Prescribed Under Section 43B? v. Ita 104/2002

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 4TH DAY OF DECEMBER 2012/13TH AGRAHAYANA 1934 ITA.No. 104 of 2002 ( ) ----------------------- ITA.642/1996 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT(S)/APPELLANT/APPELLANT::--------------------------------- THE COMMISSIONER OF INCOMETAX, KOCHI BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT RESPONDENT(S)/RESPONDENT:: -------------------------- M/S.FORBAS, EWART PVT. LTD. COCHIN. R BY ADV. SRI.A.K.JAYASANKAR NAMBIAR R BY ADV. SRI.ANIL D. NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON20.09.2012, THE COURT ON 04.12.2012 DELIVERED THE FOLLOWING: K.M. Joseph & K. Vinod Chandran, JJ ---------------------------------------------------- I.T.A No.104 of 2002----------------------------------------------------Dated this the 4[th] day of December, 2012 J U D G M E N T K.Vinod Chandran, J The assessee, who is the respondent herein is a companyengaged, inter alia, in tea and coffee brok-ing etc. The appealrelates to the assessment year 1993-94, wherein the AssessingOfficer disallowed the claim of Rs.96,000/- with respect to theexpenditure incurred for the maintenance of residentialaccommodation in the nature of guest house at Madras andCoimbatore and is also concerned with the dis-allowance of asum of Rs.1,73,427/- representing the sales tax paid by theassessee, on the sale of tea in auction, for reason of thepayment being made after the time limit provided underSection 43B. Both the disallowances were reversed by the firstappellate authority and the reversal was confirmed in appealby the Tribunal. 2. The Revenue raised the following questions of law inthe above appeal:- 1.Whether, on the facts and in thecircumstances of the case the Tribunalis right in law in confirming the orderof the Commissioner of Incometax(Appeals) directing the assessingofficer to allow guest house expensesincurred by the assessee anddepreciation on guest house asclaimed by the assessee?circumstances of the case the Tribunalis right in law in confirming the orderof the Commissioner of Incometax(Appeals) directing the assessingofficer to allow guest house expensesincurred by the assessee anddepreciation on guest house asclaimed by the assessee? 2.Whether, on the facts and in thecircumstances of the case and also inthe light of sub-section (5) of Section37, the Tribunal is justified in law ininterfering with the order of theassessing authority with reference toguest house issue/guest houseexpenditure?circumstances of the case and also inthe light of sub-section (5) of Section37, the Tribunal is justified in law ininterfering with the order of theassessing authority with reference toguest house issue/guest houseexpenditure? 3.Whether, on the facts and in thecircumstances of the case the Tribunalis right in law in granting a deductionof sum of Rs.1,73,427/- representingthe sales tax payment when the samecircumstances of the case the Tribunalis right in law in granting a deductionof sum of Rs.1,73,427/- representingthe sales tax payment when the same ITA 104/2002 was paid after the time limit prescribed under Section 43B? 3.Whether, on the facts and in thecircumstances of the case the Tribunalis right in law in granting a deductionof sum of Rs.1,73,427/- representingthe sales tax payment when the samecircumstances of the case the Tribunalis right in law in granting a deductionof sum of Rs.1,73,427/- representingthe sales tax payment when the same ITA 104/2002 was paid after the time limit prescribed under Section 43B? 3.The first two questions related to the dis allowance ofexpenses incurred for maintenance of guest house. The firstappellate authority found that the disallowance was withrespect to the amount paid as rent in respect of one flat eachmaintained in Madras and Coimbatore for use by the directorsand executives on their frequent visits to those cities.Though, the finding of the Assessing Officer that these flatsare in the nature of guest houses was upheld, the firstappellate authority directed the Assessing Officer to grant thesame under Section 30, as being rent paid for premisesoccupied by the assessee for the purposes of business orprofession. The first appellate authority relied on the decisionof the Bombay High Court in CIT vs. Chase Bright Steel(1989) 177 ITR (124)Bom. Before the Tribunal, thedepartment pointedly referred to sub-section 5 of Section 37,which though omitted by the Finance Act, 1997, with effectfrom 1.4.1998; was applicable to the assessment year inquestion. The Tribunal relying on a Calcutta High Courtdecision held that since the flats were kept ready for stay ofthe directors and executives of the company while on tour; : 4 : considering the difficulties faced in getting alternativeaccommodation, it cannot be treated as a guest housecontemplated under Section 37(4) of the Income Tax Act,1961. 4. The issue had been considered thread-bare by theHon'ble Supreme Court in Britannia Industries Ltd. vs.Commissioner of Income Tax and another(2005)278 ITR546 (SC). After extracting Section 37, the specific plea onbehalf of the assessee that rent paid for premises in respect ofbuildings used for the purposes of business or professionbeing allowable under Section 30, such expenses could notagain be referable to Section 37, especially, by virtue of thenon obstante clause used in sub-section(1) of Section 37 wasnoticed. The Bombay High Court decision cited above wasalso urged in support of the contention of the assessee. TheSupreme Court, however, found that having regard to theunambiguous bar incorporated under sub-section (4) ofSection 37, the benefits indicated in Sections 30 to 36although independent of Section 37, could not be related tothe guest house maintained by the assessee. Though theexpression “premises and buildings” referred to in Sections 30to 32 was held to be including within its scope and ambit the ITA 104/2002 : 5 : expression “residential accommodation including anyaccommodation in the nature of guest house” used in Section37, it was found that the Legislature had purposefully drawn adistinction and thought it fit to exclude the expenses towardstherent,repairsandalsomaintenanceofpremises/accommodation used for the purpose of guesthouses. In view of the binding precedent the questions of lawraised as 1 and 2 are to be answered in favour of the Revenueand against the assessee. ITA 104/2002 : 5 : expression “residential accommodation including anyaccommodation in the nature of guest house” used in Section37, it was found that the Legislature had purposefully drawn adistinction and thought it fit to exclude the expenses towardstherent,repairsandalsomaintenanceofpremises/accommodation used for the purpose of guesthouses. In view of the binding precedent the questions of lawraised as 1 and 2 are to be answered in favour of the Revenueand against the assessee. 5. The next question would be with respect to the dis-allowance of sales tax paid, which dis-allowance was byreason of the claim being beyond the time stipulated inSection 43B of the Income Tax Act. Section 43B, introducedby the Finance Act, 1983, with effect from 1.4.84 was enactedto dissuade tax payers from claiming deduction on the basis ofprovisions made for discharging statutory liabilities; withouthaving actually discharged the same. The object was toprevent assessees from making provisions for statutoryliabilities, without actually discharging the same andmaintaining it as a provision in the books of accounts; whileavoiding actual payments by invoking legal remedies orotherwise. Section 43B again was a non obstante clause, and provided that a deduction otherwise allowable under this Act,inter alia, in respect of tax, duty, cess or fee shall be allowedonly in computing the income referred to in Section 28 of thatprevious year in which such income is actually paid by theassessee; irrespective of the previous years in which theliability to pay the said sum was incurred. A mere provisionthus would not entitle an assessee to make the claim, whatwas insisted upon was the factum of payment. 6. Subsequently, a proviso was introduced by theFinance Act, 1987, with effect from 1.4.1988 by which, if suchtax, duties, cess or fee which was actually paid by theassessee on or before the due date for furnishing the return ofincome under sub-section(1) of Section 37, in respect of theprevious year in which the liability accrued, then, on evidenceof such payment being furnished the claim was allowable forthe very same previous year. Hence even a payment made inthe assessment year, with respect to a liability in the previousyear; was allowable. This was in tune with the scheme of theIncome Tax Act, 1961. The assessment year and theassessment made was with respect to the income of theprevious year. The statutory duties of the previous year arethose expenses incurred in the previous year. The proviso recognises the fact that the payment of such statutory dutiesmay not be mandated immediately on the liability beingincurred. Hence, also keeping in mind the necessity forprompt payment of all statutory duties, it was provided that ifsuch payments are made before the date for furnishing thereturn of income under the Income Tax Act, then, on proof ofsuch payments, the deductions could be allowed in computingthe income for the previous year itself. 7. In the instant case, the assessee, in pursuance of itsbusiness of tea bro-king, had conducted auction sale of tea totwo exporters. The sale being one for export and beingexempted as a penultimate sale; no tax was payable.However, the sales tax enactment to protect the sales taxrevenue; provided that, if such exports were not made withinthe period of 9 months, then, the penultimate sale would nolonger be that and would be liable to tax. This again was amethodology adopted in the sales tax enactment of the Stateto protect the interest of the Revenue and at the same timeensure that any due exemption to an assessee is not denied.The time granted of 9 months by the sales tax enactment ofthe State is admitted by the assessee. There is also no disputethat the date for furnishing the return of income under : 8 : Section 39, on the subject assessment year was 31.12.1993.The assessee made the sales tax payments only in January andFebruary 1994. : 8 : Section 39, on the subject assessment year was 31.12.1993.The assessee made the sales tax payments only in January andFebruary 1994. 8. The fact that the payments were made after the timeprovided under the proviso to Section 43B, according to us,would take the assessee out of the benefit conferred by theproviso. The proviso mandated payments before the date offurnishing of return of income under sub-section (1) of section139 and evidence of such payments. Such evidence need befurnished along with the returns and such deduction shouldbe claimed in the return. There cannot be any claim after thereturn is filed, for the simple reason of payment having notbeen effected before the date prescribed for furnishing of thereturn. 9. One other context which weighed with us was thefact that the assessee on its own admission, had conductedauction of tea between October 1992 and February 1993. Thetime of nine months granted to the assessee shouldnecessarily have been from the date of auction sale conductedby the assessee. That nine months even going by the broadperiod in which the auction sale is admitted to have beenconducted; would definitely fall well before the date for ITA 104/2002 furnishing of the return of income under the Income Tax Act,i.e., 31.12.1993. The order of the Tribunal confirming theorder of the first appellate authority granting the deductionunder the proviso to Section 43 B, is against the specificwords employed in the proviso and the statutory mandatecontained therein. The 3[rd] question of law also is henceanswered against the assessee and in favour of the Revenue. 10. In view of the discussion above and the questions oflaw being answered against the assessee and in favour of theRevenue, the above appeal is allowed reversing the order ofthe first appellate authority as confirmed by the Income TaxAppellate Tribunal and restoring the order of assessment. Sd/- K.M. Joseph(Judge) Sd/- K. Vinod Chandran (Judge) jma //true copy// P.A to Judge