Orissa High Court
Commissioner Of Income-Tax vs Pyarilal Kasam Manji And Co. on 22 November, 1991
Equivalent citations: [1992]198ITR110(ORISSA)
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. Since the point involved in these references made by the Income-tax Appellate Tribunal, Cuttack Bench (in short, "the Tribunal") under Section 256(1) of the Income-tax Act, 1961 (in short, "the Act"), is common, they are being disposed of by this common judgment. The question that has been referred reads as follows :
"Whether, on the facts and in the circumstances of the case, the sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law is to be disallowed under Section 43B of the Income-tax Act, 1961, while computing the business income of the said previous year?"
2. For the assessment year 1984-85, the assessee in each of these cases filed a return as required under the Act. Liability in respect of sales tax was indicated on the liabilities side of the balance-sheet. The said liability was treated as part of the taxable income of the assessee with reference to Section 43B of the Act and an addition was made to the income returned. The matter was carried in appeal before the first appellate authority. While, in some cases, the said authority deleted the addition, in some other cases, the same was sustained. Where the addition was deleted, the Revenue carried the matter in second appeal, and where the addition was sustained, the assessee did so. In the cases, where the addition was deleted, the first appellate authority observed that, since the amount was not claimed as deduction in the profit and loss account, there is no scope for applying Section 43B of the Act. The Tribunal did not indicate detailed reasons, but decided in favour of the assessee, in view of the decision of the Cochin Bench of the Tribunal in the case of S. Govindaraja Reddiar v. ITO [1986] 19 ITD 177. It directed the Income-tax Officer to verify the facts of the case keeping in view the principles laid down by the said Tribunal and finalise the matter. The Revenue sought for reference of five questions to this court under Section 256(1) of the Act, but the Tribunal referred the question as indicated above for adjudication.
3. In spite of notice, the assessee in each of the references has not entered appearance in this court. We have heard learned standing counsel for the Revenue.
4. For adjudication of the question referred to this court, we feel it necessary to trace the legislative history of Section 43B. This section was inserted by the Finance Act, 1983, with effect from April 1, 1984. The section, so far as it is relevant for our purpose, reads 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 ...
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.
Explanation.--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."
5. Amendments to Section 43B relevant for our purpose were introduced either as an Explanation or as a proviso. The original provisos introduced in Section 43B by the Finance Act, 1987, read as follows (see [1987] 166 ITR (St.) 9) :
"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 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."
6. Both the provisos have been amended by the Finance Act, 1989. In the second proviso, the words "during the previous yea" have been deleted. The position under the second proviso is that an assessee may claim deduction on account of payment made towards sales tax in a particular accounting year if it was paid by him on or before the "due date" as defined in the Explanation below Clause (va) of Sub-section (1). of Section 36. The Memorandum to the Finance Bill, 1989, clarified the object of deleting the words "during the previous year" in the following words (see [1989] 176 ITR (St.) 124 :
"Under the existing provisions of Section 43B of the Income-tax Act, 1961, 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 Section 43B be deleted."
7. The purpose of insertion of the first proviso to Section 43B is evident from the Memorandum explaining the provisions in the Finance Bill, 1989. The same reads as follows (see [1989] 176 ITR (St.) 123) :
"Under the existing provisions of Section 43B of the Income-tax 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 for furnishing the return under Section 139(1) of the Income-tax Act, 1961, 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 within that previous year, the original provisions of Section 43B will unnecessarily involve disallowance of the payment for the last quarter."
8. Explanation 2 was inserted by the Finance Act, 1989, with effect from April 1, 1984. The same reads as follows :
"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."
9. In the Memorandum explaining the provisions in the Finance Bill, 1989, the purpose of insertion of the said Explanation was indicated which reads as follows (see [1989] 176 ITR (St.) 123) :
"Certain courts have interpreted the provisions of Section 43B in a manner which may negate the very operation of this section. The interpretation given by these courts revolves round the use of the words 'any sum payable'. The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. This is against the legislative intent and it is, therefore, proposed, by way of a clarificatory amendment and for removal of doubts, that the words 'any sum payable', be defined to mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable."
10. The stand of the Revenue is that the expression "any sum payable" as appearing in Explanation 2 means the sum for which the assessee incurred liability in the previous year, even though such sum might not have been payable till that year under the relevant law. The real intent of the first proviso is that with effect from April 1, 1988, where any sum referred to in Clause (a) or Clause (c) or Clause (d) 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, and the evidence of such payment is furnished by the assessee along with such return, nothing contained in Section 43B shall apply to such sum. Since the assessment year involved in the case at hand is 1984-85, the assessee is not entitled to any relief.
11. The argument is attractive as, on a plain reading of the proviso and the Explanation at first blush, that appears to be the intention. But, on a closer reading, it does not appear to be a correct interpretation of the legislative intent. A similar question came up for consideration by the Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70 (Patna). The court held that the proviso to Section 43B is retrospective in its operation and Explanation 2 to Section 43B is subject to the proviso. The law as amended is applicable for the assessment year 1984-85 also. However, a discordant view was expressed by the Delhi High Court in Sanghi Motors v. Union of India [1991] 187 ITR 703 and Escorts Ltd. v. Union of India [1991] 189 ITR 81. In Sanghi Motors' case [1991] 187 ITR 703, the Delhi High Court was considering the challenge to the vires of Section 43B of the Act, It held that the section provided that, in regard to payment of tax, duty, cess or fee, deduction is to be allowed only when the payment is actually made, notwithstanding the system of accounting maintained by the assessee. The same was neither unreasonable nor arbitrary, and not ultra vires Article 14 of the Constitution. In Escorts Ltd.'s case [1991] 189 ITR 81, the Delhi High Court reiterated its view expressed in Sanghi Motors' case [1991] 187 ITR 703, and did not agree with the view expressed by the Patna High Court in Jamshedpur Motor Accessories Stores' case [1991] 189 ITR 70. It observed that the intention of the Legislature is evident from the section itself, and the language being plain, clear and unambiguous, reference to the Finance Minister's speech with a view to interpret the legislative intent was impermissible. It also did not accept the view of the Patna High Court holding that the provision being harsh and unjust, a reference to the Finance Minister's budget speech was imparted.
12. While there can be no denial of the position, as an accepted principle of law that, where the language expressed in a statute is clear and unambiguous, external aid is impermissible, yet there are certain accepted exceptions to the said general principle. In CIT v. J.H. Gotla [1985] 156 ITR 323 (SC), the Supreme Court observed that, where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The warning administered by justice Learned Hand was taken note of, and it was observed that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Any legal system, especially one evolving in a developing country, might permit judges to play a creative role and innovate to ensure justice without doing violence to the norms set by legislation. (See CST v. Auraiya Chamber of Commerce [1987] 167 ITR 458 (SC)). In interpreting relevant procedural provisions, fairness and justice should be the approach and even in a fiscal statute, equity should prevail, wherever the language permits. The principle that fiscal statutes should be strictly construed does not rule out the application of the principle of reasonable construction to give effect to the purpose or intention of any particular provision as apparent from the scheme of the Act, with the assistance of such external aids as are permissible under the law. (See Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC)). A rule of reasonable construction is permitted to be followed and literal construction has to be avoided, (See Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 (SC)). It is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation. (See K.P. Varghese v. ITO [1981] 131 ITR 597 (SC)). Where the provision is explanatory, clarificatory and declaratory, the ordinary rule that a provision in the statute operates prospectively can be excepted and it can be deemed to be operating retrospectively.
13. From the legislative history set out above, we find that the first proviso to Section 43B came into effect from April 1, 1988, and Explanation 2 enacted by the Finance Act, 1989, was made retrospective in its operation with effect from April 1, 1984. From this it is clear that the proviso has to be construed to be a part of the statute when Explanation 2 was enacted. Reading both the provisions harmoniously, it is clear that the proviso was to cover cases from April 1, 1984. In the matter of the memorandum to the Explanation, the following portion is of considerable significance (see [1989] 176 ITR (St.) 123) :
"... 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 within that previous year, the original provisions of Section 43B will unnecessarily involve disallowance of the payment for the last quarter."
14. The only conceivable legislative intention which can be culled out is that the provisions were intended to be operative from April 1, 1984. Any other interpretation would create discrimination between two classes of assessees similarly situated without any reasonable nexus. That could not have been the legislative intent as the avowed object indicated for introducing the provision is clearly discernible to be otherwise. Statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. See State of Tamil Nadu v. Kodaikanal Motor Union (P.) Ltd., [1986] 62 STC 272 ; AIR 1986 SC 1973. In order to interpret a particular provision and to infer the intention of the Legislature, the objects and reasons stated in the Bill, when it is presented in the Legislature could be used. (See Rib Tapes (India) P. Ltd. v. Union of India, AIR 1986 SC 2014). When the words of a section are clear, but its scope is sought to be curtailed by construction, the view expressed by Lord Coke in Heydon's case [1584] 3 Co Rep 7a can be pressed into service. It is now commonly known as interpretation according to Heydon's Rule. In the words of Lord Coke, to arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act ; to consider what was the mischief or defect which was sought to be remedied, and the reason of the remedy. There is a perceivable change now in the approach to interpretation of statutes. The emphasis is now on garnering legislative intent, and not on grammatical meaning. (See Kehar Singh v. State (Delhi Admn.), AIR 1988 SC 1883).
15. Where the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the court can adopt a construction which will carry out the obvious intention of the Legislature. (See P.K. Unni v. Nirmala Industries, AIR 1990 SC 933).
16. The main function of a proviso is to carve out an exception to the main enactment. It cannot normally be so interpreted as to set at naught the real object of the main enactment. (See A.N. Sehgal v. Raje Ram Sheoram, AIR 1991 SC 1406).
17. The object of Section 43B was to refuse deduction to an assessee in respect of certain statutory liability, which the assessee does not discharge or where there is dispute about the liability. In the case of certain assessees, practical difficulties were encountered. With a view to get over them, amendments in Section 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 Section 139(1) of the Act, Section 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 Clause (va) of Section 36(1) of the Act. The assessees 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 Section 43B is retrospective in Us operation. Explanation 2 to the said section is subject to the said proviso and the law as amended is applicable for the assessment year 1984-85. The view in this regard expressed by the Patna High Court in Jamshedpur Motor Accessories Stores' case [1991] 189 ITR 70 has, therefore, our concurrence. We are in respectful disagreement with the view of the Delhi High Court in Escorts Ltd.'s case [1991] 189 ITR 81. A view similar to ours has been taken by the Calcutta High Court in CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676.
18. It is relevant to mention here that the special leave petition filed by the Revenue in respect of the decision of the Patna High Court in Jamshedpur Motor Accessories Stores' case [1991] 189 ITR 70 was dismissed by the Supreme Court by order dated July 19, 1991, in S. L. P. (Civil) No. 11793 of 1991 (see [1991] 191 ITR (St.) 8). Though dismissal of the special leave petition cannot be construed to be expression of any opinion about the merits, we have felt inclined to indicate that, in view of the cleavage of view. It is also significant because special leave has been granted by the apex court in Special Leave Petition (Civil) No. 6467 of 1991 on May 8, 1991, in the case of Weston Electronics Ltd. v. Union of India (see [1991] 191 ITR (St.) 3), where the Delhi High Court following its decision in Sanghi Motors' case [1991] 187 ITR 703 and Escorts Ltd.'s case [1991] 189 ITR 81 had dismissed the writ application.
19. Before we part with the case we would like to point out that when the Tribunal disposes of a second appeal by relying on an earlier decision, the gist of the conclusions arrived at in the earlier case should be indicated.
20. We also noticed in some of the cases that the first appellate authority deleted the addition made on the ground that the amount in question was not claimed in the profit and loss account and, therefore, Section 43B had no application. A similar view had been expressed by the Allahabad High Court in CIT v. S.B. Foundry [1990] 185 ITR 555. Since the Tribunal has not dealt with this aspect, we do not express any opinion about the correctness of the view.
21. Our answer to the question is, therefore, in the negative being in favour of the assessee and against the Revenue. No costs.
S.K. Mohanty, J.
22. I agree.