Calcutta High Court
Commissioner Of Income-Tax vs K.L. Thirani And Co. Ltd. on 6 July, 1992
Equivalent citations: [1996]218ITR149(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), the following questions of law have been referred to this court :
"1. Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 43B of the Income-tax Act, 1961, the learned Tribunal was justified in law in holding that the first proviso to Section 43B of the Income-tax Act, 1961, introduced by the Finance Act, 1987, with effect from 1st April, 1988, would be applicable to the assessment year 1984-85 ?
2. Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in setting aside the order of the learned Commissioner of Income-tax (Appeals) confirming the additions of Rs. 10,78,497 and Rs. 4,514 (sales tax Rs. 8,90,852, provision for turnover and purchase tax Rs. 1,28,000, E. S. I. provision Rs. 4,535, provident fund contribution Rs. 32,992, Baranagar Municipality tax Rs. 32,118 and Rs. 4,514 for losses of sales tax) under Section 43B of the Act and remitting the matter back to the Assessing Officer for re-examination in the light of the decision in ITO v. K.S. Lokhandwala [1989] 31 ITD 305 (Ahd.) of the Ahmedabad Bench of the Income-tax Appellate Tribunal ?"
As it appears from the statement of case, the assessee is a limited company and the assessment year involved is 1984-85. The Assessing Officer disallowed the following amounts by invoking the provisions of Section 43B of the Act :
Rs.
1.
Excess of sales tax realised over the sales tax paid during the previous year under consideration 8,90,852
2. Provision for turnover tax and purchase tax 1,18,000
3. E. S. I. provision as shown by the assessee-company 4,535
4. P. F. contribution by the company as per details filed 32,992
5. Baranagar municipality taxes 32,119 10,78,497 There was a further disallowance of Rs. 4,514 out of the sales tax onfthe ground that the said amount represented merely a further provision for sales tax liability.
The Commissioner (Appeals) confirmed these disallowances on the ground that unpaid sales tax, provision for turnover tax, purchase tax, provision for E. S. I. and provident fund contribution and the municipal taxes are disallowable by reason of the clear mandate of Section 43B, it being undisputed that the deductions were claimed not on the basis of payment but on the basis of provision. In further appeal before the Tribunal, the assessee indicated in the grounds of appeal that the liabilities had not been paid during the previous year as they did not become due for payment under the respective statutes. The Tribunal concluded the dispute observing as follows :
"The Assessing Officer disallowed the sums of Rs. 10,78,497 and Rs. 4,514 under Section 43B of the Act on the ground that payments were not made during the year under appeal. The assessee, on the other hand, through the grounds of appeal has indicated that the payments were not due and, consequently, the payments were not made within the previous year of the assessee. The issue in this connection has been elaborately discussed by the Ahmedabad Bench in [1989] 31 ITD 305 and the guideline has been given there to see whether the amounts have been paid within the statutory period and/or within the period the return was filed by the assessee for the subsequent year. As the matter has not been examined from the said angle, the order of the Commissioner of Income-tax (Appeals) on these issues is set aside and the matter is referred back to the Assessing Officer for re-examination in the light of the decision in ITO v. K.S. Lokhandwala [19891 31 ITD 305 (Ahd) after allowing an opportunity of being heard to the assessee."
As it would appear from its conclusion, the Tribunal took the view that the amendments to Section 43B as made by the Finance Acts of 1987 and 1989 should also apply with equal force to the assessment year earlier than the assessment year 1988-89. The provisos inserted by the Finance Act, 1987, with effect from April 1, 1988, relax the main provision of Section 43B by permitting deduction of the liabilities on account of (i) any tax, duty cess or fee ; (ii) any bonus or commission for services rendered ; (iii) any interest on borrowing from any public financial institution, if the payments for such liabilities are made even after the expiry of the previous year, but before expiry of the statutory time for filing the return in respect of such previous year. In order to sort out the possible anomalies and to prevent duplication of deduction, the Explanations have been inserted by the Direct Tax Laws (Amendment) Act, 1987, and, again, by the Finance Act, 1989.
2. The Tribunal evidently took the view that the provisions of Section 43B would not apply, where the assessee has not only deposited the amount within the statutory time limit provided by the relevant State legislation, but admittedly the amount in question has been deposited before the due date for furnishing the return of income under Section 139(1).
3. The Tribunal, therefore, directed the Assessing Officer to re-examine the question of allowability of the deductions on such interpretation of the provision.
4. Our attention was drawn to the decision of this court in CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676, wherein this court has held that the amendments to Section 43B made by the Finance Acts, 1987 and 1989 are clarificatory and, therefore, the provisos inserted by these amendments, should also apply to earlier years, even though the provisos and the Explanations have been apparently given prospective effect. This court has observed that the object of Section 43B is to discourage those taxpayers who do not discharge their statutory liability even though they claimed and obtained those liabilities as a deduction on the ground that they maintained accounts on mercantile or accrual basis. Section 43B was intended to apply to cases for disallowance of the statutory liability where the statutory liability remained undischarged, regardless of the fact that the assessee was entitled to claim deduction for reasons of the mercantile method of accounting.
5. The Legislature, however, found afterwards that the provision of Section 43B was harsh, and it was necessary to remove the hardship. Avowedly, for the purpose of removing the hardship the provisos were introduced. The Memorandum explaining the provisions of the Finance Bill, 1989, made this intention transparent. We relied on the relevant passage of the explanatory memorandum on the Finance Bill and came to the conclusion in Sri Jagannath Steel Corporation's case that the provisos and the Explanations are clarificatory or declaratory. We, therefore, held that the amendment was intended to clarify the legislative intent and should apply retrospectively. We finally held where the statutory liability is actually discharged after the expiry of the previous year in compliance with the relevant statute, the benefit of deduction could not be denied to the assessee. Therefore, as far as the questions of provision for sales tax, turnover tax, purchase tax, and the municipal taxes are concerned, the benefit of the proviso shall be available to the assessee if they are paid within the time referred to in Section 139(1), no matter whether the assessment year is 1984-85.
6. But the same principle cannot, however, apply to the provision for E. S. I. liability and the provident fund contribution. Here these two items fall under clause (b) of Section 43B which reads as follows :
"(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."
For this particular clause or class of liability, it is the second proviso, which shall apply. It is in the following terms :
"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 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."
The proviso says that the provision for the liability for contribution to provident fund, superannuation fund, gratuity fund or any other fund for the welfare of the employees is allowable only if the payment corresponding to the provision is made within the "due date" for such payments in the Explanation below clause (va) of Sub-section (1) of Section 36. This takes us to that particular provision and the "due date" is defined in the said Explanation as the date by which the assessee is required as an employer to credit an employee's contribution to the employee's 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 clause (va) of Section 36(1) is as follows ;
"(va) any sum received by the assessee from any of his employees to which the provisions of Sub-clause (x) of clause (24) of Section 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."
This again refers to Sub-clause (x) of clause (24) of Section 2 which is as follows :
"(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.
7. In any case, the Tribunal was correct in holding that the provisions are allowable, if the liabilities are discharged in terms of the provisos below Section 43B read with the Explanations.
8. In the premises, we answer both the questions in the affirmative and against the Revenue.
9. There will be no order as to costs.
Shyamal Kumar Sen, J.
10. I agree.