M.B. Shah, J.
1. The Income-tax Appellate Tribunal has referred the following question for our opinion under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') :
'1. Whether the Appellate Tribunal is right in law and on facts in holding that as far as sales tax liability in respect of the last quarter was concerned, the said liability would be allowable as deduction for the assessment years 1984-85 to 1987-88 provided the assessee establishes that the liability was discharged by actual payment before the date applicable in his case for furnishing the return of income under section 139(1) in respect of the relevant previous year in which the liability had been incurred?'
2. A similar question is referred in a number of other subsequent matters. For the purpose of this reference, we take the facts from the order passed by the Tribunal. The assessee, Messrs. Chandulal Venichand, filed a return of total income of Rs. 41,210. The return was filed on March 20, 1986. During the assessment proceedings, it was noticed that sales tax liability of the assessee was Rs. 4,18,302 (Rs. 3,80,272, sales tax liability + Rs. 38,030, surcharge). After drawing the attention of the assessee, the said amount was added in the total income of the assessee in view of section 43B of the Act and the assessee was directed to pay tax on the income of Rs. 4,63,100. Against that order, the assessee preferred an appeal before the Commissioner of Income-tax. That appeal was partly allowed. However, the contention raised by the assessee that Rs. 4,18,302 representing unpaid sales tax liability should not be included under section 43B of the Act was rejected. Against that order, the assessee preferred an appeal before the Tribunal. The Tribunal heard the said appeal along with two other appeals wherein the question of interpretation of section 43B of the Act was involved. It was pointed out to the Tribunal that all the three assessees were maintaining accounts on the mercantile basis. All of them have separate sales tax accounts in which sales tax deducted from the parties is credited and sales tax paid to the Government is debited and the balance amount is taken directly to the balance-sheet and is not taken to the profit and loss account. After considering the various contentions raised by the parties and the decisions cited at that Bar, the Tribunal held that, as far as sales tax liability in respect of the last quarter was concerned, the said liability would be an allowable deduction for the assessment years 1984-85 to 1987-88 provided the assessee establishes that the liability was discharged by actual payment before the due date applicable in his case for furnishing the return of income under section 139(1) in respect of the relevant previous years in which the liability had been incurred. The Tribunal negatived the contention of the Revenue that the proviso to section 43B of the Act should not be given any retrospective effect and that the Tribunal should follow the decision of the Special Bench of the Income-tax Appellate Tribunal at Delhi in the case of Rishi Roop Chemical Co. (P.) Ltd. v. ITO [1991] 36 ITD 35 (SB) by holding that the Ahmedabad Bench has consistently taken the view that, if the assessee has paid the amount in question before the due date applicable in his case for furnishing the return of income under section 139(1) of the Act, the deduction in respect of the liability should be allowed and the bar contained in section 43B would not be applicable. The Tribunal further observed that various other High Courts have also taken the same view. Hence, at instance of the Revenue, this reference.
3. For appreciating the contentions raised by the parties, it would be necessary to refer to the provisions of section 43B which are 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, duty, cess or fee, by whatever name called, 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 employees, or
(c) any sum referred to in clause (ii) of sub-section (1) of section 36, or
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing,
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 section 28 of that previous year in which such sum is actually paid by him :
Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) 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-section (1) of section 139 in respect of the previous year in which the liability to pay such sums was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return :
Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.
Explanation 1. - For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on April 1, 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.
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.
Explanation 3. - For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the [assessment year commencing on April 1, 1988, 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.
Explanation 4. -.....'
4. The object and purpose of inserting the said section 43B of the Act, as per the Budget Speech of the Finance Minister for the year 1983-84, which are reproduced in [1983] 140 ITR 31 are as under :
'Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employee's State Insurance Scheme, for long periods of time. For the purpose of their income-tax assessments, they none the less 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 irrespective of the method of accounting 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 it is actually paid.'
5. The relevant portion of the Memorandum explaining the provisions in the Finance Bill, 1983, appearing in [1983] 140 ITR 160 is as under :
'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 mercantile 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 purposes 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 not 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 purpose 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 employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him.'
6. From the aforesaid objects and reasons, it is apparent that, even if the assessee is maintaining the mercantile accounting system to curb the practice of non-payment of undisputed tax and to claim deduction, section 43B was introduced so that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed in computing the income only of that previous year in which such sum is actually paid by him.
7. By the Finance Act, 1987, two provisos to section 43B were inserted with effect from April 1, 1988. It is submitted that the first proviso is inserted to mitigate the hardship caused to the taxpayers because the sales tax for the last quarter cannot be paid during the previous year and under the provisions of section 43B, unnecessarily payment of sales tax for the last quarter was disallowed.
8. After the insertion of the aforesaid two provisos, by the Finance Act, 1989, Explanation 2 was inserted with retrospective effect from April 1, 1984. In the Memorandum explaining the reasons for introducing the said Explanation, it has been, inter alia, stated as under (vide [1989] 176 ITR 123) :
'24. Under the existing provisions of section 43B of the Income-tax 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 section 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 section 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 hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within that previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter.
Certain courts have interpreted the provisions of section 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 statute in the same year. This is against the legislative intent and it is, therefore, proposed, by way of a clarificatory amendment and for removal of doubts, that the words 'any sum payable' be defined to 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.
This amendment will take effect from April 1, 1984.
Under the existing provisions of section 43B of the Income-tax Act, it is also provided that any sum payable by the assessee as an employer by way of contribution to the provident fund or superannuation fund, etc., is not allowable as a deduction unless the same is paid 'during the previous year on or before the due date'. The payment in respect of the last month of a previous year shall have to be made by the due date and cannot possibly be made in the previous year itself. It is, therefore, proposed that the words 'during the previous year' occurring in the second proviso to section 43B be deleted.
This amendment will take effect from April 1, 1989.
Unlike other payments referred to in section 43B of the Income-tax Act, the deduction regarding employer's contribution, if denied in a year, is not available as a deduction in any subsequent year also. On account of various reasons like postal delay, strikes or long holidays, the payment of employer's contributions to the respective authorities is delayed even though the payment by a cheque or draft is tendered before the due date. To avoid any hardship being caused in such cases, it is proposed to provide that, if any sum payable by an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, if made by a cheque, draft or any other mode, has been tendered by the due date, and the actual payment has been realised within fifteen days of the due date, deduction shall be allowed.
This amendment will take effect from April 1, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years.'
9. Apart from the objects and reasons stated above, the scope and effect of the amendment have been elaborated by the Departmental Circular No. 550 dated January 1, 1990, as under (see [1990] 182 ITR 114) :
'AMENDMENT OF PROVISIONS RELATING TO CERTAIN DEDUCTIONS TO BE ALLOWED ONLY ON ACTUAL PAYMENT :
15.1 Under the existing provisions of section 43B of the Income-tax Act, 1961, 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 section 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 section 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 hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within the previous year, the original provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter.
15.2 Certain courts have interpreted the provisions of section 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 statute 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 section 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....'
10. From the aforesaid objects and reasons for introducing section 43B of the Act and the proviso as well as from the aforesaid circular issued by the Department, it can be stated that :
(A) 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 within time.
(i) Broadly stated, under the mercantile system of accounting, income and outgoings are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts.
(ii) Several cases were noticed where taxpayers were not discharging their statutory liability such as in respect of sales tax, excise duty, etc.
(iii) For the purpose of their income-tax assessments, they were claiming deduction in respect of the liability on the ground that they maintain accounts on the mercantile basis. They claimed deduction even though they were taking resort to legal action and not paying the amount, thus depriving the Government of its dues while enjoying the benefit of non-payment.
(iv) To curb this practice, section 43B was introduced and it provides that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force, otherwise allowable as provided in clauses (a), (b), (c) and (d), shall be allowed only in computing the income of that previous year in which such sum is actually paid.
(B) The proviso was introduced to remove the hardship caused to taxpayers who had represented that because the sales tax for the last quarter cannot be paid within the previous year and that the provisions of section 43B will unnecessarily involve disallowance of the payment for the last quarter. Hence, it was added for the purpose of supplying an obvious omission.
(i) In the context of section 43B, it is declaratory in its nature as it provides that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d) 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-section (1) of section 139.
(ii) Explanation 2 was added as certain courts have interpreted the provisions of section 43B in a manner which may negate the very operation of the section.
11. We would now refer to the contentions raised by learned counsel for the parties. Mr. Shelat, learned counsel for the Revenue, contended as under :
(a) Parliament has taken care to categorically mention that the proviso was to come into force with effect from April 1, 1988. Therefore, there is no question of giving retrospective effect, as the date is specified consciously by the Legislature;
(b) The first proviso is neither clarificatory nor explanatory nor declaratory. Original section 43B is clear and unambiguous. However, the proviso was inserted by way of concession by extending the time for payment of tax even beyond the period of the assessment year to mitigate the hardship caused in the last quarter of the previous year. But from this, it cannot be held it is declaratory or a remedial one;
(c) Wherever Parliament intended to give retrospective effect, it has done so. It is clear from the fact that Explanation 2 was given retrospective effect from April 1, 1984, even though it is introduced by the Finance Act, 1989, while for the first proviso, it is specifically stated that it shall come into effect from April 1, 1988 ; and
(d) The normal rule of construction is that the substantial provision in a statute would have prospective effect and no retrospective effect. The first proviso is of substantive nature and not in the nature of an explanation to section 43B as it gives a concession by extending the period for payment of tax for the last quarter of the previous year by a few weeks.
12. In support of his contention, Mr. Shelat, learned counsel for the Revenue, has relied upon the decisions of the Delhi High Court in the case of Sanghi Motors v. Union of India [1991] 187 ITR 703 and in the case of Escorts Ltd. v. Union of India [1991] 189 ITR 81.
13. As against this, Mr. Shah, learned counsel for the assessee, has submitted as under :
(a) The first proviso is a remedial one as it cures the inadvertent mistake which has crept in (or cures a disease because of inept language used in section 43B) and, therefore, it would have retrospective effect from the date when section 43B was introduced. Section 43B was introduced to curb the practice of some of the taxpayers who were not discharging the undisputed tax liabilities, even though they were getting deduction by maintaining the accounts on mercantile basis. Without there being any intention on the part of the Legislature not to allow deduction to those assessees who were discharging their tax liabilities within the time prescribed under the respective State sales tax laws, because of inept language used in section 43B, the assessees were put to a lost of inconvenience by the literal interpretation of section 43B that the amount ought to have been actually paid during the year in which the liability was incurred. Therefore, to obviate this hardship, the first proviso was introduced as a remedial and curative measure.
(b) The first proviso is required to be introduced as a declaratory or remedial measure mainly because it was not possible to imagine that the Legislature would think that the assessee shall perform the impossible task of paying tax for discharging the sales tax liability for the last quarter ending March 31 of that year. It is contended that it is a well-recognised rule of construction that the statutory provision must be construed, if possible, in such a manner so as to avoid absurdity and unjust result which could never have been intended by the Legislature. If it is held that the first proviso is operative only with effect from April 1, 1988, then the remedy provided by Parliament to cure the disease would be frustrated and the assessee would suffer an irreparable loss, which was never contemplated by the draftsmen of section 43B or of the proviso, and that too for no fault of the assessee. It is contended that it is a well-settled rule of interpretation that courts should as far as possible avoid a construction which can attribute irrationality to legislation. For this purpose, he relied upon various passages from the decision of the Supreme Court in the case of K. P. Varghese v. ITO : [1981]131ITR597(SC) .
(c) Most of the High Courts have taken a view in favour of the assessee by holding that the first proviso would be effective from April 1, 1984, and the Tribunal in the State has consistently taken the said view since years. By accepting the said view, the Revenue is not going to suffer any loss or that the tax liability of the assessee would not in any way be less. As against that, by accepting the contention raised by the Revenue, it would put the assessee to great difficulty. For this purpose, he referred to the facts of the present case and pointed out that the income of the assessee as per the return is only Rs. 41,210 and the sales tax liability as calculated by the Income-tax Officer is Rs. 4,18,302. If the assessee is required to pay income-tax on the said amount, the assessee would be ruined because practically it would be impossible for him to pay tax on the said amount. It was no fault of the assessee that he paid sales tax amount as per the Gujarat Sales Tax Rules within time, no doubt, after the previous year.
14. As stated earlier, the objective behind section 43B was to provide for a tax disincentive by denying deduction in respect of a 'statutory liability' which is not paid in time. Section 43B was not intended for disallowance of amount of tax liability which has been paid within time prescribed under the respective laws like the Sales Tax Act of the respective States. If the tax liability is discharged within time as prescribed by the respective States Sales Tax Act, then it was declared and clarified by adding the proviso that section 43B shall not apply if the sum is actually paid on the before the date on which the return of income is due to be furnished under sub-section (1) of section 139 for the previous year, in which the liability to pay such sum was incurred. This aspect was further clarified by adding Explanation 2 to section 43B. By virtue of Explanation 2 to section 43B, any sum payable by way of tax under the relevant law would mean a sum for which liability is incurred by the assessee in the previous year even though the sum might not have been payable within that year under the relevant law. Explanation 2 and the first proviso to section 43B are required to be read together. While introducing Explanation 2 by the Finance Act of 1989, the object of introducing the proviso is further clarified by stating that it was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales tax for the last quarter cannot be paid within the previous year, the original provision to section 43B will unnecessarily involve disallowance of the payment for the last quarter. Further, the first proviso itself declares that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d), which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under section 139(1) in respect of the previous year in which the liability to pay such sum was incurred. Because of the non obstante clause in the proviso, it has overriding effect on section 43B. Further, it is introduced by realising the difficulty that it was impossible to pay the sum referred to in clause (a), (c) or (d) during the year in which the liability to pay such sum was incurred by the assessee. Hence, it is provided that, if the said sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income, then section 43B shall not be applicable. Therefore, in our view, the provision is remedial and curative in nature to correct the inadvertent omission. It is stated so by the Department by issuing Circular No. 550 (see [1990] 182 ITR 114), as quoted above.
15. Once it is held that the proviso is inserted as a remedial and curative measure for removing the difficulties faced by the taxpayers because of inadvertent mistake or omission which has crept in drafting section 43B, it would be just and proper to hold that it would relate back to the date when section 43B was introduced. This interpretation is not likely to cause any loss to the Revenue. The interpretation that the proviso to section 43B is effective only from April 1, 1988, would defeat the object and purpose of introducing it. It would cause avoidable difficulties to the taxpayers who discharged their liabilities within the permissible time. It can well be illustrated from the facts of the present case. As per the return filed by the assessee, the total income was Rs. 41,210. The sales tax liability for the last quarter was Rs. 4,18,302. If the said amount is added in the total income of the assessee, in view of section 43B of the Act, then the assessee would be required to pay a large amount of tax. As per the calculation by the Income-tax Officer, he has levied firm tax of Rs. 1,09,287 and the remaining amount of tax as to be calculated on the basis of the shares of the partners. This bound to cause untold hardship to the small taxpayers.
16. For this purpose, in our view, Mr. Shah, learned counsel for the assessee, has rightly relied upon the following passage from Craies on Statute Law at page 395 :
'Where a statute is passed for the purpose of supplying an obvious omission in a former statute, or as Parke J. (afterwards Baron Parke) said in R. v. Dursley [1832] 3 Ad. 465 'to 'explain' a former statute', the subsequent statute has relation back to the time when the prior Act was passed. Thus, in Attorney-General v. Pougett [1816] 2 Price 381 it appeared that by a Customs Act of 1873 (53 Geo. 3, c. 33) a duty was imposed upon hides of 9s. 4d., but the Act omitted to state that it was to be 9s. 4d. per cwt., and to remedy this omission another Customs Act (53 Geo. 3 c. 105) was passed later in the same year. Between the passing of these two Acts some hides were exported, and it was contended that they were not liable to pay the duty of 9s. 4d. per cwt., but Thomson C. B., in giving judgment for the Attorney-General, said : 'The duty in this instance was in fact imposed by the first Act, but the gross mistake of the omission of the weight for which the sum expressed was to have been payable occasioned the amendment made by the subsequent Act, but that had reference to the former statute as soon as it passed, and they must be taken together as if they were one and the same Act.'
17. Where an Act is in its nature declaratory, the presumption against construing it retrospectively is inapplicable. In Attorney-General v. Theobald [1890] 24 QBD 557 section 11 of the Customs and Inland Revenue Act, 1889, as to the liability of voluntary settlements to stamp duty, was held retrospective, although the litigation in which its terms were involved had commenced before it was passed. Acts of this kind, like judgments, decide similar cases pending when the judgments are given, but do not reopen decided cases.'
18. From the aforesaid principles of interpretation, it can be stated that -
(a) where a 'statute' is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute would relate back to the time when the prior Act was passed. In the present case, it can be held that the first proviso was added for supplying an obvious omission in section 43B; and
(b) where an Act is declaratory in its nature, the presumption against construing it retrospectively is inapplicable. The proviso is declaratory in its nature. It declares that nothing contained in section 43B shall apply in relation to any sum referred to in clause (a), (c) or (d) 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-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred.
19. Further, it is an established law that like all laws tax laws are also required to be interpreted reasonably and in consonance with justice and as far as possible they should be so interpreted that absurdity or mischief which is likely to be caused, could be avoided. For this purpose, it would be worthwhile to refer to the principles laid down by the Supreme Court in the case of K. P. Varghese v. ITO : [1981]131ITR597(SC) . In that case the court has, inter alia, held as under :
'This argument was based on a strictly literal reading of section 52, sub-section (2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the Legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provision to be 'drafted with divine prescience and perfect clarity'. We can do not better than repeat the famous words of judge Learned Hand when he said :
'...... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing : be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.'
We must not adopt a strictly literal interpretation of section 52, sub-section (2), but we must construe its language having regard to the object and purpose which the Legislature had in view in enacting that provision and in the context of the setting in which it occurs. We cannot ignore the context and the collocation of the provisions in which section 52, sub-section (2), appears, because, as pointed out by judge Learned Hand in the most felicitous language :
'...... the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no agree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.'
Keeping these observations in mind we may now approach the construction of section 52, sub-section (2).
The primary objection against the literal construction of section 52, sub-section (2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but they can certainly help to fix its meaning. It is a well-recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided.'
20. The court has further observed that the court must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void.
21. For advancing his contention further, Mr. Shah relied upon the decision of the Supreme Court in the case of Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama, AIR 1990 SC 981, wherein the court has, inter alia, observed that if the strict grammatical interpretation gives rise to absurdity or inconsistency, the court could discard such interpretation and adopt an interpretation which will give effect to the purpose of the Legislature; if a given case is well within the general purpose of the Legislature, but not within the literal meaning of the statute, then the court must strike the balance. To the same effect there are observations in the case of Surjit Singh Kalra v. Union of India : [1991]1SCR364 . In that case, the court interpreted and considered the provisions of sections 14A, 14B, 14C and 14D of the Delhi Rent Control Act, 1958. As per the statutory proviso to section 25B(5), the tenant could contest the application by obtaining leave with reference to the particular claim in the application of the depending upon whether it is under section 14A, 14B, 14C or 14D or under section 14(1)(e). It was contended that when an application is filed under section 14B, the tenant cannot be allowed to take up defence under section 14(1)(e). In that context the court observed that it is unlikely that the Legislature intended the result for which counsel for the tenant contended. It will be a mechanical interpretation of the enactment defeating its purpose. Such an interpretation has never found favour with the courts which have always adopted a purposive approach in the interpretation of statutes. The court further observed as under (at page 98) :
'..... True it is no permissible to read words in a statute which are not there, but 'where the alternative lies between either supplying by implication words which appear to have been accidently omitted, or adopting a construction which deprives certain existing words of all meaning, it is permissible to supply the words' (Craies on Statute Law, 7th edn., p. 109). Similar are the observations in Hameedia Hardware Stores v. B. Mohan Lal Sowcar : [1988]3SCR384 where it was observed that the court construing a provision should not easily read into it words which have not been expressly enacted but having regards to the context in which a provision appears and the object of the statute in which the said provision is enacted the court should construe it in a harmonious way to make it meaningful. An attempt must always be made so to reconcile the relevant provisions as to advance the remedy intended by the statute.'
22. In view of the aforesaid legal position, section 43B read with Explanation 2 and the proviso are required to be read harmoniously and construed so as to advance the remedy intended by the statute.
(i) Firstly, the purpose of section 43B was to curb the practice of some taxpayers of not discharging their statutory liability such as in respect of excise duty, sales tax, employer's contribution to provident fund and Employee's State Insurance Scheme for a long period of time and yet at the same time to take deduction for the said amount by resorting to the mercantile method of accounting. Further, the legislature has never intended that the taxpayers, who discharge their statutory liabilities within the prescribed time, should be placed in a disadvantageous position.
(ii) Secondly, the proviso is inserted to mitigate the hardship caused to the taxpayers because of inept language of drafting or accidental omission in section 43B. Hence, it can be stated that the proviso is inserted as a remedial and curative measure.
(iii) Thirdly, by its very nature, the proviso is in a declaratory form.
(iv) Fourthly, it is accepted by all concerned that sales tax for the last quarter cannot be paid within the previous year. That is to say, it is impossible to pay the sales tax for the last quarter within the previous year. It would be unreasonable to say that sales tax payment for the last quarter be made within the previous year. If Explanation 2 and clause (a) of section 43B are read together, it would mean that deduction shall be allowed in computing the income only in the year in which such sum is actually paid in respect of any sum payable by way of tax for which the assessee incurred liability in the previous year, even though such sum might not have been payable within that year (e.g., under the sales tax law). If the first proviso was not there, it is bound to cause untold hardship to the assessee, because practically it would be impossible for him to discharge sales tax liability of the last quarter in the previous year in which the liability was incurred. To obviate this hardship, as a remedial and curative measure, the first proviso is added. The object and purpose of introducing the first proviso was understood in the same manner by the Department, as per the Departmental Circular No. 550 (see [1990] 182 ITR 114), quoted above.
(v) Fifthly, this interpretation is not in any way going to cause any loss to the Revenue because the assessee is only entitled to get the deduction of the liability incurred and actually paid during the period. As against this, the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which was never intended by the Legislature. Hence, even if it is not specifically provided that the proviso would come into operation from April 1, 1984, yet it is required to be held that the said proviso was part and parcel of section 43B from the very beginning.
23. The aforesaid view taken by us finds support from the decisions rendered by various High Courts.
24. In the case of CIT v. Pyarilal Kasam Manji and Co. : [1992]198ITR110(Orissa) the Orissa High Court after considering the provisions of section 43B held that the proviso was added to remove practical difficulties which were encountered by certain assessees. The assessees who made payments within the prescribed time were not intended to be brought into the net of disallowance. The object of section 43B to suppress the mischief of withholding of payment and getting a deduction did not apply to such cases and hence it should be held that the first proviso to section 43B would have retrospective effect in its operation. The relevant observations of the court are as under (at page 119) :
'Whether the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the court can adopt a construction which will carry out the obvious intention of the Legislature. (See P. K. Unni v. Nirmala Industries, : [1990]1SCR483 ).
The main function of the proviso is to carve out an exception to the main enactment. It cannot normally be so interpreted as to set at naught the real object of the main enactment. (See A. N. Sehgal v. Raje Ram Sheoram, : (1991)IILLJ50SC ).
The object of section 43B was to refuse deduction to an assessee in respect of a certain statutory liability, which the assessee does not discharge or where there is dispute about the liability. In the case of certain assessees, practical difficulties were encountered. With a view to getting over them, amendments in section 43B were introduced by the Finance Act, 1987. Under the law as amended, if an assessee has paid sales tax, additional sales tax, Central sales tax, etc., on or before the due date applicable in his case for furnishing his return of income under section 139(1) of the Act, section 43B has no application. With regard to provident fund, family pension, etc., the assessee shall be entitled to claim deduction if the same was paid on or before the due date as defined in the Explanation below clause (va) of section 36(1) of the Act. The assessees who made payments in the aforesaid terms were not intended to be brought into the net of disallowance. The object to suppress the mischief of withholding of payment and getting a deduction did not apply to such cases. Therefore, the first proviso to section 43B is retrospective in its operation. Explanation 2 to the said section is subject to the said proviso and the law as amended is applicable for the assessment year 1984-85. The view in this regard expressed by the Patna High Court in Jamshedpur Motor Accessories Stores' case : [1991]189ITR70(Patna) has, therefore, our concurrence. We are in respectful disagreement with the view of the Delhi High Court in Escorts Ltd.'s case [1991] 189 ITR 81. A view similar to ours has been taken by the Calcutta High Court in CIT v. Sri Jagannath Steel Corporation : [1991]191ITR676(Cal) .
It is relevant to mention here that the special leave petition filed by the revenue in respect of the decision of the Patna High Court in Jamshedpur Motor Accessories Stores' case : [1991]189ITR70(Patna) was dismissed by the Supreme Court by order dated July 19, 1991, in S. L. P. (Civil) No. 11793 of 1991 (see [1991] 191 ITR 8) Though dismissal of the special leave petition cannot be construed to be an expression of any opinion about the merits, we have felt inclined to indicate that, in views of the cleavage of view. It is also significant because special leave has been granted by the apex court in Special Leave Petition (Civil) No. 6467 of 1991 on May 8, 1991, in the case of Weston Electronics Limited v. Union of India (see [1991] 191 ITR 3) where the Delhi High Court, following its decision in Sanghi Motors' case [1991] 187 ITR 703 and Escorts Ltd.'s case [1991] 189 ITR 81 had dismissed the writ application.'
25. In the aforesaid decision, the court has relied upon the decision rendered by the Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation : [1991]191ITR676(Cal) wherein the court has observed that the provisos and the Explanation added to section 43B supplied an omission and were intended to remove the impossibility of performance and, therefore, cannot be said to be prospective in operation. If an assessee has paid the sales tax, etc., on or before the due date applicable in his case for furnishing the return of income, he shall be entitled to claim deduction of that amount, whereas with regard to provident fund, family pension, paid on or before the due date. In the said case, the court has observed that if the contention raised by the Revenue is accepted, it would require the assessee to do an impossible act because the assessee could not have paid its tax liability in the previous year ending on March 31, 1984, as in March, 1984, the last quarter would end.
26. The same view has been taken by the Karnataka High Court in the case of Chief Commissioner (Administration) v. Sanjay Sales Syndicate : [1992]197ITR255(KAR) . In that case, the court held that the proviso is only a machinery provision which could be applied to all pending matters which are not concluded finally.
27. The Patna High Court in the case of Jamshedpur Motor Accessories Stores v. Union of India : [1991]189ITR70(Patna) has held that upon a contextual interpretation of statutes, the proviso to section 43B of the Act should be construed as retrospective in its operation and Explanation 2 thereto should be held to be subject to the said proviso. The court has further observed that if section 43B is to be literally interpreted, it must be struck down as it provides for doing an impossible act. But, it can be upheld by holding that the assessees who have cleared their tax liability during the prescribed time were entitled to have the benefit of the proviso introduced subsequent to 1984-85.
28. As against this, learned counsel, Mr. Shelat submitted that the Delhi High Court in the case of Sanghi Motors v. Union of India [1991] 187 ITR 703 has observed as under (at page 706) :
'It was next submitted by Dr. Singhvi that the amendment to section 43B has been made in the year 1987 and this amendment, with effect from April 1, 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 April 1, 1988. This being so, it is not possible to give the amending proviso retrospective effect with effect from April 1, 1984.'
29. He further submitted that the same Bench has relied upon the aforesaid decision in the case of Escorts Limited v. Union of India [1991] 189 ITR 81 wherein the court has observed that it was difficult to agree with the decision rendered by the Patna High Court in the case of Jamshedpur Motor Accessories Stores : [1991]189ITR70(Patna) . Merely because a provision of the Act is harsh, it is no ground for discarding one of the cardinal principles of interpretation of statutes which is that if the language is clear and unambiguous, then resort cannot be had to the aims and objects or the Minister's speech with a view to interpret the provisions of an Act. It is only if there is any ambiguity in the language that, in order to understand the intention of the Legislature, aid can be taken of the proceedings in Parliament including the aims and objects of the Act.
30. We agree that the language of section 43B is clear and unambiguous. Therefore, for interpreting the said section, no resort can be had to the aims and objects or to the Minister's speech with a view to interpret the provisions of the Act. But here, we are not interpreting section 43B. We are considering whether the proviso, which is inserted with effect from April 1, 1988, and which is in its nature declaratory, remedial and curative, should be held to be having retrospective effect. As stated earlier, there literal interpretation of section 43B, without there being proviso, was likely to cause unintended hardship to genuine taxpayers. It becomes impossible for them to discharge their sales tax liability for the last quarter within the previous year. It would be too much to hold that the Legislature would require the assessee to discharge an impossible function. Hence, to mitigate the hardship, the proviso was inserted. It is also a well recognised rule of construction that a statutory provision must be so construed which avoids absurdity and mischief and that a clarificatory and explanatory provision should normally in the context be interpreted to have retrospective effect. The respondent is not likely to suffer any loss by this interpretation. Hence with greatest respect, it is difficult for us to agree with the view taken by the Delhi High Court in the case of Escorts Limited [1991] 189 ITR 81.
31. In the result, it is held that the first proviso to section 43B of the Income-tax Act remedial and curative in nature and the proviso was brought into force to remedy unintended hardship which was likely to be caused by section 43B. It is also declaratory in its nature. Hence, the said proviso relates back to the date when section 43B came into operation, i.e., April 1, 1984. Hence, the question is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
32. The reference stands disposed of accordingly with no order as to costs.