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SUPREME COURT OF INDIA
A.M. Khanwilkar, Hemant Gupta, Dinesh Maheshwari, JJ.
Union of India & Ors. – Appellant(s)
VERSUS
Exide Industries Limited & Anr. – Respondent(s)
CIVIL APPEAL NO. 3545/2009
Decided On : 24-04-2020
(a) Interpretation of statute - Constitutional law - Requirement of constitutionality of a provision - Existence of enacting power and non-infringement of any right enshrined in Part III of the Constitution. (Para 11)
(b) Interpretation of statute - Constitutional law - Presumption of constitutionality of an enactment - Power to legislate is the exclusive domain of the Legislature/Parliament - Includes power to decide when to legislate, what to legislate and how much to legislate - Therefore, in exercise of judicial review, Court starts with a basic presumption in favour of the proper exercise of such power. (Para 13)
(c) Income Tax Act, 1961 - Section 43B(f) and section 145 - Constitutional validity - Legislative competence of the Parliament to enact clause (f) cannot be doubted in the light of Article 245, Constitution of India - Section 43B not placing any embargo upon autonomy of assessee in adopting a particular method of accounting, nor depriving the assessee of any lawful deduction - It merely operates as an additional condition for the availing of deduction qua the specified head. (Para 13, 16)
(d) Interpretation of statute - Non-obstante clause - Assumes an overriding character against any other provision of general application - It declares that within the sphere allotted to it by Parliament, it shall not be controlled or overridden by any other provision unless specifically provided for. (Para 17)
(e) Income Tax Act, 1961 - Section 43B(f) - Does not only provide for deductions concerning statutory liabilities - Leave encashment - Payment beneficial in nature and pro employee - Not bounty but condition of service - If the employer claims deduction u/s 43B on accrual basis but does not pay the amount to employee, it will be double benefit to employer - This mischief is sought to be subjugated by insertion of clause (f). (Para 18, 19)
(f) Interpretation of statute - External aid - Express objects and reasons would be useful in understanding the import of an enacted provision - However, so long as literal features of the provision enable the Court to comprehend its true meaning with sufficient clarity, presence or absence of objects and reasons has no impact upon the constitutional validity of the provision. (Para 24, 27)
(g) Interpretation of statute - Constitutional validity - Court cannot examine prudence or proprieties of the legislature in enacting the impugned provision - Nor can it act as an appellate authority over the legislature. (Para 29)
(h) Interpretation of specific statute - Fiscal and taxing statute - Such laws are always pinpointed in nature and are only meant to target a specific avenue of taxability - General principles of exclusion and inclusion do not apply to taxing statutes - Fiscal statutes also must comply with tenets of Article 14, but a larger discretion is given to the legislature in taxing statutes. (Para 34)
(i) Interpretation of statute - Curative enactment - When an enactment is invalidated by Court, the legislature is free to diagnose such law and alter the invalid elements thereof - In doing so, the legislature does not declare the opinion of the Court to be invalid. (Para 37)
(j) Income Tax act, 1961 - Section 43B(f) - Not reversing nature of the liability of leave encashment nor taking away the deduction as such - Liability continues to be a present liability as per the mercantile system of accounting - Section 43B(f) not extinguishing autonomy of assessee to follow the mercantile system - It merely defers the benefit of deduction to be availed by the assessee and links it to the date of actual payment thereof to the employee concerned - Only effect of clause (f) is to regulate the stated deduction by putting it in a special provision. (Para 39)
Facts of the case:
In this appeal, the constitutional validity of clause (f) of Section 43B of the Income Tax Act, 1961 arises for consideration.
Finding of the Court:
Section 43B(f) is valid. It does not reverse nature of the liability of leave encashment nor takes away the deduction as such. Liability continues to be a present liability as per the mercantile system of accounting. Section 43B(f) does not extinguish autonomy of assessee to follow the mercantile system, it merely defers the benefit of deduction to be availed by the assessee and links it to the date of actual payment thereof to the employee concerned. Only effect of clause (f) is to regulate the stated deduction by putting it in a special provision.
Result:Appeal allowed.
JUDGMENT
A.M. Khanwilkar, J.
1. In this appeal, the constitutional validity of clause (f) of Section 43B of the Income Tax Act, 1961 [For short, “the 1961 Act”] arises for our consideration as a result of the decision of the High Court at Calcutta [For short, “the High Court”] vide order dated 27.06.2007 in APO No. 301 of 2005, wherein it is held that the said clause is arbitrary and violative of Article 14 of the Constitution of India on various counts, as discussed hereinafter.
2. The stated clause (f) was inserted in the already existing Section 43B vide Finance Act, 2001 with effect from 1.4.2002, in order to provide for a tax disincentive in cases of deductions claimed by the assessee from income tax in lieu of liability accrued under the leave encashment scheme but not actually discharged by the employer. This clause made the actual payment of liability to the employees as a condition precedent for extending the benefit of deduction under the 1961 Act. With the application of clause (f), the eligibility for deduction arises in the previous year in which the abovesaid payment is actually made and not in which provision was made in that regard, irrespective of the system of accounting followed by the assessee. Before we delve into further examination, we deem it apposite to reproduce the amended Section 43B of the 1961 Act as applicable to the present case, which reads thus:
“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) 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 subsection (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, or
(e) any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan, or
(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, 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) or clause (e) or clause (f) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (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 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 subsection (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
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