1. As the Bench, where this appeal was originally fixed for hearing, was of the opinion that there were conflicting decisions of the Benches of the ITAT (The Tribunal) in respect of the proviso, which was inserted in s. 43B of the IT Act, 1961 (the Act) by the Finance Act, 1987, w.e.f 1st April, 1988 and the Explanation 2, which was inserted in the said section, by the Finance Act, 1989 retrospectively from 1st April, 1984, it forwarded the record of the appeal to the President of the Tribunal with a request to constitute a Special Bench to resolve, the conflict. Under s.- 254(3) of the Act, the President has constituted the present Bench and referred the following question:

“Whether the sales-tax payable, but which has not fallen due for payment under the Sales-tax Rules,. can be allowed as an expenditure in spite of the retrospective introduction of Explanation to s. 43B by the Finance Act, 1989?”

2. At the outset, the learned Standing Counsel for the Revenue, Shri B. Gupta, placed before us a copy of a recent decision of the Hon'ble Delhi High Court dt. 22nd Aug., 1990 in the case of Sanghi Motors (CWP No. 2692 of 1990) [since reported as Sanghi Motors v. Union of India, (1991) 91 CTR (Del) 15] which reads as under:

“The challenge in this writ petition is to s. 43B of the Income-tax Act as in force with effect from 1st April, 1984.

The petitioner is a dealer in motor vehicles and its accounting year is the calendar year. In respect of the asst. yr. 1985-86, the accounting year ended on 31st Dec, 1984. With regard to the sales made for the quarter ending 31st Dec, 1984, the petitioner paid sales-tax on 31st Jan., 1985. The petitioner, however, claimed a deduction of the payment of sales-tax in, the accounting year relevant to the asst. yr. 1985-86.

The ITO while applying s. 43B disallowed the said deduction claimed and added back the amount. On the basis of the said add back additionai tax has been sought to be recovered from the petitioner. It is also contended that proceedings for penalty and levy of interest have also been initiated.

Sec. 43B as it stood in the asst. yr. 1985-86 reads as under:

“Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of:—

(a) Any sum payable by the assessee by way of tax or duty under any law for the time being in force, or

(b) 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 the 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 s. 28. of the 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 cl. (a) or cl. (b) of this section is allowed in computing the income referred to in s. 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”

The reading of this section clearly shows that the deduction can be claimed only in the year in which the payment is actually made. In other words, the deduction cannot be allowed as per the principles of mercantile system of accounting, namely, when the liability arises but now it can be allowed only in the year in which the tax is actually paid. In the present case, the tax having been paid on 31st Jan., 1985, it would be, in the case of the petitioner, in the accounting year ending 31st Jan., 1985 and corresponding to the asst. yr. 1986-87, that the deduction can be claimed.

It is submitted that this provision, namely, s. 43B is arbitrary and is impossible of compliance. It is true that there may be some difficulty in the petitioner paying sales-tax in respect of sales made towards the end of the quarter ending 31st Dec, 1984, but it is not as if the deduction to the petitioner is denied. The only thing what happens is that the deduction can be claimed in the year in which the tax is actually paid, namely, in the following assessment year, in the present case. The provision of law is very clear and unambiguous. There are various provisions under the Income-tax Act where it has been stipulated that deductions would be allowed, in certain cases, only when the disbursements are actually made by the assessee. We do not find this to be an arbitrary exercise of power or any arbitrary provision. It is well-known that books of accounts are maintained either on mercantile basis or on cash basis. The legislature has thought fit that, with regard to the payment of sales-tax, the deduction is to be allowed only when the payment of sales-tax is actually made. Such a provision is not unknown to the Income-tax Act and we do not find it unreasonable or arbitrary. It is submitted by Dr. Singhvi that the petitioner is being subjected to penalty proceedings and interest is also being charged. Whether the penalty is leviable or not is a matter to be gone into in those proceedings, which are independent and distinct from the assessment proceedings. We would not like to comment on that. All that has to be seen is whether the provision of law is clear and if it is, then it was up to the assessee to follow it or not. If the assessee chooses not to follow that provision of law, then consequences may follow. We find it difficult to accept the contention that because aforesaid consequences may ensue, due to non-compliance with s. 43B, the said provision itself becomes arbitrary and ultra vires Article 14 of the Constitution.

It was next submitted by Dr. Singhvi that amendment to s. 43B has been made in the year 1987 and this amendment w.e.f 1st April, 1988 is clarificatory in nature and by applying the said amendment, the petitioner was entitled to relief. We are unable to agree with this submission. The amendment clearly states that it is with effect from 1st April, 1988. This being so, it is not possible to give the amending provision retrospective effect w.e.f 1st April, 1984. It was lastly contended that similar Writ Petition has been filed in this court being Civil Writ No. 776 of 1990 and in that case, notice to show cause has been issued and stay was granted. We find that rule nisi has not been issued in that case, though limited stay has been granted. We have considered all the contentions raised by the petitioner before us in the present case and have heard the learned counsel for the petitioner at length and we do not find any merit in any of the contentions raised by him and, therefore, we see no reason as to why any notice or rule nisi should be issued. The petition is, accordingly, dismissed in limine.”

He submitted that in view of the said decision, the issue raised in the aforesaid question has become academic and, therefore, we should uphold the disallowance of Rs. 41,902.

3. Faced with this position, the learned representative for the assessee, Shri Ganesan and the learned counsel for the interveners, S/Shri G.C Sharma, O.P Vaish and M.S Syali, strongly urged that since other similar matters are pending before the Hon'ble Delhi High Court and are likely to come up for hearing in the first week of November, 1990, we should adjourn the hearing of the appeal, till such time the Hon'ble High Court dispose of these matters. After some discussion, we declined to adjourn the hearing and called upon the parties to make their submissions.

4. Shri Ganesan first gave us the background under which s. 43B was brought on the statute. In this connection, he stated that relying on the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT, (1971) 82 ITR 363 (SC), some of the taxpayers, who were following mercantile system of accounting, claimed deduction of statutory liabilities like Sales-tax, Central excise, etc. etc. on accrual basis. However, at the same time, they were challenging such liabilities in the court of law on one pretext or other and obtained stay of demand raised by the appropriate authorities under Sales-tax, Central excise; etc. etc. In other words, these tax-payers used to get deduction of such liabilities in computing the taxable income under the Act and at the same time, retained the money with them. In order to curb such practice, s. 43B was brought on the statute with effect from 1st April, 1984 by the Finance Act, 1983, which reads as under:

“43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of:—

(a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or

(b) 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 the 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 mehod of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him.”

5. Soon the law abiding tax-payers started experiencing unintended harships, inasmuch as they were not allowed full deduction of such liabilities as the last quarter of Sales-tax, Provident Fund etc. almost invariably fell after the end of the previous year followed by them. In the case of the assessee, whose previous year ended on 31st Jan., 1984, the taxes and dues payable in the last quarter under various enactments were as under:

AMOUNT DUE DATE OF PAYMENT States' Sales-tax Rs. 6,719.85 28-2-1984 & 3-4-1984 Central Sales-tax Rs. 29,633.40 28-2-1984 Provident Fund payments Rs. 5,547.65 -do- Rs. 41,900.00

6. As large number of law abiding tax-payers were experiencing hardships mentioned above, representations were made by various Trade Associations including Federations of Chambers of Commerce and Industries to the Govt. to remove or mitigate such hardships. With a view to meet this object, a proviso was inserted in s. 43B of the Finance Act (sic) with effect from 1st April, 1988 by the Finance Act, 1987 in the following manner:

“Provided that nothing contained in this section shall apply in relation to any sum referred to in cl. (a) or cl. (c) 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-s. (1) of s. 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.”

7. Meanwhile, the Hon'ble Andhra Pradesh High Court had an occasion to consider the provisions of s. 43B of the Act prior to the insertion of the aforesaid proviso in a writ petition filed by S. Subbarao and Co., challenging the constitutional validity of the provisions of the said section. In their judgment dt. 3rd March, 1988 reported as Sinkakollu Subba Rao & Co. v. Union of India, (1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP), a Division Bench of the Hon'ble High Court upheld the constitutional validity of the said section. However, the learned Judges interpreted the words “any sum payable” occurring in the said section as under:

“It is urged that s. 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 s. 43B, it seems to us that not only should the liability to pay the tax or duty be incurred in the accounting year but the amount also should be statutorily ‘payable’ in the accounting year

(emphasis supplied).

Sec. 43B itself is clear to this extent. It refers to the ‘sum payable’ in cl. (a) as well as in cl. (b). If the Legislature intended, it should have so provided that any sum for the payment of which liability was incurred by the assessee would not be allowed unless such sum is actually paid. Keeping in mind the object for which s. 43B was enacted, it is difficult to subscribe to the view that a routine application of that provision is called for in cases where the ‘taxes and duties’ for the payment of which liability was incurred in the accounting year, were not statutorily payable in that accounting year. If, under the provisions of any statute a tax or duty is payable after the close of the accounting year, different considerations would prevail and it may not be open to the ITO to disallow tax or duty which is statutorily payable after the accounting year. In fact, the amendment brought about which is coming into force on April 1, 1988 permitting the deduction of taxes and duties paid before the filing of the income-tax returns clearly supports the view that ‘taxes and duties’ not statutorily payable during the accounting year do not fall to be disallowed under s. 43B”.

8. It was felt that the aforesaid interpretation given by the court was against the legislative intent. With a view to clarify the legislative intent and to remove doubt, Explanation 2 was inserted in s. 43B by the Finance Act, 1989 w.e.f 1st April, 1984 in the following manner:

Explanation 2. For the purposes of cl. (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.”

9. Shri Ganesan, for the assessee, strongly argued that since by the insertion of the said proviso, the legislature wanted to mitigate rigours of s. 43B of the Act, the provisions of the said proviso would be applicable in respect of the assessments beginning from the asst. yr. 1984-85 and not the assessments in respect of the asst. yr. 1988-89 onwards merely on the ground that the said proviso was brought on the statute w.e.f 1st April, 1988. In this connection, he referred to certain provisions of the Act like s. 40A(3) and (7) as well as s. 52(2) and submitted that, in order to appreciate the assessee's case in proper perspective, we must keep in mind the legislative history, including speeches of the Finance Minister moving the Finance Bills for bringing in the provisions on the statute, circulars issued by the Central Board of Direct Taxes (CBDT) in this regard, as well as the observations made by the Hon'ble Courts, including the Hon'ble Supreme Court in certain reported decisions. According to him, there is no reason or logic in not giving benefit of the said proviso to the tax-payers in respect of the asst. yrs. 1984-85 to 1987-88. In this connection, he also made out a point that if the submissions advanced by him are not accepted then the tax-payers like his assessee, would be in a worse position in view of the provisions of s. 115J of the Act, where a tax-payer is required to pay 30% by way of tax on his gross profit, even though he has to pay the last quarter of sales-tax and other statutory dues after the end of the relevant previous year. In other words, according to him, the purport of ss. 43B and 115J of the Act read together, is to share the cash flow with the Govt. Such sharing could only be of the net profits, after taking into account the entire statutory liabilities of the relevant previous year. For various submissions made by him, Shri Ganesan referred to the decision in the cases of K.P Varghese v. ITO, (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) (at page 598), Sole Trustee, Sole Trustee, Lok Shikshana Trust v. Cit, Mysore, 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC), Sinkakollu Subba Rao & Co. (supra) and Mysore Kirloskar Ltd. v. Union of India, (1986) 53 CTR (Kar) 128 : (1986) 160 ITR 50 (Kar). He therefore, urged that we should approve the order of the Tribunal in the case of ITO v. K.S Lokhandwala, (1989) 80 CTR (Trib)(Ahd) 90 : (1989) 31 ITD 305 (Ahd). According to him, the order of the Tribunal in the case of Jitaji Chunilal V. Thakkar v. ITO, (1990) 34 ITD 347 (Ind) requires reconsideration.

10. Shri Sharma, appearing for the Intervener, M/s Jai Engineering, apart from adopting the submissions of Shri Ganesan, submitted that we are not bound by the aforesaid decision of the Hon'ble High Court in the case of Sanghi Motors as the Hon'ble High Court was pleased to dismiss the petition in limine. According to him, whenever a court is pleased to dismiss the matter in limine, it has no binding effect. For this proposition, he referred to the decision of the Hon'ble Patna High Court in the case of CIT v. Sheo Kumari Debi, (1986) 50 CTR (Pat) 350 (FB) : (1986) 157 ITR 13 (Pat) (FB) at pages 25 and 26 (ITR) of the report. He, therefore, urged that we should decide the issue involved, uninfluenced by the decision in the case Sanghi Motors. Thereafter, he stated that the purpose of the provisions of s. 43B of the Act is to carve out exception to the well settled method of accounting, namely, mercantile system of accounting. Under that system, a tax-payer is entitled to a deduction of a statutory liability on accrual basis even though he discharges such liabilities later on by making actual payment. However, with the introduction of s. 43B of the Act, a tax-payer would be entitled to a deduction of statutofy liabilities only when he actually pays such liabilities and not earlier. The proviso to s. 43B of the Act was brought on the statute “to carve out an exception to the exception” with a view to mitigate unintended hardships noted hereinabove. According to Shri Sharma, keeping in mind the circumstances under which the said proviso was inserted in the section, it has to be given retrospective effect, even though the same was brought on the statute w.e.f 1st April, 1988 by the Finance Act, 1987. In this connection, he posed a question to himself, as to what would have happened if the CBDT were to come out with a circular to allow deduction of the statutory liabilities of the fourth quarter also under the main provision of the section instead, the legislature bringing the said proviso on the statute. He also wondered how a beneficial provision like the proviso to s. 43B of the Act could not be given retroactive effect, merely because the date mentioned about its insertion is 1st April, 1988. He also referred to number of reported decisions in the cases Ahmedabad Manufacturing & Calico Printing Co. Ltd. v. G. Mehta, ITO, (1963) 48 ITR 154 (SC), CIT v. Bejoy Kumar Almal, (1977) 106 ITR 743 (Cal), Mithilesh Kumar v. Prem Behari Khare, (1989) 76 CTR (SC) 27 : (1989) 177 ITR 97 (SC) (at page 99), CIT v. Madurai Mill Co. Ltd., 1973 CTR (SC) 223 : (1973) 89 ITR 45 (SC) (at page 51) and CIT v. Indo-Mercantile Bank Ltd., (1959) 36 ITR 1 (SC) to urge that keeping in mind the purpose for which the said proviso was inserted, there is no escape but to hold that its effect has to be given retroactively right from 1st April, 1984 i.e, from the asst. yr. 1984-85 onwards and cannot be restricted to the asst. yr. 1988-89 and subsequent assessment years. He also referred to pages 221 and 395 of Caires on Statute Law (6th Edition) wherein the purpose of a proviso in a section has been discussed. In this view of the matter, he strongly urged that not much importance should be given to the date, namely, 1st April, 1988, except that the said proviso was inserted on that date.

11. Shri Vaish, appearing for second Intervener, namely, M/s Food Specialities, apart from adopting the arguments of his predecessors, referred to second proviso to s. 54E of the Act, which, according to him, is analogous to the proviso to s. 43B of the Act, with which we are concerned and stated that in the case of S. Gopal Reddy v. CIT, (1990) 181 ITR 378 (AP), while interpreting the provisions of second proviso to s. 54E of the Act, the Hon'ble Andhra Pradesh High Court gave a retroactive effect and was pleased to decide the matter in favour of the tax-payer. He also touched upon the issues like hardship, that the sales-tax collected was not a trading receipt, that subsequent amendment could be looked into in interpreting particular provisions of the Act, that equity and fair play could be taken into account, with a view to minimise the hardship and that when two views are possible, the one in favour of the assessee should prevail. In this connection, he also referred to number of decision in the cases of 5. Gopal Reddy (supra), Sinkakollu Subba Rao & Co. (supra) at pages 714 and 715 (ITR), CIT v. Madhukant N. Mehta, (1980) 19 CTR (Guj) 130 : (1981) 132 ITR 159 (Guj) at page 180, Himson Textile Engg. Industries v. ITO, (1986) 24 TTJ (Ahd) 101 : (1985) 14 ITD 393 (Ahd), Kapoor Motor Engg. (P) Ltd. v. ITO, (1987) 29 TTJ (Ctk) 127 : (1987) 21 ITD 4 (Ctk), Thakershi Babhubhai & Co., 26 ITR 517 (sic), Chowringhee Sales Bureau P. Ltd. v. CIT, (1977) 110 ITR 385 (Cal) at 390, CIT v. Deepchand Kishanlal, (1990) 82 CTR (Kar) 322 : (1990) 183 ITR 299 (Kar), P. Doraiswamy Chetty, 86 ITR 192 (sic), ITO v. Maniram, (1969) 72 ITR 203 (SC), Yogendra Nath Naskar v. Cit, Calcutta , (1969) 74 ITR 33 at pages 40 & 41, Commissioner Of Income Tax, Bangalore v. J.H Gotla, Yadagiri., (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) at page 329 and Smt. Saroj Agarwal v. CIT, (1985) 49 CTR (SC) 183 : (1985) 156 ITR 497 (SC), Commissioner Of Income Tax, Lucknow v. Sh Madho Pd. Jatia., 1976 CTR (SC) 438 : (1976) 105 ITR 179 (SC), CIT v. Vegetable Products Ltd., 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) and Commissioner Of Income-Tax, U.P, Lucknow v. J.K Hosiery Factory, Kanpur., (1986) 52 CTR (SC) 142 : (1986) 159 ITR 84 (SC). According to him, the decision of the Tribunal in the case of Jitaji Chunilal (supra) was rendered on peculiar facts obtaining in that case. He also referred to the decision of the Hon'ble Supreme Court,- in the case of Aphali Parmacentivls Ltd., 1989 (44) ELT 613 (SC), wherein the principle of the construction/interpretation on as Explanation contained in a section has been discussed.

12. Shri Syali, appearing for the 3rd Intervener, namely, M/s. Rathi Alloys, stated that, apart from adopting the arguments of his predecessors, he would like to make a few submissions. He submitted that the provisions of s. 43B of the Act would be applicable only where a tax payer claims deduction of statutory liabilities. However, where a tax payer is not claiming such deduction, the same could not be thrust upon him only, with a view to disallowing it by invoking the provisions of s. 43B of the Act. He also submitted that in law, there is a clear distinction between the retroactive and retrospective legislation. The former, in its operation, takes or acts backward from its effective date, while the later has same effect as to past transactions as to future ones. In this connection, he referred to page 221 of Words and Phrases Permanent Edition 37A. He also referred to the decision in the cases of Mithilesh Kumari v. Prem Behari Khare (supra) and Hindustan - Machine Tools Ltd. v. CIT, (1988) 71 CTR (Kar) 166 : (1989) 175 ITR 220 (Kar) at pages 234 to 236). According to him, since the proviso to s. 43B of the Act would be applicable to all the proceedings pending on 1st April, 1988, the question of its retrospective effect does not arise. He further submitted that there is no conflict between the main provisions of s. 43B of the Act, the proviso brought on the statute on 1st April, 1988 and Explanation 2 inserted by the Finance Act, 1989. In fact, according to Syali, all the three have not only to be construed harmoniously but are capable of such construction. He further submitted that the aforesaid decision in the case of Sanghi Motors is not-a precedent on the issue of retroactivity of the provisions of the said proviso. In this connection, he relied on the decision of the Hon'ble Supreme Court in the case of Good Year India Ltd. v. State of Haryana, (1990) 2 SCC 71, more particularly, the following head-note appearing at page 78 of the report:

“Precedent: A decision on a question which has not been argued, cannot be treated as a precedent— A precedent is an authority only for what it actually decides and not for what may remotely or even logically follow from it.”

Referring to page 818 of Bindra on Interpretation of Statutes (7th Edition), he submitted that the function of a proviso is only declaratory in nature.

13. Shri Gupta, on the other hand, supported the action of the I.T authorities in invoking the provisions of s. 43B of the Act and disallowing the assessee's claim for deduction of Rs. 41,902 as the said action is now fully supported by the aforesaid decision in the case of Sanghi Motors. In this connection, he submitted that since the said decision is of the jurisdictional High Court under which we are functioning, it is not necessary to dwel upon various submissions made on behalf of the assessee and the Interveners. Again, by now, it is a well-settled principle that when only one decision of a High Court is available on an issue, the same has to be followed by the Tribunal. For this proposition, he relied on the decision of the Hon'ble Delhi High Court in the case of All India Lakshmi Commercial Bank Officers' Union v. Union of India, (1985) 47 CTR (Del) 1 : (1984) 150 ITR 1 (Del) and of the Hon'ble Bombay High Court in the case of CIT v. Godavaribai Saraf, (1978) 113 ITR 589 (Bom) at page 591. He also submitted that since the decision of the Hon'ble Delhi High Court has been rendered in a Writ Petition filed under Articles 226 and 227 of the Constitution of India, it cannot be said that it has no binding effect merely, on the ground that in the last line, it is stated that the petition is accordingly dismissed in limine. In this connection, he submitted that we have to read the last line in the context in which it appears. After discussing at length the submissions made on behalf of the petitioners, the Hon'ble High Court did not see any merit in the petition so much so that they observed we see no reason as to why any notice or Rule nisi should be issued. In fact, the Hon'ble High Court did not think-it necessary to give an opportunity to the Revenue to make its submissions. Relying on the decision of the Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State Of Kerala, (1966) 60 ITR 262 (SC), he submitted that the law as on 1st day of April of the assessment year would be applicable to that assessment year. Since the proviso to s. 43B of the Act was brought on the statute with effect from 1st April, 1988, it was applicable to the asst. yr. 1988-89 and subsequent assessment years and cannot be applied to the assessment year prior to the asst. yr. 1988-89. The decision in the case of Ahmedabad Mfg. & Calico Printing Co. Ltd. v. ITO (supra) does not further the case of the assessee as the fact —situation obtaining in that case is quite different from the one obtaining in the case of the assessee. According to Shri Gupta, the proviso inserted from 1st April, 1988 could, at best be called a concession given by the legislature and, therefore, it cannot be given a retroactive/retrospective effect, as urged on behalf of the taxpayer. He further submitted that even the decision in the case of S. Gopal Reddy v. CIT is not applicable in the instant case, as the same was rendered in the context of the provisions of s. 54E and the peculiar facts obtaining in that case. As equity and tax are strangers, the decision in the cases of J.H Gotla and Saroj Aggarwal (supra) would not have any application. According to him, there is no question of hardship to the tax payer in any manner, as the deduction in respect of the payments made in the last quarter is given in the next year. In the case of companies, since the rate of tax by and large remains the same, it makes little difference whether the deduction is given in one year or the other. Since the language of the proviso is ‘very clear and unambiguous’, as observed by the Hon'ble Delhi High Court in the case of Sanghi Motors, Shri Gupta went on to argue that there is no scope of giving any retroactive effect to it as urged by Shri Syali. He, therefore, once again urged that we should uphold the disallowance of Rs. 41,902.

14. We have carefully considered the rival submissions of the parties, as well as gone through the material placed before us and various decisions cited at the bar. In our considered opinion, the stand taken on behalf of the Revenue, is well founded in view of direct decision of the Hon'ble High Court in the case of Sanghi Motors. Judicial discipline is well-known concept, namely:—

(a) A decision of the Supreme Court is binding on all by virtue of Article 141 of the Constitution of India.

(b) A decision of a High Court is binding on all in a State on which such High Court has jurisdiction.

(c) A decision of another high Court is to be followed if there is no contrary decision of any other High Court.

(d) If there are conflicting decisions of the High Court, other than the jurisdictional High Court, the view which appeals better has to be adopted or under certain circumstances, the view which is favourable to the tax payer could prevail.

In the instant case, we have a decision of the Hon'ble Delhi High Court, which is also a jurisdictional High Court. The Hon'ble High Court has given the decision in the case of Sanghi Motors, after considering the submission made on behalf of the tax-payer at great length. Therefore, no useful purpose would be served, in considering the issue involved afresh or in detail. It would be very clear from the arguments advanced on behalf of the assessee and the Interveners that they have not liked the said decision. In fact, we have been told that since the Hon'ble High Court was placed to dismiss the petition in limine, we are not bound by that decision. We wonder if the decision had gone in favour of the taxpayer, whether such arguments would have allowed to be made on behalf of the Revenue. We are quite sure that in such a situation, the counsel for the taxpayers would have strongly urged that since the matter is fully concluded by the decision of the jurisdictional High Court, there is no scope for any argument left. Be that as it may, we, being a subordinate authority, would not like to venture upon the task of establishing that there is some scope of arguments as the Hon'ble High Court has not considered some of the possible aspects of the matter including unintended hardships of the taxpayers, for no fault of theirs. In our opinion, it would be clearly a judicial impropriety if we are persuaded to do so and tempted to such persuasion. It would be clear from the said decision of the Hon'ble High Court that even prior to insertion of Explanation 2, a tax payer would be entitled to deduction in respect of the last quarter of the statutory liabilities only in the year in which such liabilities are actually paid. In other words, the benefit of the proviso inserted from 1st April, 1988 would not be available to the taxpayers in respect of the asst. yrs. 1984-85 to 1987-88. In this view of the matter and respectfully following the decision of the Hon'ble Delhi High Court in the case of Sanghi Motors, we have no hesitation in upholding the order of the CIT on this issue.

15. Although we have categorically stated above that the issue if fully and totally covered by the decision of the Hon'ble High Court, nevertheless, for the purpose of completion of the order, we would deal with some of the salient points raised by the learned counsel.

16. The reasons given by Shri Sharma, learned counsel for one Intervener, for treating the decision as not binding, is that the decision was given in limine and such a decision is not binding. For this purpose, he had relied upon the decision of the Patna High Court (FB) in the case of CIT v. Sheo Kumari Devi (supra). In our opinion, the two cases are distinguishable. In that case, the counsel before the High Court had cited a Supreme Court decision by which Special Leave was not granted. The Patna High Court has observed “It appears from the report that no notice was given to the other side, nor a full dress debate on the point was raised. In my humble view, such an ex parte short order declining to grant discretionary leave to appeal under Art. 136 is not stricto sensu, a judgment which is either binding or within the ambit of Art. 141”. These observations would not fit in with the Delhi High Court decision. In this case, as the heading says, notices have been given to both the parties. The assessee-applicant has been fully heard. The arguments were not impressive enough for the High Court to call upon the respondent to reply. They could find no reason at all for even considering the assessee's application. Thus, it can never be said that the decision of the Delhi High Court is not a considered decision.

17. The main case of the assessee is that the proviso which was introduced by the Finance Act, 1987 is retrospective in nature. The proviso was a declaratory provision and, therefore, it was retrospective or at least retroactive. Although this provision was effective from 1st April, 1988 it would cover all pending assessments. Further it is also their case that Explanation 2 will not operate to nullify the benefit or concession given by the proviso. It was also argued that the fields of operation of the proviso and the Explanation are separate. There may be some overlapping in some cases an conceded by Shri Sharma, but he had stated that the Explanation would cover that part of the period after the expiry of the period mentioned in the proviso. Shri Vaish's submission is slightly different. According to him, in some cases, where the sum payable has not yet fallen due on the last day of the accounting year, the assessee might be entitled to the deduction even though the entire demand is disputed. It is to cover such instances that the Explanation would be made operative.

18. We will have to consider the position in law at four stages. First, what was the position in law prior to the introduction of s. 43B. Second, what is the position after the introduction of the section under attack. Third, how is the position changed after the introduction of the proviso by the Finance Act, 1987 and, four, to what extent has the Explanation altered the position.

19. As regard the position prior to the introduction of this section, it is now a matter of history as to how the assesssees were claiming deduction of the disputed demands on the ground that a'statutory demand does not cease to be a liability merely because the assessee disputes the claim. It is to stop this mischief that s. 43B was introduced. The principles laid down in the Heydon's case will be clearly applicable. The interpretation should be one, which is to advance the remedy and suppress the mischief.

20. The law as it was at this stage, had been noticed by at least two High Courts before the decision of the Andhra Pradesh High Court. The first of the case is the decision of the Gujarat High Court in the case of Lakhanpal National Ltd. v. ITO, (1986) 54 CTR.(Guj) 241 : (1986) 162 ITR 240 (Guj). They have observed as follows:—

“On a perusal of the language of s. 43B, it is clear that it opens with a non-obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, s. 43B will have overriding effect. Keeping this in mind, if we examine the language of the, section, it clearly brings out the intention of the legislature that the deduction in respect of any tax of duty under any law would be an allowable deduction in computing the income under s. 28 of that previous year in which such sum is actually paid by the assessee. The intention is made more Specific by providing that it would be so irrespective of the previous year in which the assessee according to the method of accounting regularly employed by the assessee. This clearly makes out that even if the mercantile method of accounting is employed and the liability to pay might have accrued which would give the assessee a fight to obtain deduction, in view of the specific language of the section, the assessee would not be entitled to get deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get, deduction only on actual payment of tax or duty. The legislature has also taken care by providing an Explanation that the assessee shall not be entitled to any deduction under s. 43B of the Act in respect of such sum in computing the income of the previous year in which such is clearly paid by him in case a deduction in respect of such sum was allowed in the previous year. It is, therefore, clear that the assessee shall not be entitled to get the benefit twice, i.e at the time when the liability arises and also at the time when the actual payment is made. In view of the specific language of the section that deduction of the amount as mentioned in cls. (a) and (b) of s. 43B would be allowed in the previous year in which such sum is paid, there is no scope for any doubt that such sum. can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee.”

Similar view is expressed by the Karnataka High Court in the case of Mysore Kirlosker Ltd. (supra). The decision of the Andhra Pradesh High Court in the case of S. Subarao & Co. related also to this stage, i.e the introduction of s. 43B into the statute without the proviso or the Explanation. They were mainly concerned with the legislative competence of the amendment. They have held that the amendment was valid. Towards the end of the judgment at page 718, they have considered the meaning ascribed to the word payable appearing in the section.- They have interpreted word to mean, payable as per the statute imposing the liability. This judgment was given on 3rd March, 1988. By that time, the legislature had already brought in the-proviso w.e.f 1st April, 1988. That proviso would ensure that payment of taxes within the time allowed for filing of the return would not be covered by the main provision of s. 43B. Thus they have eased the harshness of the provision. But it was clearly provided that this will be effective only from 1st April, 1988.

21. The Explanation inserted by the Finance Act, 1989 has been brought in only to get over this decision by the Andhra Pradesh High Court. This is made clear from the Circular containing the objects and reasons for the amendment. This is found in 182 ITR (St) 123. Paragarph 15(2) reads as follows:

“15.2 Certain courts have interpreted the provisions of s. 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 statutes in the same year. Thus, the sales tax in respect of sales made in the last quarter was held to be totally outside the purview of s. 43B since the same is not statutorily payable in the financial year to which it relates. This is against the legislative intent and, therefore, by way of inserting an Explanation, it has been clarified that the words ‘any sum payable’ shall 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.”

22. It will be clear, therefore, that the intention of the legislature was clearly not as per the decision of the Andhra Pradesh High Court. So the Explanation was introduced with the intention of getting over this decision.

23. Therefore, it would be clear that, on the basis of the two High Court decisions and the Andhra Pradesh High Court decision read with the 1989 amendment, the assessee cannot get a deduction unless he has paid the tax.

24. The next stage comes after the introduction of the proviso by the Finance Act, 1987. This is effective only from 1st April, 1988 as per statute itself. Taxpayers have tried to give restrospective effect for pending assessments on the ground that it is declaratory statute and all declaratory statutes are retrospective or at least retro active. So the question is, whether this is declaratory statutes. Even if it is declaratory, whether the intention of the legislature was that the benefit should be given to assessments prior to 1988-89 also. A number of decisions have been cited to show how declaratory statutes are always retrospective. It is a settled position in law that no statute shall be construed to have retrospective operation unless such a construction appears very clearly at the time of the 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 applied only from 1st April, 1988. Against the very specific mention of the date of its operation, it is very difficult to say that it was intended to apply retrospectively either by construction or by necessary implication. It is in this connection that we must consider the submission that the Act being declaratory has to be retrospective. First of all, it must be proved that the Act is declaratory.-We do not find any material to say that the proviso is declaratory. The requirements to consider an amendment or a statute as declaratory, as laid down by the Supreme Court in the case of Chanan Singh, (1969) 2 SCC 429 : AIR 1970 SC 349 is ‘it is well settled that if a statute is curative or merely declares the previous law, the retroactive operation would be more rights ascribed to it than the legislation which may prejudicially effect past rights and transactions’. Now, in order to apply this ratio, we have to give a finding that the previous law was defective or that it was wrongly understood either by the taxpayer, department or the judiciary. It is very difficult for us to say that the law, as it existed, was defective or wrongly understood. The words of s. 43B as stated at that time, were very plain. There was no ambiguty about it. The only ambiguity was, whether the words ‘payable’ would refer to the relevant statutes under which the liability arose. That difficulty was overcome by retrospective amendment later. It is, therefore, clear that the legislature had given a concession knowingly and that concession is to be operative only from 1st April, 1988.

25. We may also consider the further refinement of this branch of law, i.e retrospective activity, brought in by the Supreme Court in the case of Bharat Singh v. Management of New Delhi Tuberculosis Centre, (1986) 2 SCC 614 : AIR 1986 SC 842, where the Supreme Court has gone further even to hold that in appropriate cases, retrospective effect can be given even to a prospective statute in case there are no words in the section to compel the courts to hold that it cannot operate retrospectively. This was done by the court on the basis that “once the intention of the legislature is discerned in the context of the background in which a particular section is enacted, the courts have necessarily to give a purposeful or functional interpretation”.

26. None of these principles would be avilable to make the proviso declaratory. First of all, if it was the intention of the legislature to make it declaratory, they would not have used a proviso. They would have used an Explanation. The reason why the proviso was introduced, has also been made clear. This is contained in the Memorandum explaining the clauses in the Finance Bill of 1989 amendment as contained in (1989) 76 CTR (St) 76 : 176 ITR 123. It is given as below:—

“The objective behind these provisions is to provide for a tax disincentive by denying deducion in respect of a statutory liability which is not paid in time. The Finance Act, 1987 inserted a proviso to s. 43B to provide that any such 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 s. 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 hardships caused to certain tax payers who had represented that since the sales-tax for the last quarter cannot be paid within that previous year, the original provisions of s. 43B will unnecessarily involve disallowance of the payment for the last quarter.”

27. There is nothing in the above extract to show that it was declaratory of a law as it stood even before the introduction of the proviso. The law as it stood before, could never have implied that imposts like the sales-tax and Central Excise would be admissible as deduction if it is paid within the date by which the return under s. 139(1) was due. The law as it stood earlier, would consider the admissibility of a liability mainly on the ground, whether it has accrued or arisen. For the first time, that consideration has been set aside for a consideration of actual payment. When such a substitution has been made, there cannot be anything implied in it that a tax paid within the time given for filing of the Income-tax return would be considered as tax paid for the purpose of s. 43B. This is, therefore, a departure from the main provision of s. 43B. Therefore, it is not declaratory. Therefore, it cannot be retrospective or retroactive. The principle laid down by the Supreme Court in Bharat Singh (supra) also would not apply, because there is a specific date given from which the proviso would become operative.

28. We would consider the next stage, i.e the date from which the Explanation was inserted. We have already noticed that this Explanation has been inserted to correct a judicial error (as Craies has stated). Therefore, the Explanation has only made the position clear and beyond any doubt as regards the main provisions of s. 43B.

29. Shri Ganesan had referred to many statutory provisions, the harsdness of which had been softened by either Circulars, as in the case of s. 40A(3) or judicial interpretation as in the case of s. 52(2). In none of these cases, retrospective effect was given by the courts to a provision which had come into effect subsequently.

30. Shri Ganesan had also stated that if the Department's contention were to be accepted, the distinction between a person who wants to pay tax and the person who does not want to pay tax would be erased. We do not agree. The person who wants to pay tax, would be entitled to deduction in the year of payment and the person who does not pay the tax, would not get any deduction. Shri Sharma has referred to the fact that some times provisos are introduced to allay fears and as such provisos would be retroactive. That right be so where nothing is mentioned in the statute regarding the date from which it is operative. In this case, however, they have clearly stated that it will be operative only from 1988-89 and in the face of it, as we have already stated, it is difficult to say that it is retroactive.

31. Shri O.P Vaish had referred to the decision of the Andhra Pradesh High Court in the case of Gopal Reddy (supra). It is true in that case, retrospective-operation was given to the provisions of s. 54E. But that was a case, where refusal to give retrospective operation would lead to plain absurdity. The section requires deposit of the capital gams receipt in certain specific investments and the assessee in that case, has not given the compensation at all. So it was impossible for him to have complied with the provisions of s. 54E. It is because of this strange circumstances that the High Court was persuaded to give retrospective operation. There is no such impossibility envisaged in s. 43B. The assessee is not being denied deduction in the year in wich he had paid the tax. Shri Vaish had also pointed out to certain hardships caused by a strict interpretation of this provision. It is unnecessary for us to point out that hardships can never be a deciding factor in interpreting the provisions of law.

32. Shri Syali had brought out the distinction between retrospective and retroactive provisions. We have already held that it will be neither retrospective nor retroactive. He had referred to the Supreme Court decision in Mithlesh Kumari to show how a benami act was held retroactive. The Supreme Court has explained there, that there were sufficient indications in the Act itself which prohibited either filing of suit or putting up defence in respect of matters which had already been concluded prior to the passing of the Act. It was because of these provisions that the Supreme Court held that Act was retroactive. He has also referred to the decision of Goodyear India Ltd. (supra). This was cited for two purposes, one to show that a decision on a question which has not been argued, cannot be treated as a precedent. It was also cited to show that reasonable construction should be followed and liberal construction may be avoided if it defeats the manifest object of the Act. We do not see how these two would advance the case of the assessee.

33. Under these circumstances, we are of the opinion that the proviso to s. 43B would be applicable only from the asst. yr. 1988-89. It has no restrospective or retroactive operation.

34. The assesse has raised one more point in this appeal, i.e regarding the inclusion of Rs. 63,278 for the purpose of disllowance under s. 37(3B), We find that these amounts were paid to various commission agents. On the basis of certain contracts, they were entitled to a small percentage of sales as commission agency. The ITO and the CIT had treated these as sales promotion expenses. In our opinion, it would appear to be more for remuneration for having effected the sales. The commission is paid only after-the sales effected and the sale proceeds recovered. These cannot be considered as sales promotion expenditure. This has already been decided by the Tribunal in a number of cases. Please see the decision in the case of Moped India Ltd. v. IAC, (1984) 7 ITD 324 (Hyd) and ITO v. Meera & Co., (1986) 24 TTJ (Chd) 44 : (1986) 15 ITD 227 (Chd). So, on this point, the assessee's grounds would be allowed.

35. In the result, the appeal is partly allowed.