B.M Kothari, A.M:— The ITO has preferred this appeal against the order passed by the CIT(A) for asst. yr. 1984–85, raising the following ground of appeal:

“The learned CIT(A) has erred in law in deleting the amount of Rs. 21,580 disallowed by the ITO on account of unpaid sales-tax in accordance with s. 43B of the IT Act.”.

2. The ITO disallowed a sum of Rs. 21,580 out of deduction of Rs. 91,105 claimed by the assessee on account of sales-tax, on the ground that the said amount of Rs. 21,580 was not paid during the relevant accounting year and hence not allowable as per provisions of s. 43B of the IT Act, 1961. The CIT(A) held that the aforesaid amount of Rs. 21,580 represented the sales-tax liability for the last quarter ending 31st March, 1984, which became payable on 7th May, 1984 according to r. 31 of the Sales-tax Rules, which permits payments of sales-tax of last quarter within 1 month and 7 days from the end of the quarter. The assessee made payment by cheque on 7th May, 1984. The CIT(A) held that since the amount became payable on 7th May, 1984, the same could not be validly disallowed by resort to s. 43B of IT Act, 1961. He, therefore, deleted the aforesaid disallowance of Rs. 21,580. The Revenue has preferred this appeal against the said deletion of disallowance made by the CIT(A).

3. The learned Departmental Representative contended that in view of the specific provisions of s. 43B, the liability in respect of any tax or duty can be allowed in the previous year in which such sum is actually paid by the assessee. The ITO had, therefore, rightly disallowed the aforesaid amount of Rs. 21,580, which remained unpaid at the end of relevant accounting year. He also invited our attention towards recent amendment made in the provisions of s. 43B by the Finance Act, 1989 by which the following explanation has been inserted with retrospective effect from 1st April, 1984:

“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 learned Departmental Representative submitted that the aforesaid Explanation 2 nullified the effect of several decisions given by the Tribunal and the Hon'ble Andhra Pradesh High Court in the case of Sinkakollu Subba Rao & Co. v. Union of India, (1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP). He contended that the aforesaid new Explanation 2 inserted in s. 43B clinches the issue conclusively and finally and the aforesaid disallowance of unpaid amount of sales-tax of last quarter should be restored. He also relied upon the judgments of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. v. Cit, West Bengal, (1973) CTR (SC) 44 : (1973) 87 ITR 542 (SC) and Sinclair Murray & Co. Pvt. Ltd. v. CIT, (1974) CTR (SC) 283 : (1974) 97 ITR 615 (SC) to support his contention that the amount of sales-tax is a part of the trading receipt and is taxable as income in the year in which it is collected. The learned Departmental Representative further contended that the first proviso to s. 43B, which provides that if any amount of tax, duty, etc., is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under s. 139(1) the provisions of main part of s. 43B will not apply in relation to such amount of tax or duty, came into force w.e.f 1st April, 1988 and applies only in relation to asst yr. 1988–89 and onwards. He, therefore, contended that the order passed by the CIT (A) may be set aside and the disallowance made by the ITO may be restored.

4. The learned counsel for the assessee contended that the provisions of s. 43B were not introduced with the object of providing for disallowance of government dues which are paid by the tax payers within the time allowed under the respective laws. The object of inserting s. 43B was to provide for disallowance of those types of liabilities where the tax payers did not discharge their statutory liability like sales-tax as required by the provisions of sales-tax laws and also to provide for disallowance of those amount of government dues or liability which is disputed by the tax payers under the respective laws. Thus the provisions of s. 43B was meant for disallowing disputed amount of sales-tax liability or delayed payment of sales-tax liability and was never intended to disallow the amount of sales-tax liability which is paid by the taxpayers within the prescribed time. The learned counsel further contended that since the assessee in the present case had given a cheque for payment of sales-tax of last quarter on 7th May, 1984, the disallowance of the aforesaid amount of sales-tax of last quarter is apparently contrary to the object, spirit and intention with which the provisions of s. 43B were inserted.

4.1 He further submitted that the aforesaid real legislative intention is apparent from the fact that the first proviso was added in s. 43B by the Finance Act, 1987 clearly providing that in case the amount of any such government dues or tax is paid before the due date for furnishing the return of income under s. 139(1), no disallowance shall be made in respect of such amount under the main provisions of s. 43B. He contended that the amendment made by Finance Act, 1989 merely clarifies that the words “any sum payable” appearing in clause (a) be defined to mean any sum,.liability for which has been incurred by the tax payer during the previous year irrespective of the date by which such sum is statutorily payable. By this amendment the effect of interpretation given by certain courts that in order to attract s. 43B the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year, has been nullified. But the same is not meant for denying deduction in respect of statutory liability which is paid in time. He further contended that the provisions of Gujarat Sales-tax Act, constitute an overriding title at source over that part of the trading receipt, which is payable by the assessee by way of sales-tax on its turnover to the sales-tax department. It was argued that the provisions of the Gujarat Sales-tax Act constitute an overriding title over the amount of sales-tax liability and such amount of sales-tax liability can never partake the character of income liable to tax. He, therefore, strongly supported the order passed by the ClT(A).

5. We have carefully considered the rival submissions and have also gone through the relevant orders passed by the learned authorities below. The undisputed facts are that the amount of Rs. 21,580 represents the amount of sales-tax payable for the last quarter from 1st Jan., 1984 to 31st March, 1984. This amount was paid by cheque on 7th May, 1984, which is in consonance with r. 31 of the Gujarat Sak-s-tax Rules. It is true that the decisions taken by the Tribunal in several other cases prior to insertion of Explanation 2 to s. 43B by the Finance Act, 1989 require reconsideration of the entire matter afresh and the effect of insertion of the aforesaid Explanation with retrospective effect from 1st day of April, 1984 will have to be examined before coming to any conclusion with regard to allowability or otherwise of the aforesaid deduction of sales-tax pertaining to last quarter, which was admitedly paid by the assessee within the time allowed under the provisions of sales-tax laws.

5.1 It may be useful to ascertain the real purpose and object of inserting the provisions of s. 43B. The relevant extracts from the Budget speech of the Finance Minister for the year 1983–84, by which the provisions of s. 43B were introduced w.ef asst. yr. 1984–85 are reproduced from 140 ITR (S) 31:

“Several cases have come to, notice Where taxpayers do not discharge their statutory liability such as in respect of excise duty, employers' contribution to provident fund, Employees' State Insurance Scheme, - for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices I propose to provide that irrepsective of the method of accoun ting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent is. actually paid.”

The relevant portion of the memorandum explaining the provisions in the Finance Bill,. 1983. appearing in (1982) 140 ITR (St) 16 are also worth quoting:

“Disallowance of unpaid statutory liability:,

59. Under the Income-tax Act, profits and gains of business and profession are computed in accordance with the method of accounting regularly employed by the assessee. Broadly stated, under the mercnatile system of accounting income and outgo are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts. For the purpose of computation of profits and gains of business and profession, 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.

60. Several cases have come to notice where taxpayers do hot 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 sometimes to several years. For the purposes 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 the 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 asst. yr. 1984–85 and subsequent years.”

5.2 It is apparent from the speech made by the Finance Minister and from the memorandum explaining the provision of the Finance Bill, 1983 that the object of introducing s. 43B was to prevent grant of deduction in respect of those types of government dues or taxes where the tax payers do not discharge their statutory liability or where the tax payers disputed their liability under the provisions of those respective laws or was meant for denying deduction to those assessees who do not discharge their statutory liability for long period of time. However, the provisions of s. 43B Were never meant for disallowance of admitted amount of sales-tax liability which has been paid within the time prescribed under the respective laws like the Sales-tax Law of the respective State.

5.3 The aforesaid real intendment and purpose of introducing s. 43B is further apparent that as soon as the law makers realised that the original provisions of s. 43B may involve unnecessary disallowance of the payment of sales-tax for last quarter, they inserted the above referred first proviso by the Finance Act, 1987 with the specific object to remove such cases where government dues like sales-tax liability is paid before the time limit prescribed for submission of the return under s. 139(1.) from the general enactment made for disallowance of government taxes or dues under s. 43B. The notes on clauses explaining the provisions of Finance Bill, 1987 as appearing in 165 ITR (St) at page 125 with regard to aforesaid insertion of the proviso is as under:

“Clause 10 seeks to amend s. 43B of the IT Act relating to allowability of certain expenses only on actual payment.

It is proposed to insert two provisos. The first proviso seeks to provide that the section shall not apply to any sum referred to in clause (a) if the sum is actually paid on or before the date on which the return of income is due to be furnished under sub-s. (1) of s. 139 for the previous year in which the liability to pay such sum was incurred.”

The recent insertion of the new Explanation 2 in s. 43B by the Finance Act, 1989 with retrospective effect from 1st day of April, 1984 does not in any manner affect the non-applicability of the main provisions of s. 43B with regard to allowability of sales-tax pertaining to last quarter, which has been duly paid to the State Govt. before due date of furnishing the return under s. 139(1) of IT Act, 1961. Let us go through the relevant para in the memorandum explaining the reasons which necessitated the insertion of aforesaid new Explanation 2 in s. 43B by the Finance Bill, 1989, which appears at (1989) 176 ITR (St) 123:

“24. Under the existing provisions of s. 43B of the IT Act a deduction for any sum payable by way of tax, duty, cess, or fee, etc., is allowed on actual payment basis only. The objective behind these provisions is to provide for a tax disincentive by denying deduction 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 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. 1.39(1). of the IT Act, in respect of the assessment year to which the aforesaid previous year relates. This proviso was introduced to remove the hardship, 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.”

The aforesaid extracts from the memorandum explaining the relevant provisions in the Finance Bill, 1989 once again clearly confirm that object behind introducing s. 43B is to provide for a tax disincentive by denying deduction in respect of statutory liability which is not paid in time. The purpose of introducing s. 43B was not to deny deduction of those amount of statutory liability which is regularly paid in time by the tax payers. With a view to ensure that the original provisions of s. 43B may not result in unnecessary disallowance of the payment of sales-tax for the last quarter, the Finance Act, 1987 inserted the above referred proviso to s. 43B to obviate any unintended hardship likely to be caused to the tax payers. Such a proviso inserted by the Finance Act. 1987 clarifies the real intendment of introducing the provisions of s. 43B. The mere fact that the various amendments proposed by Finance Act, 1987, came into force w.e.f 1st April, 1988 does not necessarily lead to the conclusion that the aforesaid proviso inserted to s. 43B with the sole object of explaining the real intendment of the statutory provision will be applicable only from asst. yr. 1988–89. Since the aforesaid proviso inserted by the Finance Act, 1987 merely clarifies the real legislative intention, the same should be made applicable ever since the provisions of s. 43B were introduced. Such an interpretation will be perfectly in consonance with the object and spirit with which the provisions of s. 43B and various amendments therein were introduced from time to time.

5.4 It may also be relevant to make useful references to various judgments of Hon'ble Supreme Court and some High Courts relating to interpretation of statutes in this regard:

Commissioner Of Income Tax, Bangalore v. J.H Gotla, Yadagiri., (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC)

“Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the, intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human, intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. We have noted the object of s. 16(3) of the Act which has to be read in conjunction with s. 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is to counteract the effect of the tranfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.a, a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.”

CIT v. Malayala Manorama Co. Ltd., (1983) 33 CTR (Ker) 277 : (1983) 143 ITR 29 (Ker):

“While it is certainly true that when an interpretation of a fiscal enactment is open to doubt, and even where a literal construction would defeat the obvious intention of the legislation and produce a wholly unreasonable result the court must try its best to achieve the obvious intention and produce a rational con struction.” GST v. Auraiya Chamber of Commerce, (1987) 167 ITR 458 at p. 464 (SC): “But this court observed that any legal system, especially one evolving in a coun try, might permit judges to play a creative role and innovate to ensure justice without doing violence to the norms set by legislation. But to invoke judicial activism to set at nought legislative judgment is subversive of the constitutional harmony and comity of instrumnetalities.”

……………………………

“The rights and the obligations of the parties must be found within the four corners of the Act and this court in an appeal under an Act must act under he four corners of law but in interpreting the relevant procedural provisions, tairness and justice should be the approach and even in a fiscal statute, equity should prevail, wherever language permits.”

Shree Sajjan Mills Ltd. v. CIT, (1985) 49 CTR (SC) 193 : (1985) 156 ITR 585 (SC):

“The principle that fiscal statutes should be strictly construed does not rule out the application of the principles of reasonable construction to give effect to the purpose or intention of any particular provision as apparent from the scheme of the Act with the assistance of such external aids as are permissible under the law.”

K.P Varghese v. ITO, (1981) 24 CTR (SC) 358 : (1581) 131 ITR 597 (SC):

“Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the leason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent tre???d in juristic thought not only in Western countries but also in India that inter pretation of a statute being an exercise in the ascertainment of meaning, every thing which is logically relevant should be admissible.”

In view of the aforesaid discussions we are of the considered opinion that the first proviso to s. 43B, which was inserted by the Finance Act, 1987 to obviate unnecessary disallowance of the amount of sales-tax for the last quarter, is merely a declaratory provision which was inserted to clarify the real legislative intention, should be held to be applicable since the introduction of s. 43B i.e from asst yr. 1584-85. The law makers themselves have described the possible disallowance of sales-tax for the last quarter according to the original provisions of s. 43B as “unnecessary disallowance”, which is apparent from the memorandum explaining the Finance Bill, 1989. Such disallowance would be apparently con???rary to the object and purpose for which s. 43B was introduced. Shifting of year of allowability of sales-tax of last quarter from the year in which sales-tax liability arose to the subsequent year in which such sales-tax has duly been paid before the time prescribed for submission of the return under s. 139(1) will result in unnecessary confusion and will be against the real object and purpose of the aforesaid provisions of law and such a recourse will really not give any gain or benefit either to the Revenue or to the tax payer, so far as the amount of income to be assessed over the period of years is concerned, there will be no difference.

5.5 Regarding the contention of the learned Departmental Representative that the amount of sales-tax for the last quarter was rightly disallowed in view of Supreme Court judgments in the case of Chowranghee Sales Bureau Pvt: Ltd. & Sinclair Murray & Co. P. Ltd. (supra), it will be sufficient to observe that in both those cases the assessee disputed their liability before the sales-tax authorities and they did not deposit the amount of sales-tax realised by them in the State exchequer nor refunded the same to the customers. Provisions of-s. 43B as discussed before have been introduced only for providing disallowance of such amount of sales-tax liability, which is not discharged by the tax payers or which is not deposited by them for a long time. In the present case the assessee has duly deposited the amount of sales-tax of last quarter within the time allowed as per the provisions of Gujarat Sales-tax Act and hence the assessee's case is covered by the main provisions of s. 43B but the same is apparently covered by the exceptions carved out by the legislature itself in the first proviso to s. 43B which permits grant of deduction of such sales-tax liability provided the same has been deposited before the due date for furnishing the return of income under s. 139(1).

5.6 In view of aforesaid discussions we uphold the order passed by the CIT (A) directing the ITO to allow deduction in respect of the sum of Rs. 21,580 being the amount of sales-tax payable for the last quarter, which was duly paid well before the due date for furnishing the return of income of the relevant previous year as prescribed under s. 139(1).

6. In the result, the departmental appeal is dismissed.

K.R Dixit, J.M:— I agree with the conclusion of my learned Brother who has dealt with the above matter in considerable detail. However, I Would like to add a few words.

2. The first proviso to s. 43B had come into effect from 1st April, 1988 and Explanation 2 although made with retrospective effect from 1st April, 1984 was enacted by the Finance Act, 1989. Therefore, the proviso was already on the statute book when the said Explanation 2 was enacted. It could not possibly be the intention of the legislature that there should be any clash between the two parts of the very same section. We have, therefore, to read both of them harmoniously. The effect of this harmonious interpretation would be that the meaning of Explanation 2 has to be restricted so as not to apply to payments of sales tax of the last quarter although made before filing the return but after the end of the accounting period. In this connection, I am referring to the memorandum explaining the reasons for the insertion of the said Explanation which has been quoted in extenso by my learned Brother. It may be noted that it is the memorandum to this Explanation itself. Therein the last words are of considerable significance in this connection i.e “This proviso was introduced to remove the hard ship 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 of the last quarter.” This clearly shows that the proviso was to cover cases from 1st April, 1984. If this was not the intention that part of the memorandum which has been quoted by me would not have been necessary.

3. Secondly, since the pr???viso was already on the statute book when the said Explanation was enacted in 1989, those assessees who became entitled to the deduction under the proviso would lose their vested right for deduction if the above restricted meaning was not given to the retrospective effect of the Explanation. Thus, an assessse who has paid the last instalment of sales-tax after the end of the accounting period but before the due date of filing of the return for the asst. yr. 1984–85 to 1987–88 would lose the benefit under the proviso. Relying on the judicial interpretation of s. 43B the assessee would not claim the benefit in the subsequent assessment year and because of the retrospective effect of the Explanation he would not get the benefit at all. The assessee should atleast be entitled to get the deduction in one assessment year. It would not be the intention of the legislature to deprive persons of vested right.

4. Lastly, if the benefit of the proviso was not to be given for the asst. yrs. 1984–85 to 1987–88 while it would be given for the years 1988–89 onwards, that would be an unreasonable basis for classification which would have no reasonable nexus with the object of the Explanation. In other words, it would be discriminatory. The legislature is pressumed to act constitutionally and, therefore, such an interpretation has to be avoided. Therefore, the assessee who has paid the last instalment of sales-tax after the end of the accounting period but before the filing of the return as in the present case would be entitled to deduction in the year in which the liability was incurred as in the present case.