TMI Blog1994 (1) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee, Messrs. Chandulal Venichand, filed a return of total income of Rs. 41,210. The return was filed on March 20, 1986. During the assessment proceedings, it was noticed that sales tax liability of the assessee was Rs. 4,18,302 (Rs. 3,80,272, sales tax liability + Rs. 38,030, surcharge). After drawing the attention of the assessee, the said amount was added in the total income of the assessee in view of section 43B of the Act and the assessee was directed to pay tax on the income of Rs. 4,63,100. Against that order, the assessee preferred an appeal before the Commissioner of Income-tax. That appeal was partly allowed. However, the contention raised by the assessee that Rs. 4,18,302 representing unpaid sales tax liability should not be included under section 43B of the Act was rejected. Against that order, the assessee preferred an appeal before the Tribunal. The Tribunal heard the said appeal along with two other appeals wherein the question of interpretation of section 43B of the Act was involved. It was pointed out to the Tribunal that all the three assessees were maintaining accounts on the mercantile basis. All of them have separate sales tax accounts in which sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution 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, 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) 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 sums 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid." (emphasis added). The relevant portion of the Memorandum explaining the provisions in the Finance Bill, 1983 is as under: "59. Under the Income-tax Act, profits and gains of business and profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated, under the mercantile system of accounting, income and outgo are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts. For the purposes of computation of profits and gains of business and profession, the Income-tax Act defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed. 60. 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, etc., for long periods of time, extending someti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of furnishing the return under section 139(1) of the Income-tax Act, 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. 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 around 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of furnishing the return under section 139(1) of the Income-tax Act, 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 the previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. 15.2 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 around 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 statutoril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is declaratory in its nature as it provides that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d) 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. (ii) Explanation 2 was added as certain courts have interpreted the provisions of section 43B in a manner which may negate the very operation of the section. We would now refer to the contentions raised by learned counsel for the parties. Mr. Shelat, learned counsel for the Revenue, contended as under: (a) Parliament has taken care to categorically mention that the proviso was to come into force with effect from April 1, 1988. Therefore, there is no question of giving retrospective effect, as the date is specified consciously by the Legislature; (b) The first proviso is neither clarificatory nor explanatory nor declaratory. Original section 43B is clear and unambiguous. However, the proviso was inserted by way of concession by extending the time for payment of tax even beyond the period of the assessment year to mitigate the hardship caused in the last quarter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall perform the impossible task of paying tax for discharging the sales tax liability for the last quarter ending March 31 of that year. It is contended that it is a well-recognised rule of construction that the statutory provision must be construed, if possible, in such a manner so as to avoid absurdity and unjust result which could never have been intended by the Legislature. If it is held that the first proviso is operative only with effect from April 1, 1988, then the remedy provided by Parliament to cure the disease would be frustrated and the assessee would suffer an irreparable loss, which was never contemplated by the draftsmen of section 43B or of the proviso, and that too for no fault of the assessee. It is contended that it is a well-settled rule of interpretation that courts should as far as possible avoid a construction which can attribute irrationality to legislation. For this purpose, he relied upon various passages from the decision of the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597. (c) Most of the High Courts have taken a view in favour of the assessee by holding that the first proviso would be effective from April 1, 1984, and the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original provision to section 43B will unnecessarily involve disallowance of the payment for the last quarter. Further, the first proviso itself declares that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d), which 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) in respect of the previous year in which the liability to pay such sum was incurred. Because of the non obstante clause in the proviso, it has overriding effect on section 43B. Further, it is introduced by realising the difficulty that it was impossible to pay the sum referred to in clause (a), (c) or (d) during the year in which the liability to pay such sum was incurred by the assessee. Hence, it is provided that, if the said sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income, then section 43B shall not be applicable. Therefore, in our view, the provision is remedial and curative in nature to correct the inadvertent omission. It is stated so by the Department by issuing Circular No. 550 as quoted above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he weight for which the sum expressed was to have been payable occasioned the amendment made by the subsequent Act, but that had reference to the former statute as soon as it passed, and they must be taken together as if they were one and the same Act.' Where an Act is in its nature declaratory, the presumption against construing it retrospectively is inapplicable. In Attorney-General v. Theobald [1890] 24 QBD 557, section 11 of the Customs and Inland Revenue Act, 1889, as to the liability of voluntary settlements to stamp duty, was held retrospective, although the litigation in which its terms were involved had commenced before it was passed. Acts of this kind, like judgments, decide similar cases pending when the judgments are given, but do not reopen decided cases." (emphasis supplied). From the aforesaid principles of interpretation, it can be stated that-- (a) where a "statute" is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute would relate back to the time when the prior Act was passed. In the present case, it can be held that the first proviso was added for supplying an obvious omission in section 43B; and (b) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their meaning.' We must not adopt a strictly literal interpretation of section 52, sub-section (2), but we must construe its language having regard to the object and purpose which the Legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which section 52, sub-section (2), appears, because, as pointed out by judge Learned Hand in the most felicitous language: '....the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.' Keeping these observations in mind we may now approach the construction of section 52, sub-section (2). The primary objection against the literal construction of section 52, sub-section (2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but they can certainly help to fix its meaning. It is a well-recognised rule of construction that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Stores v. B. Mohan Lal Sowcar [1988] 2 SCC 513, 524-525 where it was observed that the court construing a provision should not easily read into it words which have not been expressly enacted but having regard to the context in which a provision appears and the object of the statute in which the said provision is enacted the court should construe it in a harmonious way to make it meaningful. An attempt must always be made so to reconcile the relevant provisions as to advance the remedy intended by the statute." In view of the aforesaid legal position, section 43B read with Explanation 2 and the proviso are required to be read harmoniously and construed so as to advance the remedy intended by the statute. (i) Firstly, the purpose of section 43B was to curb the practice of some taxpayers of not discharging their statutory liability such as in respect of excise duty, sales tax, employer's contribution to provident fund and Employees' State Insurance Scheme for a long period of time and yet at the same time to take deduction for the said amount by resorting to the mercantile method of accounting. Further, the Legislature has never intended that the taxpayers, who discharge their s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji and Co. [1992] 198 ITR 110, the Orissa High Court after considering the provisions of section 43B held that the proviso was added to remove practical difficulties which were encountered by certain assessees. The assessees who made payments within the prescribed time were not intended to be brought into the net of disallowance. The object of section 43B to suppress the mischief of withholding of payment and getting a deduction did not apply to such cases and hence it should be held that the first proviso to section 43B would have retrospective effect in its operation. The relevant observations of the court are as under: "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. The main function of the 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). The object of section 43B was to refuse deduction to an assessee in respect of a certain statutory liability, which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [1991] 189 ITR 81, had dismissed the writ application." In the aforesaid decision, the court has relied upon the decision rendered by the Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676, wherein the court has observed that the provisos and the Explanation added to section 43B supplied an omission and were intended to remove the impossibility of performance and, therefore, cannot be said to be prospective in operation. If an assessee has paid the sales tax, etc., on or before the due date applicable in his case for furnishing the return of income, he shall be entitled to claim deduction of that amount, whereas with regard to provident fund, family pension, etc., the assessee shall be entitled to claim deduction if the same has been paid on or before the due date. In the said case, the court has observed that if the contention raised by the Revenue is accepted, it would require the assessee to do an impossible act because the assessee could not have paid its tax liability in the previous year ending on March 31, 1984, as in March, 1984, the last quarter would end. The same view has been taken by the Karnataka High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings in Parliament including the aims and objects of the Act. We agree that the language of section 43B is clear and unambiguous. Therefore, for interpreting the said section, no resort can be had to the aims and objects or to the Minister's speech with a view to interpret the provisions of the Act. But here, we are not interpreting section 43B. We are considering whether the proviso, which is inserted with effect from April 1, 1988, and which is in its nature declaratory, remedial and curative, should be held to be having retrospective effect. As stated earlier, the literal interpretation of section 43B, without there being proviso, was likely to cause unintended hardship to genuine taxpayers. It becomes impossible for them to discharge their sales tax liability for the last quarter within the previous year. It would be too much to hold that the Legislature would require the assessee to discharge an impossible function. Hence, to mitigate the hardship, the proviso was inserted. It is also a well-recognised rule of construction that a statutory provision must be so construed which avoids absurdity and mischief and that a clarificatory and explanatory provision should normally i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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