TaxTMI 
TaxTMI 
2002 (5) TMI 197
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.... towards payment for transportation of goods. The details of such cash payments exceeding Rs. 10,000 were annexed with the tax audit report, copy thereof has been placed at pp. 2 to 7 of the compilation. He drew our attention to Circular No. 220, dt. 31st May, 1977, to support his contention that such cash payments were made under exceptional and unavoidable circumstances covered by r. 6DD(j). He pointed out that the payments to drivers for transportation charges otherwise than in cash is not practicable as the truck drivers refuse to unload the goods without receiving cash payments. He also pointed out that the CIT(A) in asst. yr. 1985-86 has deleted similar disallowance made under s. 40A(3) by placing reliance on the decision of Tribunal Delhi Bench in the case of Nuchem Plastic Ltd. vs. Dy. CIT (1992) 44 TTJ (Del) 261 and the decision in the case of Smt. Ninal Lal vs. Dy. CIT (2000) 68 TTJ (Del) 52 in which it has been held as under: "Payment of freight charges in cash could not be disallowed under s. 40A(3) as it is a general practice that the transporters do not accept payments otherwise than in cash." 3.1. The learned counsel drew our attention to the following judgment....
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.... of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority. 32. Effect of the Act on other laws.—(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976), for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. 3.4. The learned counsel drew our attention to Circular No. 523, dt. 5th Oct., 1988, issued by CBDT explaining the effect of the order passed by BIFR in a scheme for the rehabilitation of sick units, in which the Board has, inter alia, advised that if a scheme is sanctioned in pursuance of s. 17(3) of the SICA, it will have an overriding effect over the provisions of the IT Act by virtue of s. 32 of the SICA. The learned counsel submitted th....
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....Assam Tribune (2002) 253 ITR 93 (Gau) has held that where the contribution towards provident fund, etc. has been paid before the due date for filing of the return by the assessee, the amounts would be deductible. The learned counsel contended that s. 43B provides that deduction inter alia, in respect of PF, FPF and ESI by the employer shall be allowed in the year in which such amount is actually paid. The second proviso to s. 43B applies only in respect of amount of PF, FPF and ESI remaining outstanding at the end of the year, which will be allowed as deduction in the year under consideration provided such outstanding amount has been paid in next year before the due date prescribed under PF Act and other relevant laws. The proviso to s. 43B is enabling proviso and was introduced with a view to reduce rigours of s. 43B and it is not meant for providing for a total disallowance of such payments in the year in which the amount is actually paid or because there is a short delay of few days in making payment of such dues. The learned counsel has strongly supported the order of the CIT(A). 4. We have carefully considered the submissions made by the learned representatives of the parti....
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....hat no deduction shall, in respect of any sum referred to in cl. (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date. Explanation (1)—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in cl. (a) or cl. (b) of this section is allowed in computing the income referred to in s. 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 cl. (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year....
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....they dispute the liability and do not discharge the same. For some reasons or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee, as an employer by way of contribution to the provident fund, or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him." 8. The extract from the Budget Speech of Hon'ble Finance Minister as published in (1983) 33 CTR (TLT) 1 : (1983) 140 ITR (St) 31 is also reproduced below: "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 nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving....
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....o be that s. 43B, the proviso and Expln. 2 have to be read together as expressing the true intention of s. 43B. Expln. 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Expln. 2 and the main body of s. 43B. Without the first proviso, Expln. 2 would not obviate the hardship or the unintended consequences of s. 43B. The proviso supplies an obvious omission. But for this proviso the ambit of s. 43B becomes unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions. In the case of Goodyear India Ltd. vs. State of Haryana (1991) 188 ITR 402 (SC) this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala vs. CIT (1971) 82 IT....
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....et the benefit twice, i.e., at the time when the liability arises, and also at the time when the actual payment is made. In view of the specific language of the section that deduction of the amount as mentioned in cls. (a) and (b) of s. 43B would be allowed in the previous year in which such sum is paid, there is no scope for any doubt that such sum can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee." The aforesaid judgment was delivered by the Hon'ble Gujarat High Court on 31st March, 1986. The two provisos under s. 43B had not been introduced by that time as those were inserted by the Finance Act, 1987, w.e.f. 1st April, 1998. 11. The Hon'ble Gujarat High Court in a subsequent judgment in the case of CIT vs. Chandulal Venichand (1994) 118 CTR (Guj) 257 : (1994) 209 ITR 7 (Guj) examined the legislative history of various amendments made in s. 43B from time to time. The Hon'ble High Court at p. 12 after reproducing the Memorandum explaining the provisions of Finance Bill, 1983, by which s. 43B was introduced, has observed as under: "From the aforesaid objects and reasons, it is apparent that....
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....9) 76 CTR (St) 1 : (1989) 176 ITR (St) 123 : "Under the existing provisions of s. 43B of the IT Act, it is also provided that any sum payable by the assessee as an employer by way of contribution to the provident fund or superannuation fund, etc. is not allowable as a deduction unless the same is paid "during the previous year on or before the due date". The payment in respect of the last month of a previous year shall have to be made by the due date and cannot possibly be made in the previous year itself. It is, therefore, proposed that the words "during the previous year" occurring in the second proviso to s. 43B be deleted. This amendment will take effect from 1st April, 1989. Unlike other payments referred to in s. 43B of the IT 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 contribution 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 tha....
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....erpreted as to set at naught the real object of the main enactment. The object of s. 43B was to refuse deduction to an assessee in respect of a certain statutory liability, which the assessee does not discharge or where there is a dispute about the liability. In the case of certain assessees, practical difficulties were encountered. With a view to getting over them, amendments in s. 43B were introduced by the Finance Act, 1987. Under the law as amended, if an assessee has paid sales-tax, additional sales-tax, Central sales tax, etc. on or before the due date applicable in his case for furnishing his return of income under s. 139(1) of the Act, s. 43B has no application. With regard to provident fund, family pension, etc., the assessee shall be entitled to claim deduction if the same was paid on or before the due date as defined in the Explanation below cl. (va) of s. 36(1) of the Act. The assessee who made payments in the aforesaid terms, were not intended to be brought into the net of disallowance. The object to suppress the mischief of withholding of payment and getting a deduction did not apply to such cases. Therefore, the first proviso to s. 43B is retrospective in its oper....
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.... the employees towards PF or the State Insurance Fund are first treated as income of the assessee in the previous year under s. 2(24)(x). Such contributions are to be allowed as deduction under s. 36(1)(va) if the same is credited by the assessee to the employees account in the relevant fund on or before the due date prescribed under the relevant Acts. In regard to determination of the due date for payment of contribution difficulty would not arise if the salary is paid for a particular month on the last day of the same month. But in cases where the salary is paid within 7 days from the end of the month to which it relates, there arises a certain amount of ambiguity with regard to the period of 15 days from the close of each month. Reading together ss. 36 and 38 of the EPF Scheme, it could be said that there is certain amount of ambiguity over the expression "15 days from the close of the month". Hence, in the case and ambiguity the benefit should be given to the taxpayer. Consequently, the payments in the instant case, had been made within the due date and, therefore, no part of its could be disallowed. If the due date is taken to refer to the period of 15 days from the end ....
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.... it would be clear that it is the liability of the employer to pay his own contribution and also the contribution of the member of the PF scheme employed by him and the employer is also given the right to recover the amount of member's contribution from the wages bill. Therefore, the provisions of s. 43B which has the overriding effect over other sections must prevail over s. 36(1)(va)." 16.1. Similar view was taken by Tribunal Mumbai Bench in the case of Fluid Air (India) Ltd. vs. Dy. CIT. 17. Let us now consider the various judgments which have been relied upon by the learned Departmental Representative during the course of hearing. Hitech (India) (P) Ltd. vs. Union of India & Ors. This judgment was delivered on 27th Dec., 1996, i.e., prior to the judgment of the Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT which was delivered on 10th March, 1997. The Hon'ble Andhra Pradesh High Court has held that s. 43B which commences with non obstante clause, mandates that the sum referred to in any of the clauses, will be allowed as deduction in computing the income under s. 28 of the previous year, in which such sum is actually paid by the assessee, irresp....
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....9. The judgment of the Hon'ble apex Court in the case of Allied Motors (P) Ltd. delivered on 10th March, 1997, was not even cited in the aforesaid judgment. 19. The Hon'ble Calcutta High Court in the case of CIT vs. Edcons (India) (P) Ltd. considered the question relating to deduction inter alia, in respect of outstanding liability of PF of Rs. 2,885 shown in the balance sheet. The Hon'ble High Court held as under: "The provident fund contribution has to be paid within 15 days from the last day of the month. The assessee cannot, by not making the payment and showing it as a liability, get the benefit of deduction in the case of the provident fund. The principles governing the cases of sales-tax dues will apply to the case of provident fund contribution in respect of the last month of the accounting year, and not for any other month. No deduction will be allowed unless the contribution is paid for the last month of the accounting year within 15 days after the closing of the accounting year. We, therefore, answer the question in this reference by saying that the Tribunal was right in holding that Central sales-tax, and UP sales-tax, if not statutorily payable in the accounting ....
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....d in the said Explanation as the date by which the assessee is required as an employer to credit an employees' contribution to the employees' account in the relevant fund under any Act, Rules, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. That cl. (va) of s. 36(1) is as follows: "(va) any sum received by the assessee from any of his employees to which the provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date." "(x) any sum received by the assessee from his employees as contributions to 'any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of such employees." From a combined reading of these provisions, it is clear that the contributions to provident fund or superannuation fund or a fund under the employees' State Insurance Act are allowable only if the payments are made within the due date under the Acts or the Rules or the orders governing such contributions. In any cas....
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.... The intention is made more specific that it would be so 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. Thus, in a case where the assessee has maintained its accounts on mercantile basis, the deductions in respect of such sums will be allowed only in the year in which such sum is actually paid and not in the year of accrual of liability to pay such amount. The Expln. 1 to s. 43B further fortifies the same view. It provides that where deduction in respect of any sum referred to in cl. (a) or (b) of s. 43B is allowed in computing the income of the previous year relating to asst. yr. 1983-84 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 same is actually paid by him. The Explanation inserted with a view to obviate double deductions in respect of same amount also clearly indicates that if the liability towards PF pertaining to asst. yr. 1983-84 or any earlier assessm....
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....ead 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. The Hon'ble Supreme Court further observed that the Gujarat High Court in Chandulal Venichand has held that the amendment by way of introducing first proviso to s. 43B is curative and explanatory and hence retrospective. 24. The Hon'ble Gujarat High Court reproduced para 24 of the Memorandum explaining the provisions contained in Finance Bill, 1989, at pp. 13 and 14 of 209 ITR. In para 24 of the Memorandum, it has been clearly indicated that in the existing provisions of s. 43B a deduction for any sum payable by way of tax, duty, cess or fees, etc. is allowed on actual payment basis only. The proviso was introduced to remove hardship caused to certain taxpayers who had represented that since the sales-tax for the last quarter cannot be paid within that previous year, the original provisions of s. 43B will unnecessarily involve disallowance of the payment for the last quarter. The amendment in the second proviso to s. 43B was also made by the Finance Act, 1989. The Memorandum explain....
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....eduction in respect of PF contribution of last month provided such amount is paid before the due date prescribed under the PF Act. The second proviso to s. 43B introduced by the Finance Act, 1987 w.e.f. 1st April, 1988, provided that no deduction shall, in respect of any sum referred to in cl. (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in Explanation......" On the basis of such language used in second proviso it could perhaps be argued that in respect of PF contribution, etc. covered by s. 43B(b) the payment must have been made not only during the previous year but also within the due date prescribed under the relevant Acts. By use of such language in second proviso, law makers realised unintended hardship likely to be caused because of such a provision as it was impossible to make payment of PF contribution of last month of the accounting year in the same previous year. The second proviso was, therefore, amended by the Finance Act, 1989, in which the words "during the previous year" were omitted. This clearly indicates that deduction in respect of payments made during the previous year will be governed by th....
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....ous year is clearly allowable in the year when such sum is actually paid by virtue of plain language of the main provision of s. 43B. The proviso to s. 43B cannot override the main provision so as to deny deduction in respect of such sums actually paid in the relevant previous year. Such a view is clearly supported by the judgment of the Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. and the judgments of the Hon'ble Gujarat High Court in the cases of Lakhanpal National Ltd. and Chandulal Venichand. 25. The amount of PF contribution, etc. remaining outstanding as on the close of the accounting year paid in next year before the due date prescribed under the PF Act, etc. will also be allowed as deduction in the relevant previous year. The delayed payment of PF contribution made in next year beyond the due date prescribed in PF Act, etc. will be allowed as deduction in the next year when it has actually been paid. The AO is directed to examine the date of actual payment and decide the issue in the light of aforesaid directions. 26. The learned counsel appearing on behalf of the assessee is placed heavy reliance on the provisions of SICA. He contended that the provisi....