Judgment:
1. This appeal by the assessee is directed against the order of the CIT passed under s. 263 of the IT Act, 1961.
2. On perusal of the record, the CIT came to the conclusion that the order passed by the Dy. CIT (Asst.), Spl. Range, Jodhpur under s.
143(3) r/w s. 148, dt. 27th Nov., 1992, was erroneous and prejudicial to the interests of the Revenue on account of following mistakes : (1) The Assessing Officer (AO) failed to disallow under s. 43B the amount of Rs. 2,77,578 representing outstanding sales-tax interest.
(2) The AO wrongly accepted the assessee's claim for allowing Sales-tax liability of Rs. 10,29,293 which was outstanding as on 31st March, 1987, but paid on 31st July, 1987, in total disregard of the provisions of s. 43B as it stood before the amendment by Finance Act, 1987, which provided disallowance of such liability.
3. A show cause notice was issued on 4th Aug., 1994, and was served on the assessee on 9th Aug., 1994, fixing the hearing on 17th Aug., 1994.
On assessee's request, the hearing was adjourned to 7th Sept., 1994. On that date, nobody personally attended on behalf of the assessee but a written reply dt. 6th Sept., 1994, was placed on record wherein the assessee stated that in view of the facts and legal decisions discussed in the written reply, the order passed by the AO is not erroneous and prejudicial to the interests of the Revenue. A request for refixing the case was also made. Since the opportunity of being heard was extended to the assessee on earlier occasion, the CIT rejected the plea of refixing the case and he decided the issue accordingly. Regarding the interest liability arisen due to non-compliance with s. 43B, it was contended that the interest is not a sales-tax liability and, therefore, not covered under the provisions of s. 43B but it is allowable as business expenditure under s. 36(1) (iii). It was further contended that the issue was decided by the AO after duly considering all the relevant facts. The claim of the assessee was rejected on the ground that though the interest was allowable as business expenditure in other cases, in the instant case, there is interest (sic) was levied for non-compliance of s. 43B (sic) and, therefore, it partakes the character of amount disallowable under s. 43B. Relying upon the decision of the Rajasthan High Court in the case of CIT vs. Emery Stone Mfg. Co. - D. B. IT Ref. No. 1/92 wherein it has been held that even though the assessee had disclosed all the material facts, the failure of the AO to consider the correct provision of law give the power to the CIT to invoke s. 263 on that fact and, therefore, the CIT held that the order of the AO is on this point erroneous and prejudicial to the interests of the Revenue. Coming to the second point, the CIT held that the unpaid sales-tax liability appearing to Rs. 10,29,293 though paid before the due date but was outstanding as on 31st March, 1987, and, therefore, the allowance of the same, as deduction by the AO was also wrong and prejudicial to the interests of the Revenue. It is against this order the assessee is in appeal before the Tribunal.
4. The learned authorised representative for the assessee submitted that the interest outstanding is allowable under s. 36(1) (iii) of the IT Act, 1961. He further submitted that interest liability is an allowable expenditure as provided under s. 11B of the Rajasthan Sales-tax Act, 1954. The same has been allowed by the ITO, B Ward, Udaipur and the Dy. CIT (Asst.), Udaipur. This view is supported by the decisions of the Rajasthan High Court in the case of CIT vs. Udaipur Distillery (1986) 160 ITR 444 (Raj); CIT vs. Western Indian State Motors (1987) 163 ITR 194 (Raj) and in CIT vs. Western Indian State Motors (1987) 167 ITR 395 (Raj). The learned authorised representative further argued to bring at home to point out that the tax and the interest cannot be treated as equal. He relied upon the decisions reported in AIR 1957 AP 103 and AIR 1954 SC 282.
5. As against this, the learned Departmental Representative supported the order of the CIT and relied upon the decision of the Tribunal, Jaipur Bench, in the case of ITO vs. Gupta Traders (1995) 55 ITD 98 (Jp). In that case, the Tribunal held that when a statutory liability has to be allowed as deduction only on payment, interest levied for the delayed payment of such liability will also have to be allowed on actual payment only. Further, relying upon the decision of the Tribunal, Delhi Bench, Delhi, in the case of Manneimann Demag, A. G.vs. Dy. CIT (1995) 53 ITD 533 (Del), the learned Departmental Representative contended that the order of the AO cannot be termed as erroneous merely because there is possibility of a view contrary to the view taken by the AO (sic).
6. Coming to the second point, the learned authorised representative for the assessee contended that the order of the CIT in holding that in view of s. 43B the order of the AO allowing deduction claimed by the assessee with regard to the sales-tax paid before the filing of the return is erroneous and prejudicial to the interests of the Revenue, is not correct. He further contended that the assessee has paid this amount before the due date of filing of the return under s. 139, i.e., before 31st July, 1987. For this proposition, he relied upon many other various High Courts judgments, the Patna High Court decision in the case of Jamshedpur Motor Accessories Stores vs. Union of India (1991) 189 ITR 70 (Pat) against which the SLP preferred by the Revenue was rejected by the Hon'ble Supreme Court on 8th May, 1991, in the case of CIT vs. Jamshedpur Motor Accessories Stores : SLP (Civil) No. 11793 of 1991 and SLP (Civil) 6467 of 1991.
7. The learned Departmental Representative supported the order of the CIT on this point.
8. We have heard the rival submissions and gone through the order of the learned CIT passed under s. 263 of the Act. First coming to the proposition of the learned authorised representative that the tax statute should be construed strictly, there is no quarrel. This principle has been well stated in the words of Lord Honsleydale which was affirmed by their Lordships, Lord Halsbury and Lord simonds, in the following lines : "The subject is not to be taxed without clear words for that purposes; and also that every Act of Parliament must be read according to the natural construction of its words" in a classic passage Lord Cairns stated the principle thus "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. If there is admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute". Viscount Simon quoted with approval a passage from Rowlatt, J. expressing the principle in the following words : "In a taxing Act one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax.
There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The same principle has been accepted by the Hon'ble Supreme Court in the case of CIT vs. Provident Investment Co. Ltd. (1957) 32 ITR 190 (SC). The principle was well stated by their Lordships, Justice Bhagwati (as he was then) in the following lines : "In construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the law.
If the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. "Shah J. has formulated the principle thus : "In interpreting a taxing statute, equitable considerations are (sic) out of place. Nor can taxing statutes be interpreted on any presumption or assumptions.
The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed. It cannot import provisions in the statute so as to supply any assumed deficiency." It is true that in a taxing statute, the interpretation should be strict. The Courts are not entitled to fill in any lacuna in any Act, much less in a taxing Act.
9. The decisions relied upon by the authorised representative for the assessee reported in (1986) 160 ITR (Raj) (supra), (1987) 163 ITR 194 and (1987) 167 ITR 395 (Raj) to the effect that the interest liability, as provided under s. 11B of the Rajasthan Sales-tax Act, 1954, is an allowable expenditure, is well established principle. However, we find that the above decisions were rendered before introduction of s. 43B.In the case reported in (1986) 160 ITR 444 (Raj) (supra), the Hon'ble High Court held that interest paid is a part of sales-tax, and if that be so, the sales-tax and interest thereon stand on the same footing.
Therefore, in view of s. 43B, if the interest is also not paid before the due date of filing the return by the assessee, the same also cannot be allowed as deduction.
10. Coming to the argument of the learned authorised representative for the assessee that the taxing statute should be interpreted strictly, nothing can be read into and nothing should be brought into to fill in certain gap by the interpreting authority, the proposition cannot be faulted with. This principle has been accepted by the Hon'ble Supreme Court in the case of CIT vs. Provident Investment Co. Ltd. (supra). It is true that s. 43B does not speak of interest but it speaks of (a) any sum payable by the assessee by way of tax, duty, cess or fee, (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannution fund or gratuity fund or any other fund for the welfare of the employees; (c) any sum referred to in cl.
(ii) of sub-s. (1) of s. 36; or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or State financial corporation or a State industrial investment corporation. We have seen that in the case of CIT vs. Udaipur Distillery (supra) the jurisdictional High Court held that interest paid is a part of sales-tax. In other words, the interest on sales-tax is equal to sales-tax. Coming to s. 43B, it states that interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation can be allowed only if the amounts were paid actually. If an interest on a loan taken from the public financial institution, etc., can only be allowed on actual payment, to say that interest on tax, duty, cess or fee be allowed even if they have not been paid, actually, it is an absurdity. If strict and liberal interpretation leads to an absurdity, the absurdity should be avoided. We see that in the case of ITO vs.
Gupta Traders (supra) relying upon the decision of the Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC), the Tribunal held that the interest levied for delayed payment of such liability will also have to be allowed on actual payment only.
Thus, we are of the view that the order of the learned CIT in holding the order of the AO allowing the claim of the assessee as erroneous and prejudicial to the interests of the Revenue was a correct decision. The claim of the assessee to this extent fails.
11. Coming to the second point, that is, the disallowance of unpaid sales-tax under s. 43B amounting to Rs. 10,29,293, we are of the view that the order of the learned CIT cannot be upheld. In the case of Jamshedpur Motor Accessories Stores vs. Union of India (supra), the Hon'ble Patna High Court held that the proviso to s. 43B is retrospective in operation and sales-tax for last quarter paid before the filing of the return, the same is to be allowed as deduction. The SLP preferred by the Revenue against this decision of the Patna High Court was dismissed by the Hon'ble Supreme Court. In view of the above, we are of the opinion that the order of the learned CIT in holding that the AO was not justified in allowing the assessee's claim of unpaid sales-tax liability of Rs. 10,29,293 which was paid before the due date in view of the provisions of s. 43B, as it stood before the amendment by the Finance Act, 1987, cannot be upheld. In our view, the order of the AO allowing this claim of unpaid sales-tax liability of the assessee was not erroneous and prejudicial to the interests of the Revenue.
12. In the light of our above discussion, we uphold the order of the learned CIT invoking his jurisdiction under s. 263 of the IT Act, 1961, partially. The order of the AO allowing an amount of Rs. 2,77,578 being interest outstanding is erroneous and prejudicial to the interests of the Revenue. The order of the CIT invoking his jurisdiction under s.
263 on this point is upheld. On the other point regarding the disallowance of unpaid sales-tax liability amounting to Rs. 10,29,293, we hold that the CIT was not justified in setting aside the order of the AO.13. Order of the CIT passed under s. 263 is upheld in part as indicated above.