COMMISSIONER OF INCOME TAX Vs. GOVINDARAJA REDDIAR

JUDGEMENT

(1.) AT the instance of the Revenue, the following common question of law has been referred by the Income-tax Appellate Tribunal for the decision of this court in the above three connected cases :

(2.) THE assessees in the three cases are different firms. But, all the cases relate to the assessment year 1984-85. THE accounting period, in the case of the assessee which is the subject-matter of Income-tax Reference No. 211 of 1987, is 1158 M. E. But, in the case of the other two assessees, the accounting period ended by March 31, 1984. THE assessment year in all the three cases is 1984-85. All the assessees had collected amounts by way of sales tax during the relevant accounting period. THE collections of the last month of the previous year were not paid during the year to the Government. THEy were not debited to the profit and loss account. THEy were not claimed as deduction while computing the income taxable under the Income-tax Act. But, the same were shown as sales tax payable in the balance-sheet. In substance, the aforesaid sums are sales tax collected during the accounting period, but remain unpaid on the last date of the accounting period. Admittedly, the amount so collected had not become due and payable to the State Government on the last date of the accounting period. THEy were payable only on a later date. It is common ground that the assessees paid the amounts on the dates when payments were due as per the statute. THE amounts were not paid on or before the last date of the accounting period, since the time for the discharge of the tax was not over by then. In all the cases, the assessing authority held that, such sums collected, but not paid before the last date of the accounting period, will attract Section 43B of the Income-tax Act. This section was inserted in the statute with effect from April 1, 1984. In effect, the decision of the assessing authority was that only actual payments made towards tax collected alone could be allowed as deduction. Since it was not so in these cases, such collections made, but remained unpaid on the last date of the accounting period, were treated as the assessee's income, in all the three cases. In appeals, the Commissioner of Income tax (Appeals) held that Section 43B of the Act, is inapplicable in these cases. THE Revenue took up the matter in further appeals before the Income-tax Appellate Tribunal. By a common order dated July 31, 1986, the Income-tax Appellate Tribunal dismissed the appeals filed by the Revenue. THE Appellate Tribunal did so by following its earlier order in the case of S. Govindaraja Reddiar, Quilon (I.T.A. No. 20/Coch/1986), THE Appellate Tribunal held that Section 43B of the Act came into play only when the tax has accrued and became due for payment in the accounting year and the assessee had not paid the same within the accounting year and that it will not have any application in cases where the time for the discharge of tax was riot over by the end of the accounting year. It is thereafter at the instance of the Revenue that the Income-tax Appellate Tribunal has referred the common question of law formulated hereinabove, in all the three cases, for the decision of this court.

(3.) IN these cases, when the Appellate Tribunal rendered its decision in the appeals on July 31, 1986, it construed the provisions of Section 43B of the Act as it stood then, unhampered by the amendments effected in the statute by the Direct Tax Laws (Amendment) Act, 1987, the Finance Act, 1988, and the Finance Act, 1989. The amendments so introduced later in Section 43B of the Act have made great inroads. IN particular, the Finance Act, 1989, has inserted Explanation 2 with effect from April 1, 1984, and the said Explanation is applicable in the three cases on hand. The effect of these amendments, and, in particular, the change effected by the Finance Act of 1989, is virtually to supersede the earlier legal position. The Appellate Tribunal had no opportunity to consider the proper law applicable in these, cases, for the assessment year 1984-85, since the later amendments, with retrospective effect, were not available at the time when the decision in the appeals was rendered.