ALLIED MOTORS (P) LTD. vs. COMMISSIONER OF INCOME TAX, DELHI

TAX REFERENCE CASE No. 2/1993Supreme Court[1997] 2 S.C.R. 78010 March 1997Bench: 3 JudgesAuthor: A.M. AHMADI, SUJATA V. MANOHAR, K. VENKATASWAMI B ALLIED MOTORS13 pages
AI SummaryAllowed

What were the facts?

The assessee, Allied Motors (P) Ltd., filed an Income Tax Return for Assessment Year 1984-85, claiming a deduction for sales tax collected in the last quarter of the relevant previous year. The Income Tax Officer disallowed this deduction under Section 43-B of the Income Tax Act, 1961, which was effective from April 1, 1984. The original Section 43-B did not include the first proviso, which was inserted by the Finance Act of 1987, effective from April 1, 1988. Explanation 2 was added retrospectively from April 1, 1984, by the Finance Act of 1989. The assessee's appeals to the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were dismissed, leading to the present appeal before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the first proviso to Section 43-B of the Income Tax Act, 1961, should be given retrospective effect and read as part of the section from its inception. The Court reasoned that Section 43-B was intended to curb tax evaders who delayed statutory payments but claimed deductions. The original wording, however, caused hardship to assessees who paid sales tax within the statutory period, even if it fell outside the previous year. The first proviso was introduced as a remedial measure to eliminate these unintended consequences and make the provision workable and just. The Court noted that Explanation 2, added retrospectively, also supports the interpretation that the proviso should be read into Section 43-B from its inception to give effect to the true legislative intent. The departmental understanding, as evidenced by Circular No. 550, also supports reading the section, proviso, and explanation together. The Court relied on the principle of reasonable construction and the object of the statute, citing various High Court judgments that held the amendment to be curative or declaratory and thus retrospective. The appeals were allowed, and the references were answered in favour of the assessees.

What were the issues?

1. Whether the first proviso to Section 43-B of the Income Tax Act, 1961, inserted by the Finance Act of 1987, should be given retrospective effect and be considered part of Section 43-B from its inception? The assessee contended that the proviso should be retrospective. The revenue's contentions are not explicitly recorded in the provided text, but their stance was implicit in the disallowance of the deduction. 2. Whether sales tax collected by the assessee and paid after the end of the relevant previous year, but within the time allowed by the sales tax law, is to be disallowed under Section 43-B while computing business income for that previous year? This question hinges on the interpretation and retrospective applicability of the first proviso to Section 43-B.

Which sections of the Income-tax Act were involved?

Section 43-B,Section 139(1),Section 256(1)

AI-generated summary — verify with the full judgment below

A B ALLIED MOTORS (P) LTD. v . . . COMMISSIONER OF INCOME TAX, DELHI MARCH 10, 1997 (A.M. AHMADI, CJ., SUJATA V. MANOHAR AND K. VENKATASWAMI, JJ.] Income Tax Act, 1961 : C Section 43-B first proviso-Retrospective operation of-Held : First proviso effective since inception of S. 43-B-Nature and object of proviso considered-Reasonable construction applied-Memorandum of Reasons of Finance Bill, 1989 and Depa1tme11tal Circular No. 550 dated 1-1-1990, considered-Interpretation of Statutes. D Section 43-B first proviso-Nature and object of-Held : Remedial in nature, designed to eliminate unintended consequences of S. 43-B which might cause undue hardship to the assessee in a specific situation and thereby make the provision unworkable or unjust-Memorandum explaining I . provisions in Finance Bill of 1983 and Budget Speech of Finance Minister E for 1983-84, considered.

The petitioner-assessee filed an Income Tax Return for the Assess- ment Year 1984-85 in which the assessee had claimed a deduction on account of sales tax collected by the assessee for the last quarter of the relevant previous year. The Income Tax Officer under Section 43-B of the F Income Tax Act,

The order continues below.

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