Commissioner of Income Tax vs Shadi Ram Dharam Chand and Co.

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(1) of the Income Tax Act, 1961,hereinafter inferred to as "the Act", for opinion to this Court:

Whether on the facts and in the circumstances of the case, the Tribunal was justified to allow the deduction which was not permissible in view of the provisions as laid down in Section 43B of the Income Tax Act?

The present reference made relates to the assessment year 1985-86. The accounting period of the respondent-assessee ended on 24-10-1984.

The brief facts of the case are that the Income Tax Officer during the assessment proceedings found that the assessee had shown certain outstanding liability in the balance-sheet on account of sales tax. As the said amount had not been paid during the year, it was added u/s 43B towards the income. The said order was also confirmed by the learned Commissioner (Appeals). In second appeal the Tribunal deleted the said addition on the ground that the alleged amount of sales-tax was realized in the last month of the assessment year and was deposited in the following year when it became due. In this way the alleged amount had not become payable and thus it was not hit by Section 43B.

We have heard Sri A.N. Mahajan, learned Standing Counsel for the revenue.

The order passed by the Income Tax Appellate Tribunal has given rise to the present reference. We found that it has come on record that the amount of sales-tax which the respondent-assessee had realized during the last month of the previous year relevant to the assessment year in question had been paid over to Sales Tax department during the next succeeding month within statutory period as and when it became due and payable to the Sales Tax department. In view of this, principle laid down by the Apex Court in Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi, is squarely applicable.

The proviso inserted to Section 43B of the Act has been held to have retrospective operation. Thus, the respondent-assessee has rightly been held to be entitled for deduction of the amount of sales-tax in question. The Tribunal has rightly allowed the deduction.

We, therefore, answer the question referred to us in affirmative, i.e., in favour of the assessee and against the revenue. However, on the facts and circumstances of the case, parties are left to bear their own costs.