Madhya Pradesh High Court
B.S. Patel vs Deputy Commissioner Of Income Tax on 16 November, 2007
Equivalent citations: (2008)215CTR(MP)333
Author: A.M. Sapre
Bench: A.M. Sapre
ORDER A.M. Sapre, J.
1. The decision rendered in this appeal shall also govern disposal of other connected appeals being IT Appeal Nos. 39 and 40 of 2005, because all the three appeals involve common question of law and secondly, relate to same assessee except the difference being that each appeal arise out of different assessment years.
2. This is an appeal filed under Section 260A of the Income-tax Act (for brevity called 'the Act') by the assessee against an order dt. 24th Sept., 2004, passed by Tribunal in ITA No. 930/Ind/1998. It was admitted for final hearing on following substantial question of law by this Court:
1. Whether in the facts and circumstances of the ease, the Tribunal was justified in holding that disallowance of PF for the asst. yr. 1995-96 and the amount deposited towards PF and ESI can be allowed to be deducted by taking recourse to the provisions of Section 43B of the IT Act ?
The question involved in these appeals arises out of asst. yr. 1992-93 (IT Appeal No. 67 of 2004), asst. yr. 1994-95 (IT Appeal No. 40 of 2005) and asst. yr. 1995-96 (IT Appeal No. 39 of 2005).
3. In all the three aforementioned assessment years, the assessee (appellant) claimed deduction of amount/contribution deposited by them towards PF and ESI. as specified in Section 43B(b) ibid. So far as assessment year which is subject matter of appeal in question was concerned, the assessee claimed deduction of Rs. 7,65,571 deposited towards PF and Rs. 96,789 deposited towards ESI. The AO was of the view that since these payments were made by the assessee subsequent to the due date as specified in second proviso to Section 43B r/w Explanation to Clause (va) of Section 36(1) of the Act and hence, assessee was not entitled to get the benefit of Section 43B ibid in relation to these deposits. In other words, the deduction claimed by the assessee was disallowed by AO on the ground that in was not deposited in conformity with requirement of Section 43B(b) read with its second proviso and Explanation appended to Section 36(1)(va) ibid. In appeal, filed by assessee, challenging this order of AO, the CIT(A) set aside the order of AO on this issue ,and held that assessee was entitled to claim deductions in respect of aforementioned payments by taking recourse to Section 43B r/w Section 36(1)(va) ibid. The Revenue felt aggrieved and hence, filed appeal to Tribunal. By impugned order, the Tribunal allowed the appeal filed by Revenue insofar as aforesaid issue was concerned and while setting aside of the order passed by C1T(A) restored that of AO. It was held that since admittedly the assessee did not make the payment before the due date as specified in second proviso to Section 43B r/w Section 36(1)(va) Explanation ibid and hence, they (assessee) were not entitled to claim any deduction of the payments made in question in the assessment year in question. It is against this order of Tribunal; the assessee has come up in appeal. As stated supra, the appeal was admitted for final hearing on aforementioned substantial question of law. So far as other two appeals are concerned, they were also admitted for final hearing on the same substantial question of law.
4. Heard Shri G.M. Chafekar, learned senior counsel with Shri D.S. Kale, learned Counsel for the appellant and Shri R.L. Jain, senior counsel with Ku. Veena Mandlik, learned Counsel for the respondent.
5. Learned Counsel for the appellant (assessee) in substance urged only one contention. According to him, since the second proviso to Section 43B has been omitted from the statute book (i.e. from Section 43B) though w.e.f. 1st April, 2004 by Finance Act, 2003, but the said omission will have its retrospective effect from the date of insertion of Section 43B ibid as has been interpreted by the Supreme Court in Allied Motors (P) Ltd. v. CIT . Learned Counsel contended that it is for this reason, the 2nd proviso could not have been made basis for denying the benefit to an assessee for claiming deduction under Section 43B ibid because the same was not on the statute book on the date when assessee made the deposits of contribution. In other words, the submission was that when the Supreme Court in the case of Allied Motors (P) Ltd. (supra) has held that proviso appended to Section 43B has retrospective operation from the date of enactment of Section 43B ibid though inserted in the section at a later date then its omission by Finance Act, 2003, too will have retrospective effect, i.e., as if it was not a part of Section 43B since inception and hence, assessee could not have been denied the benefit of claiming deduction of payments made in question by placing reliance on 2nd proviso which is no longer on statute book. Learned Counsel while elaborating his submission contended that if the proviso is deemed to have been brought on statute book retrospectively then its omission too is deemed to have been done with retrospective date and not prospectively. According to learned Counsel, both i.e., applicability of proviso and its omission has to be with effect from the same date as in this case retrospectively.
In reply, learned Counsel for Revenue supported the impugned order of Tribunal.
6. Having heard learned Counsel for the parties and having perused 'record of the case, we find no merit in these appeals. As a result, the appeals are liable to be dismissed.
7. Section 43B which is subject matter of these appeals (only relevant part) reads as under:
43B.-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, duty, cess or fee, by whatever name called, 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 superannuating fund or gratuity fund or any other fund for the welfare of employees or
(c) any sum referred to in Clause (ii) of Sub-section (1) of Section 36, or
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution (or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
(e) any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan, or
(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, 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:
Provided that nothing contained in this section shall apply in relation to any sum referred to in Clause (a) or Clause (c) or Clause (d) or Clause (e) or Clause (f) 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 any sum referred to in Clause (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 Clause (va) of Sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the sum has been realized 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 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.
(emphasis, italicized in print, supplied)
8. So far as legislative history of Section 43B is concerned, the same need not to be mentioned because it is not really necessary for disposal of these appeals. In these appeals, we are primarily concerned with 2nd proviso to Section 43B. So far as second proviso is concerned, it was, to begin with, inserted on 1st April, 1986. It was then amended on 1st April, 1989 and then omitted by Finance Act, 2003 w.e.f. 1st April, 2004.
9. Their Lordships of Supreme Court had the occasion to consider the true interpretation and scope of first proviso to Section 43B in Allied Motor's case (supra). After examining the entire scheme of Section 43B and legislative history of first proviso, their Lordships held the first proviso to be retrospective in operation. This is what their Lordships held:
This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand , the Gujarat High Court has held that the first proviso to Section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with asst. yr. 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence, retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India . It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed [see (1991) 191 ITR (St.) 8]. The view of the Delhi High Court, therefore, that the first proviso to Section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn., p. 291, "it is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. In fact the amendment would not serve its object in such a situation, unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.
10. So far as present case is concerned, it does no relate to first proviso 'but relates to second proviso. In this view of the matter the submission of learned Counsel for the appellant (assessee) that 2nd proviso was held by Supreme Court to be retrospective in operation in Allied Motor's case (supra) has no substance. In other words, the question, as to whether 2nd proviso to Section 43B of the Act is retrospective in operation or prospective, did not fall for consideration before the Supreme Court in Allied Motor's case (supra) and hence this Court cannot accept the submission of learned Counsel for the appellant and hold 2nd proviso also to be retrospective in operation. It is not the submission of learned Counsel for the appellant that since the Supreme Court has construed 1st proviso to be retrospective in operation and hence, on that basis, this Court should also hold 2nd proviso too to be retrospective in operation. Mere perusal of 1st proviso would show that it has application to the cases falling in Clauses (a), (c), (d), (e) and (f) of Section 43B whereas 2nd proviso applies only to cases falling in Clause (b) of Section 43B ibid. In this view of the matter, merely because 1st proviso has been construed to be retrospective in operation that by itself would not make the 2nd proviso retrospective in operation. Since, no attempt was made by learned Counsel for the appellant (assessee) to argue on these lines, we do not consider it necessary to examine the issue on these lines.
11. In view of foregoing discussion, we are of the considered opinion that no reliance can be placed by the appellant on the ratio of decision rendered in Allied Motor's case in support of his contention that 2nd proviso was held retrospective in operation by the Supreme Court. As held supra, this question did not fall for consideration before the Supreme Court in Allied Motor's case and hence, this Court cannot accept this submission.
12. In our considered view, since the 2nd proviso to Section 43B was omitted by Finance Act, 2003 w.e.f. 1st April, 2004 and hence, it is prospective in operation. When the legislature has specifically brought the omission in force w.e.f. 1st April, 2004 then it is difficult to hold that it has taken effect prior to 1st April, 2004. It is a settled rule of interpretation that every legislation is prospective in nature unless by specific provision made in the statute itself the provision is made retrospective. In this case, it is specifically provided in the Finance Act, 2003 itself that omission of 2nd proviso shall come into effect from 1st April, 2004. In the light of such specific date being mentioned in the Act itself, it is difficult to hold that omission will be retrospective in operation, i.e., it shall come in operation prior to 1st April, 2004. If the intention of legislation had been to. omit the provision retrospectively then it would have been so specified in the Act itself, It was not done. Instead, a specific date (1st April, 2004) was mentioned for bringing the omission in force from that date i.e. 1st April, 2004. In our opinion, therefore, the legislative intent is clear. The omission is prospective in operation and not retrospective as urged. As a necessary corollary, any action taken prior to 1st April, 2004 on the basis of 2nd proviso would be legal and proper. In other words, it was incumbent upon the assessee to have ensured compliance of 2nd proviso while making payment as an employer by way of contribution to any provident fund scheme, or superannuating fund or gratuity fund or any other fund for the welfare of employees before due date as specified in Explanation appended below Clause (va) of Sub-section (1) of Section 36 ibid for claiming benefit under Section 43B ibid. Non compliance of 2nd proviso to Section 43B would result in disallowance so far as these payments are concerned.
13. It is not in dispute that appellant's (assessee's) case was governed by 2nd proviso to Section 43B, because at the relevant time the 2nd proviso was holding the field and was a part of Section 43B of the Act. In these circumstances, it was obligatory upon the assessee to have complied with the requirement of 2nd proviso to Section 43B ibid. Since admittedly, the assessee failed to ensure compliance by not depositing the amount before due date and hence, they were rightly denied the benefit of Section 43B by AO and later by Tribunal by restoring the order of AO.
14. In view of foregoing discussion, we concur with the view taken by the Tribunal on the issue in question and find no merit in the appeal. As a consequence, the appeal fails and is accordingly, dismissed by answering the substantial question of law against the appellant (assessee) and in favour of respondent (Revenue).
No costs.