence for the imposition of duty is different from the incidence for the imposition of interest. Furthermore, the language of section 61(2) and the scheme of the Customs Act would show that the element of duty is treated quite separately from the element of the kind of interest which is now being considered. The levy ....
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....warehouse beyond the statutorily prescribed limit. The Budget Speech of the Finance Minister in introducing section 43B is itself ambiguous in this regard. The appropriate extract reads : " Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, for long period of time. For the purpose of their income-tax assessments, they none the less claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices, I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid. This would result in a revenue gain of Rs. 100 crores in a full year and Rs. 80 crores in 1983-84. " If all statutory liabilities are to be included this would mean that the word "duty" would also include not only interest but also warehousing and other charges. Counsel for the Departmen....
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....ns cannot be considered as additional taxes which come within the limitation provided by clause (2) of article 276 of the Constitution. " In other words, "interest" was not included within the concept of "tax" because the circumstances under which the two are imposable are disparate. The appeal from this decision was dismissed by the Division Bench. (Debabrata Basu v. State of West Bengal [1981] 85 CWN 133). The next case is a decision of the Supreme Court in Bhor Industries Ltd. v. CIT [1961] 42 ITR 57, In that case, it was urged by the assessee-company that before determining the dividends payable by the company, along with the income-tax, the interest payable thereon should be deducted. This was negatived both by the High Court as well as the Supreme Court. In upholding the reasoning of the High Court, the Supreme Court said (at page 66) : The words of the sub-section are clear to show that interest as interest is added to the tax as determined. There is nothing to show that it is to be treated as tax, and it thus retains its character of interest but is recoverable along with the tax. Indeed, section 29 of the Income-tax Act makes a distinction between tax, penalty and int....
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....B. In the case before us, the Tribunal held that interest payable on duty was duty for the purposes of section 43B by relying on the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. The question before the Supreme Court was whether interest paid on cess was a penalty and, therefore, not a permissible deduction. The Supreme Court construed the provisions of section 3(3) of the U. P. Sugarcane Cess Act, 1956, and concluded that interest paid on cess was not a penalty. It was in that context that the Supreme Court said (at page 433) : " Now, the interest payable on an arrear of cess under section 3(5) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess 'carries' interest ; if the cess is not paid, within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to....
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....usdem generis to the provision of section 43B as contended by the Department. The principle can only apply when there are general words following an enumeration of persons or things. In such cases, courts have held that the general words are coloured by the preceding words, provided that the preceding words form a particular genus or class. There were no such general words in section 43B following the word "tax" and "duty" in section 43B as it stood at the material time. For the reasons aforesaid, I answer the first question referred in the negative and in favour of the assessee. Question No. 2 relates to the provision for interest made by the assessee in the previous year. In its order, the Tribunal has found that the petitioner was liable to pay interest on the customs duty at 12 per cent. per annum as per sections 59-61 of the Customs Act and notifications issued in pursuance of the aforesaid sections. It was also found that the interest had been worked out by the assessee at the rate notified by the Central Board of Excise and Customs and was automatically payable However, the Tribunal held that the assessee could not treat the interest as an accrued liability because no actu....
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....be exempted, the assessee had in fact incurred the liability to pay the additional price in the previous year and the liability could not be said to be a contingent or conditional one. In this case, the interest liability was to be computed for the entire period until clearance of the goods but would continuously accrue although payment would be made at a time at the time of clearance. Accordingly, and in view of the settled law on the issue, I hold that the Income-tax Appellate Tribunal's finding that the liability of payment of interest did not accrue or arise during the previous year in question was not justified. For the reasons aforesaid, I answer the second question also in the negative and in favour of the assessee. ORDER OF REFERENCE : K. C. AGRAWAL C. J.--In view of the difference of opinion between me and justice Ruma Pal, the questions referred by the Income-tax Appellate Tribunal are referred to justice Prabir Kumar Majumdar for his opinion under section 259 of the Income-tax Act. PRABIR KUMAR MAJUMDAR J.--This reference has been assigned to me by an order of the hon'ble Chief Justice on a difference of opinion between the two hon'ble judges of the Division Bench,....
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....a provision of interest on customs duty of Rs. 3,13,79,936. The amount of interest is payable along with the customs duty. The Assessing Officer had taken a view that the amount of interest is part and parcel of the customs duty and it has to be allowed as deduction only on actual payment basis in view of the provisions of section 43B of the said Act. In taking such a view, the Assessing Officer had placed reliance on the decision of the Supreme Court in the case of Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. In this case, it has been held that the interest payable on an arrear of cess/duty is in reality part and parcel of the liability to pay cess and such interest is an accretion to the cess. The Assessing Officer finally concluded that the assessee's claim should be disallowed as the amount was in the nature of a mere provision without there being an ascertained liability. On an appeal taken by the assessee, the Commissioner of Income-tax (Appeals) took a view that interest under the Customs Act should be considered to be falling under section 43B of the said Act. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. On further appeal ....
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....e duties of customs shall be levied on the goods imported into or exported from India. Therefore, under section 12 of the Customs Act, the duty has to be levied on the importation of the goods and the word "import" is defined in section 2(23) of the Customs Act meaning bringing into India from a place outside India. It would, therefore, appear that the duty is leviable when the goods are imported into India and it has to be paid on clearance of the goods. Therefore, the taxable event is importation of goods into India and the liability to pay such duty would arise on the clearance of such imported goods. So far as the payment of "interest" is concerned, that will be under the relevant provisions of the Customs Act in Chapter IX. Chapter IX of the Customs Act deals with warehousing. Section 57 is the starting section in Chapter IX of the Customs Act. The liability to pay "interest" in respect of the warehoused goods would arise only when the imported goods are warehoused and not removed within the "free period" as contemplated by the provisions of section 61 of the Customs Act. It would, therefore, appear from the reading of the relevant provisions of the Customs Act as regards l....
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....oms Act. I am, therefore, of the view that both demurrage and interest are being charged for late clearance of the goods from the port area or the warehouse, but the same is not being charged for delayed payment of duty. When this reference was being heard by the Division Bench, the hon'ble Chief justice held in favour of the Revenue accepting the contention made on behalf of the Revenue Justice Ruma Pal, however, differed from the views taken by the hon'ble Chief Justice. Justice Pal observed that the Customs Act has differentiated between the payment of duty and the payment of interest on such duty under section 61 of the Customs Act and has not treated the word "duty" as including within itself the element of interest payable on account of warehousing. Justice Pal has also held that the interest is being charged for the failure on the part of the assessee to remove the goods warehoused within the statutory period. Therefore, according to Justice Pal, the cause for payment of interest is not late payment of the duty but utilisation of the warehouse beyond the statutorily prescribed limit. I am inclined to accept the view taken by Justice Pal. As I have indicated above, consider....
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....g to show that the interest was to be treated as tax. Here, in this reference, the interest is to be paid in addition to the duty payable on the importation of the goods at the time of clearance of the same. In the instant reference, the hon'ble Chief Justice in his judgment found on a perusal of the language of the section 43B of the Act that the non obstante clause in section 43B of the Act meant that it controlled the operation of other provisions of the Act and irrespective of the other provisions. Section 43B would have overriding effect. It has also been observed by the hon'ble Chief Justice that a deduction in respect of any interest can only be allowed if the same has actually been paid by the assessee in the relevant assessment year. It is also held by the hon'ble Chief Justice that the interest payable is in the nature of penalty for illegally retaining possession of the warehouse and, as such, the amount payable was a statutory liability. The hon'ble Chief Justice, therefore, answered questions Nos. 1 and 2 against the assessee and in favour of the Revenue. As I have stated above, on an examination of the relevant provisions of the Customs Act, it cannot be said that t....