1 Income-tax Reference No. 61 of 1996 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH --- Income-tax Reference No. 61 of 1996 Date of Decision: July 5, 2010 The Commissioner of Income-tax, Haryana, Rohtak --- Applicant Versus M/s. Rajdhani Wine Traders, Bhiwani --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL *** PRESENT: None. --- Ajay Kumar Mittal, J. In this reference filed under Section 256(1) of the Income Tax Act, 1961 (for short “the Act”) at the instance of the Revenue, pertaining to the assessment year 1984-85, the following question of law has been referred for the opinion of this Court: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the Ld. CIT (Appeals) that unpaid sales-tax liability for the last quarter of the accounting period cannot be disallowed under Section 43B by invoking the provision of Section 154 of the I.T. Act?” 2 Income-tax Reference No. 61 of 1996 The aforesaid question has come to be referred in the following background: The assessing officer vide order dated 7.4.1988 passed under Section 154 of the Act enhanced the income of the assessee by a sum of Rs. 1,03,683/- which represented the unpaid sales tax liability, under Section 43B, on the ground that the unpaid sales tax was a trading receipt as settled by a number of judicial enunciations. The assessing officer was further of the view that it was only due to accounting system followed by the assessee that the amount of sales tax collected from the purchasers was not taken into account in the trading account and was credited to a separate account under the head ‘Sales tax Account’. The payment was made from that account and the amount left outstanding on the last day of the accounting period was taken to the balance sheet as the amount payable. The assessing officer, therefore, held that the system of accounting adopted by the assessee could not alter the nature of the sales tax. The assessing officer, however, rejected the stand of the assessee that since two interpretations were possible, Section 154 of the Act was not applicable. The assessee carried appeal. It was contended on behalf of the assessee that matter did not fall within the scope of Section 154 of the Act as the non-inclusion of the amount in question at the time of filing original assessment could not be said to be a mistake apparent from the record. The assessee further submitted that a sum of Rs. 62,000/- was paid by cheque on 30.4.1984 to the sales tax authorities whereas further amount of Rs. 41,692/- was paid in cash on 14.5.1984, i.e. the entire amount which represented 3 Income-tax Reference No. 61 of 1996 the sale tax liability for the last quarter, was discharged within the time allowed under the sales tax law. In support of its submission, reliance was placed on S. Subba Rao and others v. Union of India, 173 ITR 708. The Commissioner of Income-tax (Appeals) observed that various Benches of the Tribunal had held that the liability of the last quarter could not be added back by applying the provisions of Section 43B because that liability did not become payable on the last date of the quarter. On the basis thereof, it was held that the issue which was controversial and debatable could not be said to be covered within the scope of Section 154. The appeal was consequently accepted and the addition of the sales tax liability made by the Assessing Officer was deleted. The Revenue preferred appeal before the Income Tax Appellate Tribunal, Delhi Bench ‘B’. The Tribunal put its seal of affirmation to the view taken by the Commissioner of Income-tax (Appeals). This is how the Tribunal has referred the aforesaid question to this Court for its opinion. No one has appeared to argue the matter on behalf of the Revenue. From the perusal of the order passed by the Tribunal, the stand of the Revenue which is discernible is that the sale tax liability was to be allowed as deductions only in the year in which it was actually paid and since in the present case the liability had not been discharged by the assessee in the previous year relevant to the assessment year under consideration, the un-paid sales tax was to be treated as trading receipt. Reliance was placed by the Departmental Representative before the Tribunal on two decisions of 4 Income-tax Reference No. 61 of 1996 Delhi High Court reported in Sanghi Motors vs. Union of India, 187 ITR 703 and Escorts Limited vs. Union of India, 189 ITR 81. It may be noticed that the decision in Escorts Limited’s case was the subject matter of appeal before the apex Court. While deciding the appeal along with some other appeals,, the apex Court in the case of Allied Motors (P), Ltd. v. Commissioner of Income-Tax, 224 ITR 677, reversed the decision in Escorts Limited’s case (supra) and over-ruled the decision in Sanghi Motors’s case. It was held that the proviso which was inserted by the Finance Act of 1987, with effect from 1.4.1988, provided that any sum which was actually paid by the assessee after the accounting year but before the due date for submission of the return under sub-section (1) of Section 139 of the Act shall be admissible as expenditure in the previous year in which liability to pay such sum was incurred, in case the evidence for such payment was furnished by the assessee along with the return, and was to be treated as retrospective in operation and applicable from the date of insertion of Section 43B of the Act. The apex Court observed as under: “This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, (1994) 209 ITR 7, the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corporation, (1991) 191 ITR 676, has taken a similar view holding that the 5 Income-tax Reference No. 61 of 1996 statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43- B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of, Jamshedpur Motor Accessories Stores v. Union of India, (1991) 189 ITR 70. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. Page 291, "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained”. In view of the above, the sales tax liabilities discharged by the assessee for the last quarter before the filing of the return could not be disallowed under Section 43B of the Act. 6 Income-tax Reference No. 61 of 1996 The answer to the question referred to above is to be against the Revenue as per Section 154 of the Act as well. The issue being a debatable one in view of divergence of opinion between various High Courts as it was only the Delhi High Court which had adjudicated in favour of the Revenue whereas view of the Gujarat High Court in CIT v. Chandulal Venichand [1994] 209 ITR 7; Calcutta High Court in CIT v. Sri Jagannath Steel Corporation [1991] 191 ITR 676 and Patna High Court in Jamshedpur Motor Accessories Stores v. Union of India, [1991] 189 ITR 70 is contrary to the decision taken by the Delhi High Court, the provisions of Section 154 of the Act could not be resorted to. In view of the above, we answer the question referred to above in favour of the assessee and against the Revenue. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 5, 2010 JUDGE *rkmalik*