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Kwality Milk Foods Ltd vs ACIT
March, 16th 2006

ITAT of Chennai

Kwality Milk Foods Ltd. vs ACIT

I.T.A. No.856/Mds/05, Assessment Year : 2002-03

Shri M.K. Chaturvedi, Vice President, Shri N. Barathvaja Sankar, Accountant Member and Shri T.R. Sood, Accountant Member

16 March 2006

S/Shri R. Vijayaraghavan and S.P. Chidambaram for the Appellant
Shri Shaji P. Jacob for the Respondent

Name of the Intervener : Nexus Computers (P) Ltd.

Represented by : Shri P.K. Vijayaraghavan

Order

Per : M.K. Chaturvedi (Vice President):

Under section 255(3) of the Income-tax Act, 1961 (hereinafter called as "the Act") the Hon'ble President of the Income-tax Appellate Tribunal (hereinafter called as "the Tribunal") has constituted this Special Bench to consider the following question :

"Whether amendment in proviso to section 43B by Finance Act, 2003 could be construed to be curative, as such retrospective in nature?"

2. We have heard the rival submissions in the light of material placed before us and precedents relied upon. We have also heard the ld. counsel for the Intervener. The assessee in this case paid contribution to Provident Fund before the due date applicable in its case for furnishing the return under section 139(1) of the Act, albeit payment was made beyond due date prescribed in section 36(1)(va) of the Act for making the contribution to the employee's account in the relevant fund under the law. Question posed before the Tribunal was whether deduction can be allowed in respect of the said payment in view of amendment in proviso to sec. 43B by the Finance Act, 2003 by holding the same as retrospective.

3. The question whether a statutory provision has retrospective effect or not depends primarily on the language in which it is couched . In the case of statutes which are merely declaratory or which relate to only matters of procedure, it may have retrospective effect if the manifest purpose compels one to construe the Act as such. It is therefore sine qua non to examine the purpose of enactment.

4. As per the prescription of section 145 of the Act profits and gains of business or profession are computed in accordance with the method of accounting regularly employed by the assessee. Where the assessee follows mercantile system of accounting, income and expenditure are accounted for on the basis of accrual and not on the basis of actual receipts or disbursements. The word "paid" is defined under section 43(2) of the Act to mean "actually paid or incurred" according to the method of accounting on the basis of which the profits or gains are computed.

5. It had come to the notice of the Government that statutory liabilities such as in respect of sales-tax, excise duty, employer's contribution to Provident Fund, Employees State Insurance Scheme, etc., remained pending for a long time, extending sometimes to several years, whereas for the purpose of income-tax assessment these liabilities were claimed on the basis of accrual and deduction was granted on the principle of mercantile accountancy. For some reason or the other these liabilities were disputed and not discharged and in some cases even undisputed liabilities were also not paid on certain grounds.

6. To curb this practice, the Finance Act, 1983 has inserted Section 43B 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 or any sum payable by the assessee as an employer by way of contribution to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall irrespective of the previous year in which the liability to pay such sum was incurred, be allowed only in computing the income of that previous year in which such sum is actually paid by the assessee.

7. The section also contained an Explanation for the removal of doubts. It was stipulated in the Explanation that where the deduction in respect of any sum aforesaid is allowed in computing the income of any previous year, being a previous year relevant to the assessment year 1983-84, 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 section 43B in respect of such sum on the ground that the sum has been actually paid by him in that year.

In other words, an assessee who has already been allowed deduction of a liability on account of tax or duty or in respect of any sum payable as contribution to any fund for the assessment year 1983-84, or any earlier year in which the liability to pay was incurred, cannot, in respect of that liability, be allowed a deduction in the assessment year 1984-85, or any subsequent year on the ground that he has actually made a payment towards such liability in that year.

8. Section 43B of the Act was further amended by the Finance Act, 1987. Two provisos were added w.e.f. 1-4-1988, namely.

"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."

9. The scope of the amendment was explained in the Memorandum Explaining the Provisions in Finance Bill, 1987 (165 ITR St. 156) as under:

"Under the existing provisions of section 43B of the Income-tax Act, any statutory liability outstanding as on the last day of the previous year, is not deductible for the purposes of computation of income. It is proposed to insert two provisos in this section. The first proviso seeks to provide that the section shall not apply in respect of the payment of any tax or duty under any law if the sum is actually paid on or before the date on which the return of income is due to be furnished under section 139(1) for the previous year in which the liability to pay such sum was incurred. The second proviso seeks to provide that no deduction shall be allowed in regard to any sum payable by the taxpayer 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 the employees unless such sum has actually been paid during the previous year on or before the due date. The due date for the purposes of this proviso will mean the date by which the assessee is required as an employer to credit such contribution to the employee's account in the relevant fund under the provisions of any law or term of contract of service or otherwise."

10. Again by the Finance Act, 1989 second proviso to section 43B was substituted by the following proviso :

"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."

11. As per the Memorandum Explaining the Provisions in Finance Bill, 1989 (176 ITR (St.) 124), the aforesaid proviso was introduced to remove hardship caused to certain taxpayers. The relevant note is reproduced here as under:

"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.

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 realized within fifteen days of the due date, deduction shall be allowed."

12. By section 21 of the Finance Act, 2003 following amendments were incorporated in section 43B of the Act:

"(a) in clause (e),-

(i) ******* ******* *******
(ii) ******* ******* *******



(b) in the first proviso, the words, brackets and letters "referred to in clause (c) or clause (d) or clause (e) or clause (f)" have been omitted.

(c) the second proviso has been omitted."

13. In the context of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees, deduction shall be allowed in computing the income of the year in which such sum is actually paid. The sums shall also be allowed as a deduction in the previous year in which the liability to pay the same was incurred in case the same is paid before the due date of filing the return of income for the previous year.

14. After the aforesaid amendment the provisions of section 43B stood as under:

"Certain deductions to be only on actual payment:

43B. 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 sub-section (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 loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances 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 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.

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 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.

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. - For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year being a previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, 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.

Explanation 3A.- For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) 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, 1996, 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.

Explanation 3B.- For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) 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, 2001, 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.

Explanation 4.- For the purposes of this section, -

(a) "public financial institutions" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

(aa) "scheduled bank" shall have the meaning assigned to it in the Explanation clause (iii) of sub-section (5) of section 11;

(b) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);

(c) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36".

15. If he the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the mens legis, i.e. the intention of the law, as evinced in the statute. The key to the opening of every law is the reason and spirit of law. To be literal in meaning is to see the body and miss the soul. The judicial key to interpretation is the composite perception of the Deha (body) and the Dehi (soul) of the provision.

16. To decipher the real meaning of a word is a difficult task. Words, in addition to a normal meaning, have a penumbra, a dim fringe. Cases falling within the periphery of penumbra or fringe are apt to give rise to a sharp difference of opinion. There is no possibility of mistaking midnight for noon; but at what precise moment twilight becomes darkness is hard to determine. Words in any language are not scientific symbols having any precise or definite meaning. Language is an imperfect medium to convey ones thought.

17. Words are used in the statute as a medium of expression. A particular thought is communicated through the words. Language is often misunderstood even in the ordinary conversation. The person who has spoken the words can be approached for clarification. Legislature cannot be approached. It becomes functus officio after the enactment of the Act. Therefore, for construing the correct meaning of a statute, it may be necessary to determine how its meaning was understood when it was originally enacted.

18. For this purpose recourse could be made to the sources of that time. This is known as contemporanea expositio. This is the abbreviated form of maxim given by Lord Coke in the form contemporanea exposition est optima et fortissimo in lege. It means a contemporaneous exposition is the best and most powerful in law. Maxwell refers to this maxim by saying that the best exposition of a statute or any other document is that which it has received from contemporary authority. The language of statute must be understood in the sense in which it was understood when it was enacted. Those who lived at or near the time of its enactment may reasonably be supposed to be better acquainted than their descendants, with the circumstances, to which it had relation, as well as with the sense than attached to legislative expressions.

19. Adverting to the Finance Bill, 2003 paras 137 to 144 of the Finance Minister's Budget Speech at 260 ITR St. 26, 27 we find that Hon'ble Finance Minister indicated the setting up of the Task Force on Direct-Indirect Taxes under the Chairmanship of Dr. Vijay Kelkar and gave due acknowledgement of the work of the Task Force as per para 140 of the Bill. Further in para 143 Hon'ble Finance Minister has stated that the basic philosophy as laid down by these reports is sound. There is need to eventually move away from an exemption and discretion based system to a different, more current order. That is the ideal that the Task Force, particularly in respect of direct taxes have suggested. The Hon'ble Finance Minister in his speech also stated that the ideal presented by the Task Force is difficult to achieve in one leap. It was suggested that Task Force be implemented in the gradual manner and in phases. In para 144 it is stated that most of the suggestions made by the Task Force to eliminate procedural complexities, reduce paper work, simplify tax administration and to enhance efficiency, also integrate such tax proposals as the system can at present absorb. Further the Hon'ble Finance Minister proposed the whole basket of reforms in tax administration based on Kelkar Committee's report.

20. Final report of Kelkar Committee was published in 126 Taxman (St.) 1. Relevant extract in regard to the removal of total disallowance of late payment of labour welfare payments at para 5.7 of the report at page No. 122 is reproduced as under:

"In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and state and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and interest to state and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date for payment of the labour related liability. Trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes and interest i.e., they should be allowed in the year of account.

Since the objective of the proviso is to ensure that a tax payer does not avail of any statutory liability without actually making a payment for the same, we are of the view that these objectives would be served if the deduction for the statutory liability relating to labour are allowed in the year of payment. The complete disallowance of such payments is too harsh a punishment for delayed payments. Therefore, we recommend that the deduction for delayed payment of statutory liability relating to labour should be allowed in the year of payment like delayed taxes and interest."

21. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Hayden's case (1584) 76 H.K. 637 was decided that for the sure and true interpretation of all the statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered :-

1st - what was the common law before the making of the Act;

2nd - what was the mischief and defect for which the common law did not provide;

3rd - what remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth; and 4th - the true reason of the remedy;

and then the office of all judges is always to make such construction as shall suppress the mischief, and advance the remedy and to suppress subtle inventions and evasions for continuance of the mischief, and to add force and life to the cure and remedy according to the true intent of the makers of the Act, pro bono publico (for the public good).

22. Now testing the case on the touchstone of the Hayden's rule, we find that in Budget Speech for the year 1983-84 (140 ITR (St.) 31, 32) and the Memorandum Explaining the provisions in the Finance Bill, 1983 [140 ITR (St.) 160], it was stated that sec. 43B was clearly aimed at curbing the activities of those tax payers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund etc. for long periods of time but claimed deduction in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that sec. 43B was inserted.

23. The first proviso, which was inserted by the Finance Act, 1987 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also the first proviso has to be read into section 43B from its inception along with Explanation 2 without the first proviso. Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The first proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deduction. In that view of the matter, the first proviso to section 43B was treated as retrospective in operation for and from assessment year 1984-85 by the Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. v. CIT (224 ITR 677) (S.C.) reversing Escorts Ltd. v. Union of India (189 ITR 81)(Del.). In taking the above view, the apex court has approved the view taken in Jamshedpur Motor Accessories Stores v. Union of India (189 ITR 70)(Pat).

24. Provisos carve things out of the main enacting provision that would otherwise be included within the principal section. It qualifies the generality of the main enactment by providing an exception and taking out from the main provision a portion, which but for the proviso would be the part of the main provision. A proviso must, therefore, be considered in relation to the principal matter to which it stands as a proviso. A proviso should not be read as if providing something by way of addition to the main provision which is alien to the main provision itself.

25. In the case of Allied Motors (P.) Ltd. v. CIT, supra, Hon'ble Supreme Court has held that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.

26. By the Finance Act, 1987 amendment two provisos were inserted. Second proviso was a measure for penalizing employers who misutilised the contributions. As such it was stipulated that if any sum payable by the assessee as an employer by way of a contribution to provident fund, superannuation fund, gratuity fund or any other fund for the welfare of the employees, such payment shall be eligible for deduction only when employer makes actual payment before the due date for such payment under the relevant statute. Whereas in respect of payment of tax, duty, etc. for allowability of the claim, payment was possible till the date prescribed for furnishing the return of income under section 139(1) of the Act in respect of the previous year in which the liability to pay such sum was incurred. This differential treatment was abrogated by the Finance Act, 2003 by omitting the second proviso and in first proviso omitting the words brackets and letters in clause (a), or clause (c) or clause (d) or clause (e) or clause (f).

27. In the case of Allied Motors (P.) Ltd. v. CIT, supra, Hon'ble Supreme Court treated the first proviso to sec. 43B as inserted by the Finance Act, 1987 as retrospective in operation for and from assessment year 1984-85. On parity of reasoning the proviso which is now amended by the Finance Act, 2003 can also be treated as retrospective qua the payment of tax and duty. Dispute only concerns about the retrospectivity of the provision qua the payment of contribution to provident fund etc. No objection was raised by the ld. D.R. in respect of the retrospectivity of the payment qua the sales tax in view of the decision of the apex court. If that be the position, how part of this proviso could be said to be prospective and part of it retrospective? The proviso was inserted to help the execution of the main section and not to hinder its course. 28. Ld. D.R. made a reference to the decision of the Hon'ble Madras High Court rendered in the case of CIT v. Madras Radiators and Pressings Ltd. (264 ITR 620)(Mad.). In this case Hon'ble High Court has held that contribution to provident fund must be made within the prescribed date. This decision was rendered on 31.12.2002. It is pertinent to note that the amended provision was not available at that point of time. As such on the retrospectivity of the amendment there was no contemplation in the order. In our opinion, this decision is not relevant for deciding the issue which is posed before the Special Bench. The task assigned to this Special Bench is to point out whether the amendment in proviso to sec. 43B by Finance Act, 2003 could be construed to be curative as such retrospective in nature. Various Benches of the Tribunal allowed both the types of claims giving rise to inherent contradiction on this aspect. As such this Special Bench was constituted. The question raised before the Special Bench is not adjudicated by the jurisdictional High Court in the case of Madras Radiators and Pressings Ltd., supra. As such we decline to accept the contention of the Id. D.R. on this aspect.

29. The law consists, "not in particular instances and precedents, but in the reason of law as said in the dictum : ubi eadem ratio ibi idem jus - like reason doth make like law - Reason is the life of law. Reason can be deciphered with reference to the context. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. We must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and every thing is in its place.

30. In the case of Allied Motors (P.) Ltd., supra, apex court quoted with approval the words of Judge Learned Hand and observed that one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. It was held (at page 686): "A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole."

31. The object of sec. 43B was to ensure that the deduction claimed was in relation to an amount which had in fact been paid by the assessee and that the payment that is required to be made is made within the time allowed by the law. It would be clearly unjust to disallow deduction of such payment in the assessment of the income of the assessee. This injustice was realised by the Parliament itself which deleted the reference to "the previous year" in the second proviso. The object that was accomplished by the amendment was to give effect to the true intention behind the introduction of the section. That amendment is, therefore, required to be regarded as retrospective qua the amendment incorporated by the Finance Act, 1987.

32. In the case of Salem Co-operative Sugar Mills Ltd. v. CIT (266 ITR 166) (Mad.) Hon'ble High Court has held as under :

"This court has held so in the decisions reported in CIT v. Shri Ganapathy Mills Co. Ltd. (2000) 243 ITR 879 and CIT v. Salem Co-operative Spinning Mills Ltd. (2002) 258 ITR 360. We are unable to accept the submission made by counsel for the Revenue that Parliament had a different intention so far as payments of amounts due under the Employees Provident Fund Act was concerned and that it had intended to treat that amount differently from the amount of tax which the assesses were required to pay. We find no support whatsoever for this submission either in the memorandum or in any other document. When section 43B was introduced all that was sought to be ensured was that the statutory liabilities are to be given deduction to only if they had been discharged by actual payment."

33. In view of the aforesaid decision of the jurisdictional High Court payments of amounts due under the Provident Fund Act cannot be treated on different footings. In our opinion, to eliminate the inequality second proviso was omitted. We have further noted that the substantive provision remained unaltered. Only provisos were amended to dilute the rigour of procedural aspect.

34. We have considered the entire conspectus of the case. As per the prescription of section 43B of the Act, deduction for statutory payments pertaining to labour, taxes etc. are to be allowed as deductions, if they are actually paid during the financial year. However, to mitigate the unintended hardship it is stipulated in the proviso that taxes are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. In the case of statutory payment relating to labour, it was sine qua non to make the payment anytime before the last date for payment of labour related liability. It was represented before the government that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes etc. The deduction if denied in a year could not be claimed in subsequent year. On account of various reasons like postal delay, strikes or long holidays, the payment of employer's contributions to the respective authorities at times delayed even though the payment tendered before the due date. Having regard to this unintended hardship, by the Finance Act, 2003 in the first proviso of sec. 43B, the words, brackets and letters referred to in clause (c) or clause (d) or clause (e) or clause (f)" have been omitted and second proviso was also omitted. Legislature removed the differentiation between employee welfare payments and others. Uniform criteria was prescribed for the malleability of the claim. The amendment was made to eliminate unintended consequences that caused undue hardship to the tax payers. Therefore, amendment in proviso to sec. 43B by Finance Act, 2003 was curative in nature. Accordingly, it should be applied retrospectively.

35. As regards the intervener, we have not examined the facts of the case. The regular Bench while deciding these appeals may keep in view the principles laid down in this case.

In the result, appeal of the assessee stands allowed.

 
 
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