IMPORTANT POINT
The first proviso added to Section 43B of the Income Tax Act, 1961, has to be read into Section 43B from its inception along with Explanation 2.

JUDGMENT

Mrs. Sujata V. Manohar, J.-The two Income-tax References which are before us deal with a common question relating to the interpretation of Section 43B of the Income-tax Act, 1961. The references have been made under Section 256(1) of the Income-tax Act, 1961. Since the same question arises in the two civil appeals also these appeals have been heard along with these references. For the sake of convenience. We are taking the statement of the case in Income-tax Reference No. 2 of 1993.

2. The following question has been referred to us under Section 256(1):-

"Whether on the facts and in the circumstances of the case, the sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law is to be disallowed under Section 43B of the Income-tax Act, 1961 while computing the business income of the said previous year?"

The relevant assessment year is 1984-85, the relevant accounting period being the year ending on 30th of June, 1983. The assessee filed the return declaring an income of Rs. 1,91,940/-. The Income-tax Officer, however, disallowed, inter alia, deduction claimed by the assessee of an amount of Rs. 5,78,240/- which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. This amount was payable within 30 days of the end of the quarter. The deduction which was claimed by the assessee was disallowed by the Income-tax Officer under Section 43B of the Income-tax Act, 1961 which was inserted in the statute with effect from 1.4.1984. The assessee filed an appeal before the Commissioner of Income-tax (Appeals), inter alia, in respect of this disallowance. However, the appeal was dismissed. The assessee filed an appeal before the Income-tax Appellate Tribunal. The tribunal also dismissed the appeal on the basis of the judgments of the Delhi High Court in the case of Sanghi Motors v. Union of India1, and Escorts Ltd. v. Union of India & Ors.2, Hence the present reference has come before us. One of the judgments relied upon by the tribunal was the judgment in the case of Escorts Ltd. v. Union of India (supra). Civil Appeal No. 3175(NT) of 1991 is an appeal from the decision of the Delhi High Court in the above case which is being heard along with the present tax-references.

3. The relevant provisions of Section 43B for our purposes are as follows:-

"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, duty, cess or fee, by whatever name called, under any law for the time being in force, or

(b) .....

(c) .....

(d) .....

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 sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return :

Provided further .....

Explanation 1. .....

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. - .....

Explanation 4. - .....

Section 43B was inserted in the Income-tax Act, 1961 with effect from 1.4