The Salem Co-Operative Sugar Mills Ltd., Mohanur-637 015 v. The Commissioner Of Income Tax, Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19/11/2003 CORAM THE HON'BLE MR.JUSTICE R.JAYASIMHA BABUandTHE HON'BLE MR.JUSTICE S.R.SINGHARAVELU T.C.No.68 of 2000 The Salem Co-operative SugarMills Ltd.,Mohanur-637 015. ..Petitioner -Vs- The Commissioner of Income Tax,Coimbatore. ..Respondents Tax Case reference under Sec.256 (2) of the Income-tax Act, 1961,against the order of the Income-tax Appellate Tribunal, 'C' Bench, Madras,dated 25.09.1998, made in R.A.No.450/Mds of 1998 in ITA No.1757/ Mds/91. !For petitioner : Mr.P.P.S.Janarthanaraja ^For respondent : Mr.K.SubramaniamSr. Standing Counsel forI.T.Department. :ORDER (The order of the Court was madeby R.JAYASIMHA BABU, J.) The question referred at the instance of the Revenue is as to whetherthe Tribunal was right in restoring the order of the assessing officer indisallowing the Provident Fund contribution amounting to Rs.1,47,584/- andadministrative charges of Rs.12,310/- under section 43B (b) of the Act therebyreversing the order of the first appellate authority. The assessment year is1988-89. 2. It is not in dispute that the amounts referred to in the questionwere paid before the due date as defined in the explanation below Clause (va)of sub-section (1) of Section 36 of the Act. 3. The assessing officer denied the deduction claimed, on the soleground that the payment had not been made in the previous year although the payment had been made before the due date, the actual payment having been madeafter the close of the previous year. That view of the assessing officer hasbeen affirmed by the Tribunal by reversing the order of the Commissioner, whohad accepted the assessee's appeal. 4. The Supreme Court in the case of Allied Motors Pvt. Ltd. v. Commissioner of Income Tax (224 ITR 677) considered the effect of the additionof the first proviso to Section 43B by the Finance Act 1987, and held the sameto be retrospective in operation. While so holding, the Court examined thehistory of Section 43B which had been introduced with effect from 1.4.1984.It noticed the contents of the memorandum explaining the provisions of theFinance Bill 1983 wherein it had been stated inter alia that Section 43B wasaimed at curbing the practice of assessees not paying the taxes and notdischarging their liabilities to pay employer's contribution to provident fundetc. and still claiming deduction under the Income Tax Act on the ground thatthe liability had occurred in the relevant previous year and therefore "it wasproposed to provide that deduction for any sum payable by the assessee by wayof tax or duty under any law for the time being in force (irrespective ofwhether such tax or duty is disputed or not) or any sum payable by theassessee as an employer by way of contribution to any provident fund, orsuperannuation fund or gratuity fund or any other fund for the welfare ofemployees shall be allowed only in computing the income of that previous yearin which such sum is actually paid by him". The Court held that "Section 43Bwas, therefore, clearly aimed at curbing the activities of those taxpayers,who did not discharge their statutory liability of payment of excise duty,employer's contribution to provident fund, etc., for long periods of time butclaimed deductions in that regard from their income on the ground that theliability to pay these amounts had been incurred by them in the relevantprevious years. It was to stop this mischief that section 43B was inserted." 5. The Court went on to hold that "it was clearly not realised that 5. The Court went on to hold that "it was clearly not realised that the language in which section 43B was worded, would cause hardship to thosetaxpayers who had paid sales tax within the statutory period prescribed forthis payment, although the payment so made by them did not fall in therelevant previous year. This was because the sales tax collected pertained tothe last quarter of the relevant accounting year. It could be paid only inthe next quarter which fell in the next accounting year. Therefore, even whenthe sales tax had in fact been paid by the assessee within the statutoryperiod prescribed for its payment and prior to the filing of the income taxreturn, these assessees were unwittingly prevented from claiming a legitimatededuction in respect of the tax paid by them. This was not intended bySection 43B. Hence, the first provisio was inserted in section 43B. Theamendment which was made by the Finance Act of 1987 in section 43B byinserting, inter alia, the first proviso, was remedial in nature, designed toeliminate unintended consequences which may cause undue hardship to theassessee and which made the provision unworkable or unjust in a specificsituation." 6. What has been said by the Court in relation to sales tax is equally true in respect of the contributions which the employers were requiredto make to provident fund and which amount was paid by such employer within the due date specified under the Employees Provident Fund Act, even though theactual date of payment may have been on the day subsequent to the close of therelevant previous year. 7. In that case of Allied Motors, the Supreme Court quoted with approval the words of Judge Learned Hand and observed that "one cannot make afortress out of the dictionary; and should remember that statutes have somepurpose and object to accomplish whose sympathetic and imaginative discoveryis the surest guide to their meaning". The Court thereafter held that "aproviso which is inserted to remedy unintended consequences and to make theprovision workable, a proviso which supplies an obvious omission in thesection and is required to be read into the section to give the section areasonable interpretation, requires to be treated as retrospective inoperation, so that a reasonable interpretation can be given to the section asa whole." 8. The object of Section 43B was to ensure that the deduction claimedwas in relation to an amount which had in fact been paid by the assessee andthat the payment that is required to be made is made within the time allowedby the law. It would be clearly unjust to disallow deduction of such paymentin the assessment of the income of the assessee. This injustice was realisedby the Parliament itself which deleted the reference to 'the previous year' inthe second proviso. The object that was accomplished by the amendment was togive effect to the true intention behind the introduction of the section.That amendment is, therefore, required to be regarded as retrospective and asbeing applicable to the assessment year 1988-89 as well. 9. This Court has held so in the decisions reported in Commissionerof Income Tax v. Shri Ganapathy Mills Co. Ltd. (243 ITR 879) andCommissioner of Income Tax v. Salem Co-operative Spinning Mills Ltd. (258ITR 360). We are unable to accept the submission made by the counsel for theRevenue that Parliament had a different intention so far as payments ofamounts due under the Employees Provident Fund Act was concerned and that ithad intended to treat that amount differently from the amount of tax which theassessees were required to pay. We find no support whatsoever for thissubmission either in the memorandum or in any other document. When Section43B was introduced all that was sought to be ensured was that the statutoryliabilities are to be given deduction to only if they had been discharged byactual payment. 10. We, therefore, answer the question referred to us in favour ofthe assessee and against the Revenue. To 10. We, therefore, answer the question referred to us in favour ofthe assessee and against the Revenue. To 1.The Assistant Registrar,Income Tax Appellate Tribunal,Rajaji Bhavan,III Floor, Besant Nagar,Madras-90. (with records) (5 copies) 2.The Secretary,Central Board of Revenue,New Delhi. (3 copies) 3.The Commissioner of Income Tax,Coimbatore. 4.The Deputy Commissioner of Income-tax,(Appeals), Coimbatore. 5.The Deputy Commissioner of Income Tax,Special Range-I,Coimbatore. 6.The Deputy Commissioner of Income Tax,Special Range, Salem. Dev/ �