TMI Blog1995 (3) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the Tribunal was justified in directing that the amount of Rs. 92,122 being the unpaid sales tax on November 4, 1983, i.e., the last date of the previous year, should not be disallowed under section 43B if it is found to have been paid (subsequently) within the time allowed under the relevant Sales Tax Act ? (2) Whether the amended provisions of section 43B, introduced with effect from April 1, 1988, are retrospective and are applicable to the assessment year under consideration, i.e., the assessment year 1984-85 ? " The facts of Sanklecha Brothers are that the assessment in this case was completed under section 143(3) on March 30, 1987. Subsequently, the Commissioner of Income-tax, Jodhpur, exercised his jurisdiction under section 263 and set aside the order of the Income-tax Officer with a direction that an amount of Rs. 92,122 representing unpaid sales tax liability should be disallowed by invoking the provisions of section 43B. The assessee challenged this order before the Income-tax Appellate Tribunal which held that if the sales tax remained unpaid at the end of the previous year, but has been paid within the time allowed under the Sales Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchaser, the assessee would be entitled to claim deduction of the sum so paid or refunded. The sales tax receipt by the seller is a trading receipt. On the basis of the decision of the apex court, the Commissioner of Income-tax came to the conclusion that the entire sales tax collected is a trading receipt and the deduction should have been allowed for the actual sales tax paid by the assessee. The unpaid liability on account of sales tax is liable to tax in view of the provisions of section 43B and, as such, the power under section 263 was invoked. The submission of learned counsel for the Revenue is that the amendment in section 43B was made by the Finance Act, 1988, and was effective from April 1, 1989. The Tribunal has erred in giving retrospectivity to the said amendment which neither the Legislature has contemplated nor could be considered otherwise. In order to appreciate the argument of learned counsel for the Revenue the provisions of section 43B are reproduced hereunder : " 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-- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing year. In order to overcome this problem amendment was made by the Finance Act, 1988, by which the words "cess or fee, by whatever name called" were inserted in clause (a) with effect from April 1, 1989. By the Finance Act, 1989, Explanation 2 was added retrospectively from April 1, 1984, which read as under : " For the purpose 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 two provisos to this section were inserted by the Finance Act of 1987, with effect from April 1, 1988. It is the second proviso which was substituted by the Finance Act, 1989. The second proviso now is as under : " 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 realised within fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held by the apex court that (at page 1979) : " The courts must always seek to find out the intention of the Legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As judge Learned Hand said, we must not make a fortress out of the dictionary but remember that 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. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye 'some' violence to language is permissible. " In the case of Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155, 164 (CA), it was observed : " ...It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether such tax or duty is disputed or not) or 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 shall be allowed only in computing the income of that previous year in which such sum is actually paid by him. 61. This amendment takes effect from 1st April, 1984, and will accordingly apply in relation to the assessment year 1984-85 and subsequent years. " According to the first proviso, an assessee was entitled to claim deduction on account of payment of tax, etc., if he has actually paid it on or before the due date applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This amendment will take effect from 1st April, 1984. Under the existing provisions of section 43B of the Income-tax Act, 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. This amendment will take effect from 1st April, 1989. Unlike other payments referred to in section 43B of the Income-tax Act, the deduction regarding employer's contribution, if denied in a year, is not available as a deduction in any subsequent year also. On account of various reasons like postal delay, stri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Sometimes a statute, although not intended to be retrospective, will in fact have a retrospective operation.... similarly, if a statute is passed which renders the performance of a contract impossible, the rule of law is that the contract is frustrated by supervening impossibility. " In the case of S. Sundaram Pillai v. V. R. Pattabiraman, AIR 1985 SC 582, the apex court has considered the scope and ambit of the proviso and Explanation and came to the conclusion that both can function as interpretation clauses. The Explanation has been added retrospectively while the proviso does not say so. If both are read together and the proviso is not considered as declaratory the result would be that even if a liability is incurred and discharged within the statutory time-limit under the Act an assessee cannot claim the benefit from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rule of interpretation (keeping in view the objects as stated in the memorandum to the Finance Bill) is that where compliance with the statute is an impossibility, any amendment or change in the statute will take effect retrospectively. The second proviso added by the Finance Act, 1987, and amended by the Finance Act, 1989, is explanatory in nature and, therefore, retrospective in operation. The Patna High Court, in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70, considered the amendment as explanatory in nature and the proviso to section 43B was, therefore, considered retrospective in its application. It was found that Explanation 2 is subject to the proviso to section 43B and the assessee is entitled to claim deduction of tax if it has actually been paid by him on or before the due date applicable in his case for furnishing the return of income under section 139(1). The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676 has held that the Explanation is intended to clarify the legislative intent by providing that the word "any sum payable" means any sum the liability for which has been incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be stated that the proviso is inserted as a remedial and curative measure. (iii) Thirdly, by its very nature, the proviso is in a declaratory form. (iv) Fourthly, it is accepted by all concerned that sales tax for the last quarter cannot be paid within the previous year. That is to say, it is impossible to pay the sales tax for the last quarter within the previous year. It would be unreasonable to say that sales tax payment for the last quarter be made within the previous year. If Explanation 2 and clause (a) of section 43B are read together, it would mean that deduction shall be allowed in computing the income only in the year in which such sum is actually paid in respect of any sum payable by way of tax for which the assessee incurred liability in the previous year, even though such sum might not have been payable within that year (e.g., under the sales tax law). If the first proviso was not there, it is bound to cause untold hardship to the assessee, because practically it would be impossible for him to discharge the sales tax liability of the last quarter in the previous year in which the liability was incurred. To obviate this hardship, as a remedial and curative mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere assessees of discharging their liability of sales tax within the statutory time permitted under the R. S. T. Act or other statutes. The Legislature has also realised the mistake and inserted the proviso for that reason alone. The object of insertion of the proviso by the Finance Act, 1987, was stated in the memorandum of the Finance Act that the object behind the proviso to section 43B is to provide for a tax disincentive for deduction in respect of statutory liability which is not paid in time. The Finance Act, 1987, inserted the proviso to section 43B provides that any sum payable by way of tax liability can be deducted only if it was paid within the due date in respect of the assessment year to which the aforesaid previous year relates. While the Legislature steps in to remove the unintended hardship, the object behind it was not to subject a person to tax in respect of the tax which has been paid after the close of the accounting year within the time statutorily permitted. It was intended only to cover those assessees who are violating the provisions of other Acts like the Sales Tax Act and are not depositing the tax in time and at the same time claiming the benefit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the return for the next assessment year. The proviso is not intended to provide even undue benefit to the Revenue and, therefore, on a harmonious construction it can reasonably be said that if the tax amount has been paid within the statutory time allowed under the sales tax law which may fall even in the next accounting year, the assessee would be entitled to gain the benefit of the proviso from the assessment years 1984-85 to 1987-88. The position with regard to the assessment year from 1988-89 is not in dispute. The proviso was added to remove the hardship caused to certain taxpayers who have represented that since the tax for the last quarter cannot be paid within that year. Besides this, the Explanation 2 with regard to the words "any sum payable" was added retrospectively from April 1, 1984. In these circumstances, we are of the view that the reference is to be answered in the affirmative, in favour of the assessee and against the Revenue, and it is held that the Tribunal was justified in directing that the amount of unpaid sales tax liabilities to the last date of the previous year could not be disallowed if it is found to have been paid subsequently within the time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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