V.K. Singhal, J.
1. Both the matters are disposed of by this single order since the question of law involved is common.
2. In D. B. Income-tax Reference No. 9 of 1992, the following question of law has been referred by the Income-tax Appellate Tribunal in respect of the assessment year 1987-88 under Section 256(1) of the Income-tax Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in granting the benefits of amendment to Section 43B which was applicable with effect from the assessment year 1988-89 to the assessee in an appeal for an earlier year, thereby deleting the addition of Rs. 30,112 made under Section 43B ?'
3. In D.B. Income-tax Reference No. 26 of 1992, the following two questions have been referred :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing that the amount of Rs. 92,122 being the unpaid sales tax on November 4, 1983, i.e., the last date of the previous year, should not be disallowed under Section 43B if it is found to have been paid (subsequently) within the time allowed under the relevant Sales Tax Act ?
(2) Whether the amended provisions of Section 43B, introduced with effect from April 1, 1988, are retrospective and are applicable to the assessment year under consideration, i.e., the assessment year 1984-85 ?'
4. The facts of Sanklecha Brothers are that the assessment in this case was completed under Section 143(3) on March 30, 1987. Subsequently, the Commissioner of Income-tax, Jodhpur, exercised his jurisdiction under Section 263 and set aside the order of the Income-tax Officer with a direction that an amount of Rs. 92,122 representing unpaid sales tax liability should be disallowed by invoking the provisions of Section 43B. The assessee challenged this order before the Income-tax Appellate Tribunal which held that if the sales tax remained unpaid at the end of the previous year, but has been paid within the time allowed under the Sales Tax Act, then it cannot be disallowed under Section 43B and, accordingly, directed the assessing authority to verify the allowability of sales tax collected and not paid within the previous year. The accounting year of the assessee closed on Diwali, 1983, and it was found that some of the payments were made beyond the period of one month allowed by the sales tax law and, as such, the disallowance was considered only in respect of those payments which have been made after the time allowed under the sales tax law. The appeal of the assessee was accordingly allowed. The Commissioner of Income-tax in his order under Section 263 found that a sum of Rs. 92,122 has been shown as liability in the balance-sheet in respect of the unpaid amount of sales tax. Out of this amount Rs. 76,258.50 was paid on November 28, 1983, December 30, 1983, and January 24, 1984, and the balance amount was adjusted against the refund amount due to the assessee. He relied on the decision in the case of CIT v. Saraswati Industrial Syndicate Ltd. where it was held that the sales tax liability is on the dealer who sells the goods and the purchasers are not responsible for payment of tax. The seller does not levy tax on the purchaser or collect tax from him and what he does is to increase price of the article so as to ensure that he is not a loser by paying sales tax. The amount of sales tax even though shown separately in the transaction is a part of the consideration which the seller charges on the transfer of property. Another decision of the Supreme Court in Chowringhee Sales Bureau P. Ltd. v. CIT : [1973]87ITR542(SC) was also relied on wherein it was observed, 'it is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt'. The decision in Sinclair Murray and Co. P. Ltd. v. CIT : [1974]97ITR615(SC) was also relied on for the proposition that the amount collected by the assessee as sales tax constituted his trading receipt and had to be included in its total income. In this case, it was also observed, if and when the assessee paid the amount collected to the State Government or refunded any part thereof to the purchaser, the assessee would be entitled to claim deduction of the sum so paid or refunded. The sales tax receipt by the seller is a trading receipt. On the basis of the decision of the apex court, the Commissioner of Income-tax came to the conclusion that the entire sales tax collected is a trading receipt and the deduction should have been allowed for the actual sales tax paid by the assessee. The unpaid liability on account of sales tax is liable to tax in view of the provisions of Section 43B and, as such, the power under Section 263 was invoked.
5. The submission of learned counsel for the Revenue is that the amendment in Section 43B was made by the Finance Act, 1988, and was effective from April 1, 1989. The Tribunal has erred in giving retrospectivity to the said amendment which neither the Legislature has contemplated nor could be considered otherwise.
6. In order to appreciate the argument of learned counsel for the Revenue the provisions of Section 43B are reproduced hereunder :
'43B. Certain deductions to be only on actual 'payment--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 or duty 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,
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) 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 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 during the previous year on or before the due date as defined in the Explanation below Clause (va) of Sub-section (1) of Section 36. Explanation.--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 the 1st day of April, 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.'
7. Section 43B was inserted by the Finance Act, 1983, and is applicable with effect from April 1, 1984, i.e., assessment year 1984-85. While interpreting the provisions of Section 43B, the Andhra Pradesh High Court in the case of Srikakollu Subba Rao v. Union of India : [1988]173ITR708(AP) held that the provisions of Section 43B are not applicable to the market cess and the tax payable under the appropriate law after the close of the accounting year. In order to overcome this problem amendment was made by the Finance Act, 1988, by which the words 'cess or fee, by whatever name called' were inserted in Clause (a) with effect from April 1, 1989. By the Finance Act, 1989, Explanation 2 was added retrospectively from April 1, 1984, which read as under :
'For the purpose 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.'
8. The two provisos to this section were inserted by the Finance Act of 1987, with effect from April 1, 1988. It is the second proviso which was substituted by the Finance Act, 1989. The second proviso now is as under :
'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.'
9. The dispute in the present case is in respect of the assessment year 1987-88 and on the basis of the contentions raised by learned counsel for the Revenue since the above proviso was added from April 1, 1988, that cannot be considered retrospective.
10. In order to find out the legislative intent the speech made by the mover of the Bill can be taken into consideration as was observed by the apex court in the case of K.P. Varghese v. ITO : [1981]131ITR597(SC) wherein it was observed that the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the Legislature and the object and purpose for which the legislation was enacted. In the case of Girdhari Lal and Sons v. Balbir Nath Mathur, AIR 1986 SC 1499, it was observed by the apex court that (at page 1503) :
'Parliamentary intention may be gathered from several sources. First, of course, it must be gathered from the statute itself, next from the preamble to the statute, next from the Statement of Objects and Reasons, thereafter from Parliamentary debates, reports of committees and commissions which preceded the legislation and finally from all legitimate and admissible sources from where there may be light. Regard must be had to legislative history too.
Once Parliamentary intention is ascertained and the object and purpose of the legislation is known, it then becomes the duty of the court to give the statute a purposeful or a functional interpretation. This is what is meant when, for example, it is said that measures aimed at social amelioration should receive liberal or beneficent construction. Again, the words of a statute may not be designed to meet the several uncontemplated forensic situations that may arise. The draftsman may have designed his words to meet what Lord Simon of Glaisdale calls the 'primary situation'. It will then become necessary for the court to impute an intention to Parliament in regard to 'secondary situations'. Such 'secondary intention' may be imputed in relation to a secondary situation so as to best serve the same purpose as the primary statutory intention does in relation to a primary situation.'
11. In the case of State of Tamil Nadu v. Kodaikanal Motor Union (P.) Ltd. : [1986]2SCR927 it was held by the apex court that (at page 1979) :
'The courts must always seek to find out the intention of the Legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As judge Learned Hand said, we must not make a fortress out of the dictionary but remember that statutes must have some purpose or object whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye 'some' violence to language is permissible.'
12. In the case of Seaford Court Estates Ltd v. Asher [1949] 2 All ER 155 it was observed :
'... It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament. ... A judge should ask himself the question how, if the makers of the Act had themselves come across this rock in the texture of it, they would have straightened it out He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.'
13. In the light of the above observations, let us examine as to what has been stated by the Finance Minister at the time of moving the Bill in the budget speech :
'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, for long period 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.' (see [1983] 140 ITR 31).
14. In the memorandum explaining the provisions in the Finance Bill, 1983, the following explanation was given for inserting the above provision (see [1983] 140 ITR 160) :
'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 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 or 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.
61. This amendment takes effect from 1st April, 1984, and will accordingly apply in relation to the assessment year 1984-85 and subsequent years.'
15. According to the first proviso, an assessee was entitled to claim deduction on account of payment of tax, etc., if he has actually paid it on or before the due date applicable to his case for furnishing the return of income under Sub-section (1) of Section 139 in respect of the previous year. By the amendment by the Finance Act, 1989, in the second proviso the words 'during the previous year' have been deleted, as a result of which the deduction on account of contribution made to the provident fund, etc., in a particular accounting year can be claimed if the amount was paid by him on or before the due date as defined in the Explanation below Clause (v) of Sub-section (1) of Section 36. Explanation 2 was inserted by the Finance Act, 1989, and was given retrospective effect from April 1, 1984. In the memorandum explaining the provisions in the Finance Bill, 1989, the following was stated about this Explanation (see [1989] 176 ITR 123) :
'Amendment of provisions relating to certain deductions to be allowed only on actual payment :
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 1st April, 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 1st April, 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 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years.'
16. The Andhra Pradesh High Court in the case of Srikakollu Subba Rao : [1988]173ITR708(AP) while upholding the validity of the provisions of Section 43B interpreted that Section 43B contemplates the liability to pay the tax or duty which should be incurred in the accounting year and the amount should also be statutorily payable in the accounting year and for that purpose the amendment which was effective from April 1, 1989, was taken into consideration from which the legislative intent was found to be clear. In these circumstances, it was held that the sales tax payable for the month of March, 1984, could not be disallowed under Section 43B and market cess is not in the nature of tax or duty. In order to see whether the proviso is explanatory, clarificatory or declaratory or a statutory provision of law could be interpreted as retrospective or not, Maxwell on the Interpretation of Statutes has observed :
'It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless a construction appears very clearly in the terms of the Act, or arises by necessary distinct implication.'
17. Craies on Statute Law has stated that :
'Where a statute is passed for the purpose of supplying an obvious omission in a former statute, or, as Parke J.. .. said in R. v. Dursley [1832] 3 B & Ad 465 'to 'explain' a former statute', the subsequent statute has relation back to the time when the prior Act was passed.
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.
Sometimes a statute, although not intended to be retrospective, will in fact have a retrospective operation .... similarly, if a statute is passed which renders the performance of a contract impossible, the rule of law is that the contract is frustrated by supervening impossibility.'
18. In the case of S. Sundaram Pillai v. V.R. Pattabiraman, : [1985]2SCR643 the apex court has considered the scope and ambit of the proviso and Explanation and came to the conclusion that both can function as interpretation clauses. The Explanation has been added retrospectively while the proviso does not say so. If both are read together and the proviso is not considered as declaratory the result would be that even if a liability is incurred and discharged within the statutory time-limit under the Act an assessee cannot claim the benefit from 1984-85 to 1987-88.
19. The apex court has considered that an Explanation or a proviso could be an interpretation clause. It was observed by the apex court that (headnote at page 583 of AIR 1985 SC) :
'It is now well-settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision-- ....
The object of an Explanation to a statutory provision is-
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the court in interpreting the true purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.'
20. In F.L. Smidth and Co. v. Greenwood, 8 DC 195 ; [1922] 1 AC 417 it was observed by Lord Buckmaster that (at page 423) :
'It is, I think, important to remember the rule, which the courts ought to obey, that, where it is desired to impose a new burden by way of taxation, it is essential that this intention should be stated in plain terms. The courts cannot assent to the view that if a section in a taxing statute is of doubtful and ambiguous meaning, it is possible out of that ambiguity to extract a new and added obligation not formerly cast upon the taxpayer.'
21. The provisions of Rule 1BB with regard to the method of valuation in respect of the house property were considered to be procedural and not substantive and applicable to all proceedings pending on April 1, 1979, when the Rules came into force by the apex court in the case of CWT v. Sharvan Kumar Swamp and Sons : 1995ECR425(SC) . The golden rule of interpretation (keeping in view the objects as stated in the memorandum to the Finance Bill) is that where compliance with the statute is an impossibility, any amendment or change in the statute will take effect retrospectively. The second proviso added by the Finance Act, 1987, and amended by the Finance Act, 1989, is explanatory in nature and, therefore, retrospective in operation.
22. The Patna High Court, in the case of Jamshedpur Motor Accessories Stores v. Union of India : [1991]189ITR70(Patna) considered the amendment as explanatory in nature and the proviso to Section 43B was, therefore, considered retrospective in its application. It was found that Explanation 2 is subject to the proviso to Section 43B and the assessee is entitled to claim deduction of tax if it has actually been paid by him on or before the due date applicable in his case for furnishing the return of income under Section 139(1).
23. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation : [1991]191ITR676(Cal) has held that the Explanation is intended to clarify the legislative intent by providing that the word 'any sum payable' means any sum the liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable. Having regard to the intent and purport of the provisions of Section 43B and the amendments made from time to time, the Explanation was held to be only clarificatory in nature and was retrospective. It was also observed that the provisos and, explanation added to Section 43B supplied an omission and were intended to remove impossibility of performance and, therefore, cannot be said to be prospective in operation.
24. The Karnataka High Court in the case of Chief Commr. (Admit.) v. Sanjay Sales Syndicate : [1992]197ITR255(KAR) held that the proviso inserted by the Finance Act, 1987, with effect from April 1, 1989, is a machinery provision and is applicable to all pending matters.
25. The Orissa High Court, in the case of CIT v. Pyarilal Kasam Manji and Co. : [1992]198ITR110(Orissa) noticed the decision in the case of Sehgal (A.N.) v. Raje Ram Sheoram, : (1991)IILLJ50SC and found that the main function of a 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. The High Court has held that the proviso to Section 43B is retrospective in operation and the law as amended is applicable from the assessment year 1984-85.
26. The Gujarat High Court, in the case of CIT v. Chandulal Venichand : [1994]209ITR7(Guj) observed that Section 43B read with Explanation 2 and the provisos are required to be read harmoniously and construed so as to advance the remedy intended by the statute. The object of the proviso was considered as under (at page 23) ;
'(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 Employees' 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 the 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.'
27. On the other hand, the Delhi High Court in the case of Sanghi Motors v. Union of India [1991] 187 ITR 703 has held that the amendment is not clarificatory and cannot be given retrospective effect from April 1, 1984.
28. In the light of the legislative history, the object and reasons and the mischief which is sought to be remedied the provisions cannot be said to be intended to disallow the claim of a person in respect of payment of sales tax, which he is required to make within 30 days from the close of the accounting year. Under the provisions of the R. S. T. Act, the tax is required to be paid monthly, quarterly and even yearly by different classes of dealers. In respect of the first two categories of dealers the last payment has to be made within 30 days from the end of the month/ quarter while in respect of the dealers who are required to submit the return annually the tax could be paid within 60 days from the close of the accounting year. Sales are effected from day-to-day and even the sale effected on March 31, till night is liable to tax and the tax amount is collected thereon ; it is impossible for the dealer to make the payment within the accounting year up to March 31 on which the account is closed. The object of bringing the proviso to Section 43B is to remedy the mischief which was played by a few assessees in claiming the deduction on the basis that they are maintaining mercantile system and in respect of the liability incurred. The deduction has to be allowed irrespective of the fact that the payment has not been made. It was not intended to burden the honest and sincere assessees of discharging their liability of sales tax within the statutory time permitted under the R. S. T. Act or other statutes. The Legislature has also realised the mistake and inserted the proviso for that reason alone.
29. The object of insertion of the proviso by the Finance Act, 1987, was stated in the memorandum of the Finance Act that the object behind the proviso to Section 43B is to provide for a tax disincentive for deduction in respect of statutory liability which is not paid in time. The Finance Act, 1987, inserted the proviso to Section 43B provides that any sum payable by way of tax liability can be deducted only if it was paid within the due date in respect of the assessment year to which the aforesaid previous year relates. While the Legislature steps in to remove the unintended hardship, the object behind it was not to subject a person to tax in respect of the tax which has been paid after the close of the accounting year within the time statutorily permitted. It was intended only to cover those assessees who are violating the provisions of other Acts like the Sales Tax Act and are not depositing the tax in time and at the same time claiming the benefit under the Income-tax Act.
30. The Delhi High Court, in the case of Sanghi Motors [1991] 187 ITR 703 was considering the validity of the provisions of Section 43B and found that the same cannot be said to be arbitrary and ultra vires Article 14 of the Constitution of India. The contention of the assessee was that the provision is arbitrary and impossible of compliance and in that context it was observed that deduction can be claimed in the year in which the tax is paid. The legislative history, object and reasons were not taken into consideration. The provisions of Section 43B cannot be considered to be charging provisions as no charge is created by the said section and it was only intended to restrict the relief with regard to claims for which one may not be entitled. The very object of bringing the provision into force was to override the effect of claiming the deduction on the basis that the person is maintaining the account on mercantile basis which is the regular system of maintaining the accounts and in accordance with the provisions of the Act and the system of maintaining the accounts if the liability is incurred then the deduction could be claimed. The Legislature found that claiming the deduction in such manner has delayed the payment of due tax for a considerably long time. By this amendment irrespective of the fact that the person has maintained the accounts under the mercantile system deduction could be claimed only on payment of the actual liability in respect of taxes, etc. It is not to do injustice to those assessees or cause them any hardship because the tax of the last date/ month of the quarter could not be deposited in that year. The proviso is an exception to the main section and has to be considered to be clarificatory in nature as it was at no point of time the legislative intent to tax a person in respect of the liability which has been discharged within the time allowed under the relevant statute. A greater hardship can even otherwise be observed where an assessee has closed his business on 31st day of March and the tax liability is discharged in April, i.e., in the subsequent accounting year. If the view is not taken that the proviso is declaratory in nature, the result would be that the assessee would be required to make the payment of tax in respect of liability of sales tax in the assessment year ending on March 31, and could claim refund in the return for the next assessment year.
31. The proviso is not intended to provide even undue benefit to the Revenue and, therefore, on a harmonious construction it can reasonably be said that if the tax amount has been paid within the statutory time allowed under the sales tax law which may fall even in the next accounting year, the assessee would be entitled to gain the benefit of the proviso from the assessment years 1984-85 to 1987-88. The position with regard to the assessment year from 1988-89 is not in dispute. The proviso was added to remove the hardship caused to certain taxpayers who have represented that since the tax for the last quarter cannot be paid within that year. Besides this, the Explanation 2 with regard to the words 'any sum payable' was added retrospectively from April 1, 1984.
32. In these circumstances, we are of the view that the reference is to be answered in the affirmative, in favour of the assessee and against the Revenue, and it is held that the Tribunal was justified in directing that the amount of unpaid sales tax liabilities to the last date of the previous year could not be disallowed if it is found to have been paid subsequently within the time allowed under the relevant Sales Tax Act. The proviso to Section 43B for that purpose is to be interpreted as clarificatory and applicable to the assessment years from 1984-85 to 1987-88. No order as to costs.