INCOME TAX OFFICER Vs. K S LOKHANDWALA
LAWS(IT)-1989-9-14
INCOME TAX APPELLATE TRIBUNAL
Decided on September 22,1989

Appellant
VERSUS
Respondents

JUDGEMENT

B.M. Kothari, Accountant Member - (1.)THE Income-tax Officer has preferred this appeal against the order passed by the CIT(A) for A.Y. 1984-85, raising the following ground of appeal:
THE learned CIT(A) has erred in law in deleting the amount of Rs. 21,580 disallowed by the I.T.O. on a/c of unpaid sales tax in accordance with Section 43B of the Income-tax Act.

(2.)The ITO disallowed a sum of Rs. 21,580 out of deduction of Rs. 91,105 claimed by the assessee on account of salestax, on the ground that the said amount of Rs. 21,580 was not paid during the relevant accounting year and hence not allowable as per provisions of Section 43B of the I.T. Act, 1961. The CIT(A) held that the aforesaid amount of Rs. 21,580 represented the salestax liability for the last quarter ending 31st March, 1984, which became payable on 7th May, 1984 according to Rule 31 of the Sales Tax Rules, which permits payments of sales tax of last quarter within 1 month and 7 days from the end of the quarter. The assessee made payment by cheque on 7th May, 1984. The CIT(A) held that since the amount became payable on 7-5-1984, the same could not be validly disallowed by resort to Section 43B of I.T. Act, 1961. He, therefore deleted the aforesaid disallowance of Rs. 21,580. The revenue has preferred this appeal against the said deletion of disallowance made by the CIT(A).
The learned Departmental Representative contended that in view of the specific provisions of Section 43B, the liability in respect of any tax or duty can be allowed in the previous year in which such sum is actually paid by the assessee. The ITO had, therefore, rightly disallowed the aforesaid amount of Rs. 21,580, which remained unpaid at the end of relevant accounting year. He also invited our attention towards recent amendment made in the provisions of Section 43B by the Finance Act, 1989 by which the following Explanation has been inserted with retrospective effect from 1-4-1984:

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.

The learned D.R. submitted that the aforesaid Explanation 2 nullifies the effect of several decisions given by the Tribunal and the Hon'ble Andhra Pradesh High Court in the case of Sri kakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708. He contended that the aforesaid new Explanation 2 inserted in Section 43B clinches the issue conclusively and finally and the aforesaid disallowance of unpaid amount of salestax of last quarter should be restored. He also relied upon the judgments of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615 to support his contention that the amount of salestax is a part of the trading receipt and is taxable as income in the year in which it is collected. The learned D.R. further contended that the first proviso to Section 43B, which provides that if any amount of tax, duty etc. is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income Under Section 139(1), the provisions of main part of Section 43B will not apply in relation to such amount of tax or duty, came into force with effect from 1-4-1988 and applies only in relation to A.Y. 1988-89 and onwards. He, therefore, contended that the order passed by the CIT(A) may be set aside and the disallowance made by the ITO may be restored.

(3.)THE learned counsel for the assessee contended that the provisions of Section 43B were not introduced with the object of providing for disallowance of government dues which are paid by the taxpayers within the time allowed under the respective laws. THE object of inserting Section 43B was to provide for disallowance of those types of liabilities where the taxpayers did not discharge their statutory liability like sales tax as required by the provisions of sales tax laws and also to provide for disallowance of those amount of government dues or liability which is disputed by the taxpayers under the respective laws. Thus the provisions of Section 43B was meant for disallowing disputed amount of sales tax liability or delayed payment of sales tax liability and was never intended to disallow the amount of sales tax liability which is paid by the taxpayers within the prescribed time. THE learned counsel further contended that since the assessee in the present case had given a cheque for payment of sales tax of-last quarter on 7th May, 1984, the disallowance of the aforesaid amount of sales tax of last quarter is apparently contrary to the object, spirit and intention with which the provisions of Section 43B were inserted.
4.1 He further submitted that the aforesaid real legislative intention is apparent from the fact that the first proviso was added in Section 43B by the Finance Act, 1987 clearly providing that in case the amount of any such government dues or tax is paid before the due date for furnishing the return of income Under Section 139(1), no disallowance shall be made in respect of such amount under the main provisions of Section 43B. He contended that the amendment made by Finance Act, 1989, merely clarifies that the words "any sum payable" appearing in Clause (a) 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. By this amendment the effect of interpretation given by certain courts that in order to attract Section 43B the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year, has been nullified. But the same is not meant for denying reduction in respect of statutory liability which is paid in time. He further contended that the provisions of Gujarat Sales Tax Act, constitute an overriding title at source over that part of the trading receipt, which is payable by the assessee by way of sales tax on its turnover to the sales tax department. It was argued that the provisions of the Gujarat Sales Tax Act constitute an overriding title over the amount of sales tax liability and such amount of sales tax liability can never partake the character of income liable to tax. He, therefore, strongly supported the order passed by the CIT(A).



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