COMMISSIONER OF INCOME-TAX vs. SURAT ELECTRICITY CO. LTD.

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ITR/271/1994HC GujaratGJHC24020347199413 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the question referred to it was concluded by the Supreme Court's decision in Allied Motors (P) Limited vs. C.I.T. The Supreme Court had approved the High Court's view in C.I.T. vs. Chandulal Venechand. In Chandulal Venechand's case, the High Court had interpreted Section 43B to mean that its proviso related back to the date Section 43B came into operation (April 1, 1984). Consequently, such liabilities would be allowable as a deduction if the assessee proved they were discharged by actual payment before the due date for furnishing the return of income under Section 139(1) for the relevant previous year. Therefore, the High Court answered the referred question in the affirmative, in favour of the assessee and against the Revenue.

What were the facts?

The Commissioner of Income-tax (Revenue) referred a question to the High Court of Gujarat concerning an Income Tax Appellate Tribunal (ITAT) decision. The ITAT had deleted an amount of Rs. 3,10,10,056, which represented statutory liabilities like government duty and sales tax outstanding at the end of the previous year relevant to assessment year 1987-88. The Revenue contended that this amount was expressly disallowed under Section 43B of the Income Tax Act and that the explanation to Section 43B, inserted by the Finance Act 1987 with effect from April 1, 1988, had prospective application, meaning it should not apply to assessment year 1987-88.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, and in law, the ITAT, Ahmedabad was correct and justified in deleting an amount of Rs. 3,10,10,056/= being the statutory liability of Government duty, sales tax, etc. outstanding at the end of the previous year relevant to assessment year 1987-88, which is expressly disallowed u/s. 43B of the I.T. Act disregarding the effect of provisions contained in explanation 2 to sec. 43B of the Act inserted by Finance Act 1987 with effect from 1.4.1988, and is prospective in application for and from assessment year 1988-89 onwards? Assessee's Contention: The judgment does not record specific arguments made by the assessee before the High Court. However, the ITAT's deletion of the amount implies the assessee argued for its deductibility. Revenue's Contention: The Revenue argued that the amount was disallowed under Section 43B and that Explanation 2 to Section 43B, inserted by the Finance Act 1987 with effect from April 1, 1988, was prospective and thus not applicable to assessment year 1987-88.

Which sections of the Income-tax Act were involved?

Section 43B,Section 139(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No. 271 of 1994

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ========================================================= 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

---------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus SURAT ELECTRICITY CO. LTD. ---------------------------------------------------------- Appearance: MR MIHIR JOSHI with MR M R BHATT for Petitioner SERVED BY RPAD - (N) for Respondent No. 1 ----------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 13/04/98

ORAL JUDGEMENT [Per : Abichandani, J.]

The Income Tax Appellate Tribunal, Ahmedabad has referred the following question for the opinion of this Court under Section 256 (1) of the Income Tax Act.

"Whether, on the facts and in the circumstances of the case, and in law, the ITAT, Ahmedabad was correct and justified in deleting an amount of Rs. 3,10,10,056/= being the statutory liability of Government duty, sales tax, etc. outstanding at the end of the previous year relevant to asstt. year 1987-88, which is expressly disallowed u/s. 43B of the I.T Act disregarding the effect of provisions contained in explanation 2 to sec. 43B of the Act inserted by Finance Act 1987 with effect from 1.4.1988, and is prospective in application for and from asstt. year 1988-89 onwards ?" The question referred to this Court now stands concluded by the decision of Hon'ble the Supreme Court in approved by the Supreme Court. In Chandulal Venechand's case, this Court while construing the provisions of Section 43-B had taken a view that the proviso to Section 43-B of the Act related back to the date when Section 43-B came into operation i.e., April 1, 1984. It was held that such liability would therefore be allowable as a deduction provided the assessee established that it was discharged by actual payment before the date applicable in his case for furnishing the return of income under Section 139 (1) of the Act in respect of relevant previous year in which the liability had been incurred.

In view of this settled legal position, the question referred to this Court is answered in the affirmative in favour of the assessee and against the Revenue. The Reference stands disposed of accordingly with no order as to costs.

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Prakash*

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