M.V. TEXTILES v. INCOME TAX OFFICER
[Citation -1987-LL-0626-3]

Citation 1987-LL-0626-3
Appellant Name M.V. TEXTILES
Respondent Name INCOME TAX OFFICER
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 26/06/1987
Assessment Year 1984-85
Judgment View Judgment
Keyword Tags mercantile system of accounting • method of accounting • superannuation fund • payment of tax • provident fund • monthly return • gratuity fund • excise duty • sales-tax • tax due
Bot Summary: 934/85 60,360 Distributors Tax Dec., 1983 It would be noticed that in respect of the first four assessees the dispute is in respect of entry tax while in respect of the last assessee it is in respect of turnover tax. Shri Nagin Kincha, the learned Chartered Accountant for the assessees contended that the provisions of s. 43B of the Act relied on by the Departmental authorities was inapplicable to these amounts claimed by these assessees. The assessees' learned Chartered Accountant sought to derive support from the language of s. 2(m) of the WT Act where the words used are debts owed by the assessee on the valuation date which had been interpreted to mean as debts due and outstanding even though not payable by the assessee as on the valuation date. The learned Chartered Accountant in his reply relied on the decision of the Kerala High Court in the case of L.J. Patel Co. vs. CIT 97 ITR 152 wherein it has been held that where the liability of the assessee, who was maintaining the mercantile system of accounting, to pay excise duty arose in 1952, but as he was contesting the liability, the amount was paid only in 1962, the deduction of the amount paid could have been claimed only in 1952 in accordance with s. 13 of the Indian IT Act, 1922 and s. 145(1) of the IT Act, 1961, and that the assessee could not claim the deduction in the asst. After the introduction of s. 43B of the Act, such deductions are not allowable in view of the express provision against such allowances unless the amounts of tax or duty which are payable by the assessees under any law for the time being in force, is actually paid by the assessees during the previous year even though the assessees might have incurred the liability to pay such tax or duty during the previous year. We are unable to agree with the learned counsel for the assessees that these amounts of tax were not payable by the assessees during the previous year so as to get out of the mischief of s. 43B of the Act. Their Lordships further pointed out that the assessee in the said case was entitled to the deduction of the sum of Rs. 1,49,776 being the amount of sales- tax which it was liable under the law to pay during the accounting year and that the said liability did not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assesses did not prevail.


D.S. MEENAKSHISUNDARAM, J.M. ORDER Since contentions raised by assessees in this batch of five appeals are identical, they are disposed of by common order for sake of convenience. 2. These appeals raise question of applicability of s. 43B of IT Act, 1961 to amounts claimed by these assessees as deductions in computation of their business income for asst. yr. 1984-85. We set out below nature of tax and amounts of tax claimed by these five assessees in their assessments : ITA Appellant's Nature Amount Asst. Previous No. name of tax Rs. year year ended M.V. Entry 11, 23 1984- 4th 1. 930/85 Textiles Tax 1 85 Nov., 1983 Himmatmal 2. 931/85 Swaroopchand -do- 20,000 " " & Co. Singhvi 3. 932/85 Mithalal -do- 19,410 " " Madanraj & Co. Mishrimal 4. 933/85 -do- 13,411 " " Vasraj & Co. Yemkay Turnover 31st 5. 934/85 60,360 " Distributors Tax Dec., 1983 It would be noticed that in respect of first four assessees dispute is in respect of entry tax while in respect of last assessee it is in respect of turnover tax. Departmental authorities had rejected claim of assessees by relying on provisions of s. 43B of Act which had come into force w.e.f. 1st April, 1984 in statute book. Since assessees had not paid these amounts during previous year but had only made provision for them in their accounts. 3. Before us, Shri Nagin Kincha, learned Chartered Accountant for assessees contended that provisions of s. 43B of Act relied on by Departmental authorities was inapplicable to these amounts claimed by these assessees. According to learned Chartered Accountant these amounts were not payable but were only due, and that, therefore, provisions of s. 43B could not be invoked by Departmental authorities. In support of his submissions learned counsel relied on order of Supreme Court dt. 30th Jan., 1984 permitting assessees to pay tax within one year in four equal instalments at end of each quarter commencing from 1st Jan., 1984. He further relied on decision of this Bench in case of ITO vs. Sanjay Sales Syndicate (IT Appeal No. 1484 (Bang) of 1985, dt. 25th Aug., 1986) and submitted that in view of this decision of Tribunal he was entitled to succeed in all these appeals. assessees' learned Chartered Accountant sought to derive support from language of s. 2(m) of WT Act where words used are "debts owed by assessee on valuation date" which had been interpreted to mean as "debts due and outstanding even though not payable by assessee as on valuation date". 4. On behalf of Revenue, reliance was placed by Shri B. Ravibalan, learned Departmental Representative, on language of s. 43B of Act itself to contend that these amounts were payable by these assessees during previous year and that there was really no difference between amount being due and amount being payable but that both words denote same idea. H e further argued that decision of this Bench relied on by learned Chartered Accountant for assessees would be of no avail as it related to allowability of amount of sales-tax collected by assessee which he paid on monthly return basis on or before 25th of succeeding month for which Finance Act, 1987 has made provision by inserting proviso to relieve hardship which was unintended in such cases. Shri Ravibalan relied on decision of Allahabad Bench of Tribunal in case of New Cawnpore Flour Mills (P) Ltd. vs. ITO (1986) 19 ITD 360. He particularly invited our attention to paragraphs 14 and 15 where this point is discussed by Tribunal and pointed out that Tribunal in that case had relied on decision of Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (SC) (1971) 82 ITR 363 to uphold contention of Department for applying s. 43B of Act in said case. learned Departmental Representative submitted that it is this decision of Allahabad Bench which is apposite to facts of present case and that same should be followed in case of these assessees. 5. learned Chartered Accountant in his reply relied on decision of Kerala High Court in case of L.J. Patel & Co. vs. CIT (1974) 97 ITR 152 (Ker) wherein it has been held that where liability of assessee, who was maintaining mercantile system of accounting, to pay excise duty arose in 1952, but as he was contesting liability, amount was paid only in 1962, deduction of amount paid could have been claimed only in 1952 in accordance with s. 13 of Indian IT Act, 1922 and s. 145(1) of IT Act, 1961, and that assessee could not claim deduction in asst. yr. 1963- 64. learned counsel pointed out that in this case, Kerala High Court had followed decision of Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. (supra) 6. We have carefully considered rival submissions of parties In light of authorities relied on by them. Sec. 43B of IT Act which was inserted by Finance Act, 1983 w.e.f. 1st April, 1984 reads as follows : "43B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of (a) any sum payable by assessee by way of tax or duty under any law for time being in force, or (b) any sum payable by assesses as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in s. 28 of that previous year in which such sum is actually paid by him. Explanation : For removal of doubts, it is hereby declared that where deduction in respect of any sum referred to in cl. (a) or cl. (b) of this section is allowed in computing income referred to in s. 28 of previous year (being previous year relevant to assessment year commencing on 1st April, 1983 or any earlier assessment year) in which liability to pay such sum was incurred by assessee, assessee shall not be entitled to any deduction under this section in respect of such sum in computing income of previous year in which sum is actually paid by him." 7. It is argument of assessees' learned counsel that amounts of entry tax and turnover tax set out in para 2 were no doubt due from assessees but were not payable by them and that therefore, Departmental authorities cannot invoke s. 43B of Act to disallow claim of assessees for deduction of these amounts under s. 37(1) of Act on mercantile system of accounting which is being followed by these assessees. In our view, normally, if provisions of s. 43B of Act were not there, assessees would be entitled to this deduction under s. 37(1) as claimed by them on basis of their method of accounting viz. mercantile system of accounting. But after introduction of s. 43B of Act, such deductions are not allowable in view of express provision against such allowances unless amounts of tax or duty which are payable by assessees under any law for time being in force, is actually paid by assessees during previous year even though assessees might have incurred liability to pay such tax or duty during previous year. Sec. 43B is special provision as could be seen from opening words of section which overrides provisions of s. 37 of Act as it starts with non obstante clause. We are unable to agree with learned counsel when he draws distinction between tax due and tax payable by assessees. There is no dispute in case of present assessees that they had actually incurred liability to pay these amounts of entry tax or turnover tax, as case may be, during previous year. There is also no dispute that assessees had not actually paid these amounts of tax to Karnataka Government during previous year. order of Supreme Court dt. 30th Jan., 1984 in Civil Miscellaneous Petition Nos. 39197 to 39203 of 1983 insofar as they are relevant for our purpose reads as follows : "1. THAT there will be no stay of recovery of entry tax if same is assessed hereafter but petitioners/appellants herein will have to pay same. 2. THAT as regards arrears of which assessments have been made such arrears will be paid within one year in four equal instalments at end of each quarter commencing from 1st Jan., 1984. 3. THAT as regards arrears of which assessments have not yet been made such arrears will be paid within one year in four equal instalments at end of each quarter commencing after petitioners/appellants herein file their returns which they undertake to file within three weeks from this 30th Jan., 1984 and assessments are made." From perusal of aforesaid order of Supreme Court, it would be noticed that there was no stay of recovery of entry tax or turnover tax granted by Supreme Court to assessees as can be seen from para 1 quoted above. However, their Lordships have extended time of payment by one year to enable petitioners to pay arrears of tax in four equal quarterly instalments at end of each quarter commencing from 1st Jan., 1984. In fact, this order of Supreme Court shows that these amounts of entry tax and turnover tax had become payable by assessees during previous year and it was for that reason assessees had moved Karnataka High Court and Supreme Court for stay of recovery of these amounts from them. If amounts were not actually payable by assessees during previous year, there was absolutely no need for assessees to have moved either High Court or Supreme Court for stay of recovery of these amounts from them. We are, therefore, unable to agree with learned counsel for assessees that these amounts of tax were not payable by assessees during previous year so as to get out of mischief of s. 43B of Act. 8 . Further argument of learned counsel for assessees lays emphasis only on following three words appearing in s. 43B(a) of Act, viz. "any sum payable" ignoring rest of provision of law. learned counsel placed considerable stress on word "Payable" to contend that unless amount of tax was payable during previous year it will not be hit by s. 43B. This argument of learned counsel apparently overlooks that word "payable" is used as adjective, to describe quality or nature of sum to which this provision of law applies. Further word "payable" also means "due" as could be seen from Chambers' Twentieth Century Dictionary, (Revised edition). Therefore, distinction sought to be drawn by learned counsel is one without difference. 9. In case of CIT vs. Shahzada Nand & Sons (1966) 60 ITR 392, Supreme Court held as follows : "Before we advert to said arguments, it will be convenient to notice relevant rules of construction. classic statement of Rowlatt J. in Cape Brandy Syndicate vs. IRCs still holds field. It reads : '. . . In taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is read in, nothing is to be implied. One can only look fairly at language used.'" To this may be added rider: in case of reasonable doubt, construction most beneficial to subject is to be adopted. But even so, fundamental rule of construction is same for all statutes, whether fiscal or otherwise. " underlying principle is that meaning and intention of statute must be collected from plain and unambiguous expression used therein rather than from any notions which may be entertained by Court as to what is just or expedient." expressed intention must guide Court. Another rule of construction which is relevant to present enquiry is expressed in maxim, generalia specialibus non derogant, which means that when there is conflict between general and special provision, latter shall prevail. said principle has been stated in Craies on Statute Law, 5th edition, at page 205, thus : "The rule is, that whenever there is particular enactment and general enactment in same statute, and latter, taken in its most comprehensive sense, would overrule former, particular enactment must be operative, and general enactment must be taken to affect only other parts of statute to which it may properly apply." But this rule of construction is not of universal application. It is subject to condition that there is nothing in general provision, expressed or implied, indicating intention to contrary : see Maxwell on Interpretation of Statutes, 11th edition, at pages 168-169. When words of section are clear, but its scope is sought to be curtailed by construction, approach suggested by Lord Coke in Heydon's case yield better results : "To arrive at real meaning, it is always necessary to get exact conception of aim, scope and object of whole Act ; to consider, according to Lord Coke : 1. What was law before Act was passed ; 2. What was mischief or defect for which law had not been provided ; 3. What remedy Parliament has appointed ; and 4. reason of remedy." When we apply aforesaid rules of construction as laid down by Supreme Court to facts and s. 43B of Act, it would be clear that amounts of entry tax and turnover tax are payable by these assessees during previous year under relevant provisions of law to Karnataka State Government. But that they have not been actually paid by assessees during previous year. Therefore, these amounts would squarely fall within mischief of s. 43B of Act. They are, therefore, rightly disallowed by Departmental authorities. 10. decision of Allahabad Bench of Tribunal in case of New Cawnpore Flour Mills (P) Ltd.(supra), fully supports this conclusion of ours. In fact, in para 15, at page 368 of reports, Tribunal has followed decision of Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. (supra) In this decision of Kedarnath Jute Mfg. Co. Ltd.'s case (supra) Supreme Court held that moment dealer made either purchases or sales which were subject to sales-tax, obligation to pay tax arose, that although t h t liability could not be enforced till quantification was effected by assessment proceedings, liability for payment of tax was independent of assessment and that assessee which followed mercantile system of accounting was entitled to deduct from profits and gains of its business, liability to sales-tax which arose on sales made by it during relevant previous year. Their Lordships further pointed out that assessee in said case was entitled to deduction of sum of Rs. 1,49,776 being amount of sales- tax which it was liable under law to pay during accounting year and that said liability did not cease to be liability because assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as contention of assesses did not prevail. When we examine provisions of s. 43B of Act in light of aforesaid principles also as laid down by Supreme Court, it would be clear that amounts of tax or duty for which liability to pay on part of assesses but which had not been actually paid by him during previous year, would fall within mischief of s. 43B of Act. 1 1 . decision of this Bench in case of Sanjay Sales Syndicate (supra) relied on by assessee's counsel is not applicable to facts of present case. dispute in said case was in relation to allowability of sales-tax and surcharge collected by assessee and payable under monthly return scheme in respect of last month of year for which return was due to be filed by assessee on or before 25th of succeeding month. We are not concerned with such case in case of present assessees. In fact, as rightly pointed out on behalf of Revenue, this unintended hardship which arose in case of Sanjay Sales Syndicate (supra) has been relieved by introduction of first proviso to s. 43B inserted by Finance Act, 1987 from 1st April, 1988. reference to s. 2(m) of WT Act, 1957, is of no relevance or assistance in present case. 12. next decision in case of L.J. Patel & Co. (supra) relied on by assessee's counsel also is of no assistance to present case as said decision was not concerned with interpretation of s. 43B of Act. We, therefore, agree with learned Departmental Representative that these decisions relied on by learned counsel for assessees are inapplicable to facts of present case. We may further point out that acceptance of assessee's contentions would really defeat purpose and object of introduction of s. 43B in Act and reduce it to dead letter. It is well accepted principle of construction that any provision of law should be construed in harmonious fashion so as to make it workable and not to defeat very purpose of enacting it. 13. For reasons discussed above, we find ourselves unable to agree with contentions of learned counsel urged on behalf of assessees. We, therefore, confirm orders of authorities below and dismiss appeals. *** M.V. TEXTILES v. INCOME TAX OFFICER
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