TMI Blog1990 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... owed time under the statute governing payment of sales tax and such payment is made within the period so prescribed even though after the close of the accounting year, this payment cannot come within the purview of section 43B of the Act. The assessee claimed before the Tribunal that the amount of Rs. 1,01,174 was paid before the statutory dates which fell outside the accounting year. Since the claim required examination by the Income-tax Officer, the Tribunal remanded the matter to the Income-tax Officer to find out whether the impugned amount was or was not statutorily payable before the end of the accounting year on March 31, 1984, and to allow the relief accordingly. On these facts, the following question has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in directing the Income-tax Officer not to make addition of Rs. 1,01,174 under section 43B of the Income-tax Act, 1961, as unpaid Central sales tax if the same was not statutorily payable before the end of the accounting year ? Before us, the contentions as urged before the Tribunal have been reiterated by the Revenue. None appeared for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Government of its dues while enjoying the benefit of non-payment. To curb such practices, I propose to provide that irrespective of the method of accounting followed by the taxpayer, 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." Under section 145 of the Income-tax Act, profits and gains of business or 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 expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. For the purposes of computation of profits and gains of business or profession, section. 43(2) of 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. There are cases 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 some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeding previous year, the assessee is entitled to deduction of such liability for the assessment year relevant to the previous year in which such liability was incurred. We are concerned with the Central sales tax law. The provisions of the sales tax law of the State will apply mutatis mutandis in relation to filing of returns and provisional assessment, advance payment of tax, etc., under the Central sales tax law. We may, therefore consider the provisions of the Bengal Finance (Sales Tax) Act, 1941. Section 4, sub-section (2) of the said Act states that every dealer to whom sub-section (1) does not apply (with which we are not concerned in this case), shall, if his gross turnover calculated from the commencement of any year exceeds the taxable quantum at any time within such year, be liable to pay tax under the Act on the expiry of two months from the date on which such gross turnover first exceeds the taxable quantum, on all sales effected after such expiry. Section 5(2) defines what is meant by taxable turnover. Section 7(1) enjoins that no dealer shall, while being liable to pay tax (under section 4 of the said Act), carry on business as a dealer unless he has been regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax within the period prescribed by statute, he cannot be denied the benefit of deduction of such tax, although it may have been paid after the close of the accounting year in which such liability arose. The object of section 43B is not to penalise an assessee who does not merely show the tax dues as a liability but actually pays the tax within the time prescribed by the statute. The object is to collect the Government revenue by compelling the assessee to discharge the liability by making actual payment and to get, the benefit of deduction. In other words, the object behind the provision is to provide for a tax disincentive by denying deduction in respect of a statutory liability which is not discharged by actual payment in time. If the construction which is suggested by the Revenue is accepted, in that event, although the assessee has incurred the liability and the time to make payment of such liability has not yet expired, the assessee will be disentitled to the benefit of deduction, although he discharges the liability within the time allowed by the relevant statute. Although the liability may have been incurred during the relevant previous year, it may not be possible to quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by him to provident funds, etc., in a particular accounting year if it is paid by him on or before the due date as defined in the Explanation below clause (va) of subsection (1) of section 36. The object of deleting the words "during the previous year" was clarified in the memorandum to the Finance Bill, 1989, which reads as follows : "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, there re, proposed that the words 'during the previous year' occurring in the second proviso to section 43B be deleted." The Memorandum explaining the provisions in the Finance Bill, 1989, clarified the object of insertion of the first proviso : "Under the existing provisions of section 43B of the Income-tax Act, a deduction for any sum payable by way, of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the proviso introduced from April 1, 1988, would not be available to the taxpayer in respect of the assessment years 1984-85 to 1987-88. The question, therefore, is whether the object of the amendments made to section 43B would apply prospectively from the assessment year 1988-89 or from the assessment year 1984-85. If the provisions are not harmoniously construed, in that event, in our view, for the assessment years 1984-85 to 1987-88, the assessee would be denied the benefit of deduction, even if the liability incurred during the relevant previous year has been discharged before the filing of the return relating to that previous year. Our attention has also been drawn to Explanation 2-to section 43B, inserted by the Finance Act, 1989, with retrospective effect from April 1, 1984, which is to the following effect : " 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 Memorandum explaining the provisions of the Finance Bill, 1989, put forward the following r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee would be denied deduction of such taxes in the subsequent assessment year only because the liability in respect of that tax did not arise in that year, but in an earlier year and thereby the assessee would be denied deduction of the taxes paid relating to the last quarter which could only have been paid in the next subsequent previous year. This could never be the intention of the Legislature. It has also been contended that no statute shall be construed to have restrospective operation unless such a construction appears very clearly at the time of passing of the Act or arises by necessary and distinct implication. There is nothing mentioned in the proviso that it would be retrospective. On the other hand, the Legislature had taken care to see that it applies only from April 1, 1988. Against the very specific mention of the date of its operation, it was difficult to say that it was intended to apply restrospectively either, by construction or by necessary implication. There was no material to say that the proviso is declaratory. It is no doubt true that, ordinarily, a statute, and particularly when the same has been made applicable with effect from a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1984-85, but should be extended to the subsequent assessment years also. In this case, the liability was required to be discharged or could only have been discharged by the assessee after the expiry of the accounting year within 30 days from the end of the accounting year and, accordingly, this amount for the particular quarter was not actually payable within the accounting year under the relevant law. Our attention has been drawn to the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. This decision has laid down that the obligation to pay sales tax arises as soon as the sale is effected. Here, we are concerned with the effective date of discharge of such liability in the light of section 43B. The said decision has no relevance to the facts of this case. The questions on the facts and in the circumstances of this case as to whether the liability for sales tax accrued within the previous year and whether the assessee discharged such liability by actual payment within the period prescribed under the relevant statute were not gone into by the Income-tax Officer in this case. We are, therefore, of the view that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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