Commissioner Of Income-Tax v. Avery Cycle Industries P. Ltd. (No. 1)

1. The following question of law has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated August 29, 1995, in respect of the assessment year 1987-88:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the liability of Rs. 94,759 is allowable if the payment is made before the due date prescribed under section 139(1) and that the first proviso to section 43B has retrospective application though it came into being with effect form April 1, 1988 ?”

2. In the course of assessment, the Assessing Officer disallowed the claim of the assessee on account of sales tax/Central sales tax and PF shown in the books of account as payable on the ground that the assessee had not actually paid the said amount before the due date prescribed under section 139(1) of the Income-tax Act, 1961 (for short, “the Act”), and that the first proviso to section 43B of the Act was not retrospective, which came into force with effect from April 1, 1988.

3. The Commissioner of Income-tax (Appeals) affirmed the view taken by the Assessing Officer. However, on further appeal, the Tribunal reversed the said view and held that the proviso in question was retrospective and was applicable to the assessment year 1984-85 onwards.

4. The matter was remanded to the Assessing Officer to determine whether payments had been made before the due date as specified in the Explanation to section 36(1)(va) of the Act.

5. We find that the matter is covered by the judgment of the hon'ble Supreme Court in Allied Motors (P) Ltd. v. Commissioner Of Income Tax, Delhi, [1997] 224 ITR 677, in favour of the assessee and against the Revenue. In the said judgment, after referring to circumstances in which section 43B of the Act was enacted, i.e, to take care of the situation where taxpayers did not discharge their statutory liability, the hon'ble Supreme Court referred to circumstances which led to subsequent assessment, i.e, hardship to the taxpayers who had discharged their liability but were prevented from claiming legitimate deduction, which was not intended by the said provision. The amendment by the Finance Act of 1987 was, thus, held to be remedial in nature. Reference was also made to Departmental Circular No. 550 dated January 1, 1990 (see [1990] 182 ITR (St.) 114, 123). The amendment was held to be retrospective being curative and declaratory. It was observed at page 685:

“Therefore, section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into section 43B from its inception along with Explanation 2.”

6. Following the above view, we decide the question against the Revenue and in favour of the assessee.