TMI Blog1988 (3) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... oyer 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 (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. " In the Budget Speech of 1983-84, this is what the Honourable Finance Minister had stated concerning the aforesaid provision n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. " Shri Anantha Babu, leading the arguments, raised the following contentions : (i) The provision is violative of article 14 and article 19(1)(g) of the Constitution and should, therefore, be struck down (ii) The provision is not applicable to " sales tax (iii) In any event, as the provision came into force on April 1, 1984. it cannot be applied in respect of claims for deduction up to and including March 31, 1984. The provision is applicable for the assessment year 1985-86 for which the corresponding financial year commences on April 1, 1984. The constitutional validity of the provision is questioned on the following grounds : It is pointed out that most of the businessmen maintain accounts on what is known as " merca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by an assessee into the two categories abovementioned is impermissible and violates equal protection of laws. Learned counsel also pointed out that the assessees carrying on business incurring expenses other than taxes and duties are treated differently and an invidious discrimination is shown against the assessees carrying on business incurring liabilities to pay taxes and duties. Learned counsel claims that this is hostile discrimination. It is further-submitted that in choosing " taxes and duties " for special treatment under section 43B, the Legislature acted arbitrarily. Learned counsel submits that where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is, therefore, violative of article 14. It is submitted that article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. By discriminating " taxes and duties " and making a separate provision concerning the allowance of these two items of expenses, fairness and equality of treatment have become a casualty, contends Shri Anantha Babu, learned counsel. We are unable to accept the submissions of learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercantile system and, consequently, the disputed taxes and duties constituted legitimate deductions as the liability to pay the same was incurred in the accounting years concerned, albeit the amounts were not actually paid. The Revenue was told that in system of mercantile accounting, actual payment is unnecessary and the profits and gains under the head " Profits and gains of business or profession " would have, therefore, to be computed deducting these taxes and duties. Thus, on the one hand, the businessmen had free use of the funds collected from the public by way of taxes for the ostensible purpose of making them over to the public exchequer and at the same time secured tax reliefs without paying the same. The provisions of law, as they stood at the relevant time, could not remedy the situation and the result was that " taxes and duties " aggregating to thousands of crores of rupees lay in the hands of the taxpayers while the Government was reeling under the pressure of finding moneys to discharge commitments. That was the alarming situation when the Legislature felt concerned to find a remedy to the problem. The result was that section 43B was inserted in the Act which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the custody of such funds, till matters were finally decided, should not have been entrusted to the Government itself as, undoubtedly, the Government would be obliged to repay the moneys so entrusted for custody with interest, if eventually courts hold that the levy was illegal. There was no provision under which a businessman could be compelled to deliver custody of such disputed funds. Section 43B perhaps answers this in a limited way. We do not think learned counsel is correct in contending that as between the assessees carrying on business any discrimination is made out in so far as the deductibility of the two items are concerned. While all other expenses continue to be allowed on the basis of incurring the liability without actual payment, only " taxes and duties " are subjected to a special requirement regarding actual payment and this special requirement is common to all assessees carrying on business. The question of deducting " taxes and duties " in the case of non-business assessees does not arise. We are, therefore, not satisfied with the contention that section 43B practises any discrimination. We do not also find any infirmity in the classification as it has a nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, learned counsel contends, the provision relating to the payment of taxes for securing deduction does not apply to sales tax. We do not see why. Once it is accepted that sales tax is allowed as expenditure under section 37, then the provision relating to actual payment under section 43B applies to sales tax as much as it applies to any other tax. It is not relevant that there is no specific provision in the Act regarding deduction of sales tax as an expenditure. In our opinion, this contention has no force at all. That leaves one more contention urged by Shri Anantha Babu to be considered. It is pointed out that section 43B came into force from April 1, 1984, although it was introduced by the Finance Act, 1983. It is urged that the real effect of the provision coming into force on April 1, 1984, is that the restrictions in section 43B apply only to expenditure by way of " taxes and duties " incurred on or after April 1, 1984. According to learned counsel, all expenses by way of taxes up to and including March 31, 1984, fall to be allowed without reference to section 43B. We are unable to agree. The declaration that the provision comes into force on April 1, 1984, is to ensur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the hands of the petitioners wherever such disallowance has been made. One other contention addressed to us is that the liability to pay sales tax for the month of March, 1984, was disallowed in terms of section 43B in all the cases before us. Shri Swamy, learned counsel, pointed out that the petitioners filed A2 monthly returns according to which they pay the taxes. Our attention has been invited to rule 17 of the Andhra Pradesh Sales Tax Rules, 1957, which, in terms, provides that the tax in relation to the return shall be paid before the 25th day of the succeeding month, It is urged that where the statute itself prescribes the date of payment, no exception could be taken, acting under section 43B, that the amount was not paid rendering justification for its disallowance. It is urged that section 43B can have no application to cases where the statutory liability which was incurred in the accounting year is also not payable according to the statute in the same accounting year. We find considerable force in the contention of Shri Swamy. In order to apply the provisions of section 43B, it seems to us that not only should the liability to pay the tax or duty be incurred in the ..... 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