High Court Of Rajasthan
Shree Pipes vs. DCIT
Section 43B
Rajesh Balia & R.P. Vyas, JJ.
IT Appeal No. 8 of 2004
17th April, 2006
Counsel Appeared
Sanjay Jhanwar, for the Appellant : K.K. Bissa, for the Respondent
JUDGMENT
By the court :
Heard the learned counsel for the parties.
2. This appeal is by the assessee against the order of the Tribunal, Jodhpur Bench, Jodhpur, dt. 19th Sept., 2003. This appeal is confined to the claim of the assessee for deduction of liability of interest that has accrued on outstanding dues under the Rajasthan Sales-tax Act as well as the IT Act which has been rejected by the AO and affirmed in appeal by the Tribunal that unless the liability of interest is discharged in terms of s. 43B(a) of the Act, the assessee is not entitled to claim deduction under s. 37 of the IT Act, 1961. The controversy is reflected in the following question that has been framed at the time of admitting appeal : “Whether, on the facts and circumstances, the Tribunal was justified in not allowing the interest of Rs. 3,76,654 which has become due on delayed payment of sales-tax payable by the assessee as deduction by considering it as ‘tax’ within the meaning of s. 43B of the IT Act, 1961 ?”
3. The learned counsel for the assessee contends that the tax, interest and penalty under any fiscal statute are distinct and have different connotation. For creating demand of either of them, separate charging provision is needed and no liability is created independent of statutory provision. Levy and collection of tax has to be authorised by law and refund and collection of interest on delayed payment of tax is also required to be authorised by law.
4. Sec. 43B(a) in its plain and unambiguous terms puts a condition only in respect of tax, duty, fee or cess that the same is paid in terms of s. 43B on or before the statutory time. Failure to make payment of tax, duty, cess or fee which is otherwise deductible in terms of s. 43B within the statutory period would forfeit the claim of deduction on such accrued liability on account of levy of tax, duty, cess or fee under s. 37 only on the basis of accrual, notwithstanding the assessee follows the mercantile system of accounting or cash system of accounting. In support of his contention, he placed reliance on the following cases : (i) CIT vs. Orient Beverages Ltd. (2000) 164 CTR (Cal) 529 : (2001) 247 ITR 230 (Cal); (ii) Russel Properties (P) Ltd. vs. CIT (1982) 26 CTR (Cal) 330 : (1982) 137 ITR 358 (Cal); (iii) CIT vs. Padmavati Raje Cotton Mills Ltd. (1999) 155 CTR (Cal) 540 : (1999) 239 ITR 355 (Cal); (iv) CIT vs. E.L. Properties (P) Ltd. (2001) 166 CTR (Cal) 485 : (2001) 248 ITR 14 (Cal); (v) Pratibha Processors vs. Union of India AIR 1997 SC 138; and (vi) Harshad Shantilal Mehta vs. Custodian (1998) 231 ITR 871 (SC).
5. The learned counsel for the Revenue contends that so far as this Court is concerned, this issue has been decided in favour of the Revenue by the Division Bench of this Court in the case of Mewar Motors vs. CIT (2003) 260 ITR 218 (Raj) following the earlier decision about the nature of interest payable on delayed payment of sales-tax reported in CIT vs. Udaipur Distillery (1986) 53 CTR (Raj) 244 : (1986) 160 ITR 444 (Raj). The learned counsel for the Revenue has also placed reliance on the Supreme Court decision in the case Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429 (SC). On the last decision, learned counsel for the appellant has also placed reliance to some extent.
The contention of the Revenue is founded on the terms that s. 43B was introduced by the Finance Act, 1983, w.e.f. 1st April, 1984, with a view to restrict liability of certain claims of deduction only on the basis of actual payment and not merely on the basis of accrual of such liability which is otherwise allowable as deduction under the provisions of the IT Act while computing the total taxable income of the assessee. In other words, the purpose of making the provision under s. 43B in respect of certain allowable claims of the assessee was to secure that before taking benefit of deduction from taxable income, such liability must be discharged. Sec. 43B(a) was amended by the Finance Act, 1988, w.e.f. 1st April, 1989. In general terms, it reads “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.” To examine the validity of the rival contentions, it would be apposite to reproduce the relevant part of s. 43B which reads as under : “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 cl. (ii) of sub-s. (1) of s. 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 s. 28 of that previous year in which such sum is actually paid by him.” We are not concerned with the proviso for the present controversy, so we are not referring to it nor we are concerned with the liability arising under the Rajasthan Sales-tax Act towards payment of sales-tax on the assessee’s turnover during the relevant previous year as defined “tax” under s. 2 (r) of the Act of 1954 to mean tax leviable under the provisions of this Act.
9. While moving for insertion of s. 43B through the Finance Bill, 1983, it was given out by the then Finance Minister in his Budget Speech for introduction of this new provision as under : “Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer’s contribution to provident fund, the Employees’ State Insurance Scheme, for long period of time. For the purpose of their income-tax assessments, they nonetheless claim the liability as deduction even as they take resort to legal action, thus depriving the Government of its dues while enjoying the benefit of non-payment. To curb such practices, I propose to provide that irrespective of the method of accounting followed by the taxpayer, a statutory liability will be allowed as a deduction in computing the taxable profits only in the year and to the extent it is actually paid.” Commensurating with this object, s. 43B was inserted in the IT Act w.e.f. 1st April, 1984.
10. Sec. 11AA of the Act of 1954 provides for recovery of interest on the delayed payment of tax. Sec. 11AA of the Act of 1954 was inserted w.e.f. 4th May, 1964, which provides that interest payable under this Act is deemed to be tax under the Act of 1954 for the purpose of collection and recovery and is recoverable as tax. The provision relating to interest was made since 2nd May, 1969. Sec. 17A of the Act of 1954 enables the Commr. in appropriate case to waive wholly or partly interest chargeable from the assessee under the Act.
11. It may be noticed that the definition clause whether under the IT Act or under the Sales-tax Act is also not absolute in terms but the definitions have to be read in the context in which they appear at various places in the given statute. Sec. 2 of the IT Act as well as the definition clause under the Rajasthan Sales-tax Act start with the expression “in this Act, unless the context otherwise requires”. Therefore, the definition given under the Act has to be read in the context of the provisions.
12. It is not in all the circumstances that tax has to be considered different from interest or penalty nor that in all circumstances, they are to be considered to be one. This principle is so well established as not to need any clarification on this aspect of the matter. The parties have also not joined any issue. Therefore, the crucial question that begs answer is whether the expression “tax, duty, cess or fee” used in cl. (a) of s. 43B has to be construed in a wider sense to include other charges leviable on any assessee as incidental or ancillary charges to effectually levy and collect tax than the tax proper leviable under the charging provision of the taxing statute. Apart from this, it is also essential to consider in the context of s. 43B as to what is the real nature of interest chargeable on late payment of tax.
13. In common parlance, interest is liability that arises by way of compensation or service charge for use of somebody else’s money for one’s own use.
14. Any expression in any statutes cannot be used in isolation without reference to the context in which the particular word or phrase has been used. Lord Allen in his book Law in the Making has stated that the words are meaningless in isolation and their context must always be taken into account.
15. Professor H.A. Smith in his book Interpretation in English and Continental Law, referring to the Journal of Comparative Legislation, November, 1927, pointed out that :
16. Sutherland in Statutory Construction cautioned that : “there is basic fallacy in saying that words have meaning in and of themselves.”
17. In the same way in Craies in his book Statutory Law said that reference to the abstract meaning of words, if there be any such thing, is of little value in interpreting statutes.
18. Justice Holmes in the case of Towne vs. Eisner (1917) 245 US 418 said that : “A word is not a crystal transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstance and the time in which it is used.”
19. Viscount Simonds in Attorney-General vs. Prince Ernest Augustus of Hanover (1957) AC 436 (HL) stated that “For words, and particularly general words, cannot be read in isolation : their colour and content are derived from their context. So it is that I conceive it to be my right and duty to examine every word of a statute in its context and I use ‘context’ in its widest sense, which I have already indicated as including not only other enacting provisions of the same statute, but its preamble, the existing state of the law, other statutes in pari materia, and the mischief which I can, by those and other legitimate means, discern the statute was intended to remedy.”
20. The Hon’ble Supreme Court in the case of Union of India vs. Sankalchand Himatlal Sheth AIR 1977 SC 2328, speaking through Hon’ble Krishna Iyer, J. said that : “no word has an absolute meaning, for no words can be defined in vaccuo, or without reference to some context.” “the judicial interpretation should not be imprisoned in verbalism and words lose their thrust when read in vacuo, we must search for a reliable scientific method of discovery rather than the speculative quest for the spirit of the statute and the cross-thoughts from legislators’ lips or Law Commr.’s pens. They edify but are not edictal.” In coming to this conclusion, the following passage from Hutton vs. Philips (1949) 45 Del 156 : 70 A 2d 15, was quoted with approval : “… Interpretation involves far more than picking out dictionary definition of words or expressions used. Consideration of the context and the setting is indispensable property to ascertain a meaning. In saying that a verbal expression is plain or unambiguous, we mean little more than that we are convinced that virtually anyone competent to understand it and desiring fairly and impartially to ascertain its signification, would attribute to the expression in its context a meaning such as the one we derive, rather than any other; and would consider any different meaning, by comparison, strained or far-fetched, or unusual or unlikely. … Implicit in the finding of a plain, clear meaning of an expression in its context, is a finding that such meaning is rational and ‘makes sense’ in that context.”
21. Maxwell while referring to Heydon’s case (1584) 3 Co. Rep. 7a, in his book Maxwell on the Interpretation of Statutes has said that : “In Heydon’s case (1584) 3 Co. Rep. 7a it was resolved by the Barons of the Exchequer (at p. 7b) ‘that for the sure and true interpretation of all 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 the 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 pro privato commondo, 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’.”
22. In the context of the aforesaid principles governing the interpretation of statutes, if we consider the provisions of s. 43B with reference to its object, it speaks of certain deductions otherwise allowable under this Act. Therefore, the provision operates on the claim of the assessee for deduction of certain expenses and outgoings while computing his total taxable income for the purpose of effecting levy under the Act of 1961. It also envisages that allowability of any expenses as allowable deduction is ordinarily to be determined on the basis of the method of accountancy followed by the assessee, i.e., to say, where the assessee follows the cash system of accountancy, deduction is allowable only on actual payment of expenses or discharge of liability, irrespective of the fact when the liability in respect of it was incurred or accrued. Likewise where the assessee is following the mercantile system of accounting, the deduction became allowable at the time of its accrual, irrespective of the period during which it is actually paid or discharged. Apparently, s. 43B has been enacted with the object to see that liability towards tax is paid or discharged before the assessee’s claim to its deduction is allowed. In this context, would the term “tax” include within its meaning tax simpliciter or would it also include disallowance of interest chargeable on it for non-payment or delayed payment which though has become due, has not been paid before the specified date ? In this connection, it would be apposite to refer to another decision of the Hon’ble Supreme Court in the case of Harshad Shantilal Mehta vs. Custodian (supra), on which reliance was also placed by learned counsel for the appellant. It was a case arising in connection with s. 11(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The question that had arisen before the Court was whether the expression “tax” under s. 11(2)(a) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, would include interest or penalty as well for the purpose of claiming priority in regard to its payment or other liabilities to be distributed by the Special Court in regarding to certain transactions. Significantly, while answering the question, for the purpose of s. 11(2)(a), the Court excluded the interest accrued on the tax due from the value of priorities. The Hon’ble Supreme Court also said that the meaning of the words “taxes due” will ultimately depend upon the context in which these words are used. It would be apposite to note here that with a view to ensuring speedy recovery of huge sums of money diverted by brokers from banks and financial institutions by irregular transactions in Government and other securities during the period 1st April, 1991 to 6th June, 1992, the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, was enacted, therefore, the Special Court was to examine the tax liability incurred during the period 1st April, 1991 to 6th June, 1992, only. In the aforesaid background, the Court considered the provisions of s. 11 of the Act of 1992 which reads as under :
11. Discharge of liabilities.—(1) Notwithstanding anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment. (2) The following liabilities shall be paid or discharged in full, as far as may be, in the order as under : (a) all revenues, taxes, cesses and rates due from the persons notified by the Custodian under sub-s. (2) of s. 3 to the Central Government or any State Government or any local authority; (b) all amounts due from the person so notified by the Custodian to any bank or financial institution or mutual fund; and (c) any other liability as may be specified by the Special Court from time to time.”
While deciding the first question, the Court has made it clear that these expressions have to be read in the context of the entire statute. While considering question No. 2, the Court said that as far as the purpose of the Special Court Act, inter alia, is as far as practicable, to safeguard the funds to which the banks and financial institutions may be entitled and to ensure that these funds are not done away with, there are provisions for attachment, ascertainment of claims and distribution of funds. However, before the liabilities of a notified person to banks and financial institutions can be discharged, s. 11(2)(a), requires the tax liability of the notified person to be paid. In this context, the tax liability can properly be construed as tax liability of the notified person arising out of transactions in securities during the “statutory period” of 1st April, 1991 to 6th June, 1992. If for example, any income-tax is required to be paid in connection with the income accruing to a notified person in respect of transactions in securities during the “statutory period”, that liability will have to be paid before the funds are made available to the banks and financial institutions. Similarly in respect of any property which is attached, if any rates or taxes are payable for the “statutory period” those rates or taxes will have to be paid before the proceeds of the property are distributed to banks and financial institutions. In the same manner, the liabilities to banks and financial institutions in s. 11(2)(b) are also liabilities pertaining to the statutory period. The Court further concluded that every kind of tax liability of the notified person for any other period is not covered by s. 11(2)(a), although the liability may continue to be the liability of the notified person. Such tax liability may be discharged either under the directions of the Special Court, under s. 11(2)(c) or the taxing authority may recover the same from any subsequently acquired property of a notified person or in any other manner from the notified person in accordance with law. The priority however, which is given under s. 11(2)(a) to such tax liability only covers such liability for the period 1st April, 1991 to 6th June, 1992. While deciding question No. 5, the Court has reached its conclusion for the purpose of s. 11(2)(a) only. The Court held that the Special Court after examining various authorities in paras 51 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under s. 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection. Thus, this decision affirms that the expression “tax” has to be construed in the context of the object in which the word has been used.
25. What is the true nature of interest payable on delayed payment of tax was considered by the Hon’ble apex Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (supra). It was the case of the assessee that interest on the arrears of cess payable on the entry of cane into the premises of a factory for use, consumption or sale therein constituted a permissible deduction. The Revenue has contended that while the tax was payable for carrying on the business and therefore, expenditure was wholly and exclusively laid out for the purpose of the business and allowable as deduction under s. 10(2)(xv) of the Indian IT Act, 1922. Rejecting this contention, the Hon’ble Supreme Court said that interest payable on an arrear of cess under s. 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess carries interest; if the cess is not paid within the prescribed period, a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provision has been separately made by s. 3(5). Nor is it a penalty within the meaning of s. 4 which provides for a criminal liability and a criminal prosecution.
Thus, the Hon’ble Supreme Court in this case held that interest accrued on delayed payment of cess was held to be allowable deduction as part of the cess payable by the assessee and because of delayed payment of cess, liability to cess became enlarged by inclusion of interest in it. Apparently, for the purpose of deduction under s. 10(2) of the Indian IT Act, 1922, or for that matter under s. 37 of the Act of 1961, liability to pay interest on the delayed payment of tax becomes part and parcel of the tax for the purpose of allowing deduction.
26. The conclusion is irresistible that if the entire liability claimed as deduction on account of cess and interest accrued thereon is considered as part and parcel of tax liability for the purpose of its allowability, for the purpose of s. 43B, which is an ancillary provision laying down a condition for allowing deduction on account of tax liability, a different construction cannot be placed on the term “tax, duty, fee or cess”, all various species of tax.
27. We are fortified in our view by the decision of this Court in the case of Mewar Motors vs. CIT (supra). While considering the provisions of s. 43B of the Act, this Court opined that the object of s. 43B of the Act of 1961 is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of sales-tax or excise duty for long periods, but claim deduction in that regard from the income on the ground that the liability to pay this amount has been incurred by them in the relevant previous year. The interest paid is part of the sales-tax. The interest payable to the Sales-tax Department is also “tax” and the provisions of s. 43B of the Act are applicable thereto. We are in respectful agreement with the aforesaid ratio. Therefore, if we look at the direct context in which the provision has been enacted, there is no difficulty in reaching the conclusion that if the principal liability of tax which is otherwise allowable under s. 37 of the Act of 1961 shall be allowed as deduction and interest thereon becomes part of it.
28. We make it clear that it is not every liability that has been made subject to the provisions of s. 43B. Sec. 43B is restricted to various liabilities in respect of which provision has been made. It is pertinent to notice that s. 43B is not a charging section which has to be strictly construed. The restriction on claim to deduction envisaged under s. 43B is for computing the total taxable income and is part of the machinery provisions for effective implementation of the taxing statute. As the decision in Harshad Shantilal Mehta’s case (supra) was rendered in the context of the special provisions of the Act of 1992 for fixing priorities of certain liabilities, incurred during the specified period only, its ratio does not govern the case, where restriction on allowability of a claim to deduction which is otherwise allowable has been provided which is not confined to liability of tax for a specified period, but refers to taxes payable.
29. In this connection, it is also apposite to note there that the provisions of s. 11B of the Rajasthan Sales-tax Act, 1954, provide for charging interest on failure to pay tax, fee or penalty. Sec. 11AA of the Act of 1954 provides that the penalty or interest payable under this Act shall be deemed to be tax under this Act. Apparently, the legal fiction for the purpose of collection and recovery of tax must be carried to its logical end to effectuate the object with which it has been enacted, viz., to remedy the mischief of gaining other advantages by defaulters in payment of tax, in the matter of using it as a vehicle for reducing tax liability on the one hand, but on the other hand, not paying such taxes due to the public exchequer. There is a public element in it.
30. The learned counsel for the appellant has relied on the decision of the Calcutta High Court in the case of Russel Properties (P) Ltd. vs. CIT (supra). This judgment, in our opinion, is of little help to the appellant inasmuch as it was the judgment before the insertion of s. 43B of the Act of 1961 and the expression “allowance of deduction on account of liability arising for tax, duty, cess or fee” was not there. Therefore, this judgment is of a little value in considering the provisions of s. 43B of the Act.
31. The learned counsel for the appellant has also placed reliance on a series of decisions of the Calcutta High Court in the case of CIT vs. Padmavati Raje Cotton Mills Ltd. (supra), CIT vs. Orient Beverages Ltd. (supra) and CIT vs. E.L. Properties (P) Ltd. (supra). These cases have been decided by relying on the decision of Hindustan Motors Ltd. vs. CIT (1996) 132 CTR (Cal) 472 : (1996) 218 ITR 450 (Cal) and the earlier decision of the Calcutta High Court in Russel Properties (P) Ltd. (supra). The latter decision, we have noticed above was rendered for the period prior to the insertion of s. 43B, hence of little help.
32. Hindustan Motors Ltd. (supra) relates to levy of interest under the Excise Act for keeping goods in the warehouse beyond the free period. Three questions were referred to the Calcutta High Court for determination. The first question referred to the Calcutta High Court was whether, on the facts and circumstances of the case, the Tribunal was justified in holding that interest paid to the Customs Department is part and parcel of the customs duty and the provisions of s. 43B of the Act are applicable. The Hon’ble Chief Justice opined that interest payable under the Customs Act falls within the provisions of s. 43B of the Act, whereas other two Hon’ble Judges held that the interest cannot be treated as part and parcel of the duty. For the reason stated above for our conclusion, we are unable to agree with the view expressed by the series of decisions of the Calcutta High Court. In the case of Pratibha Processors vs. Union of India (supra), the Hon’ble Supreme Court has held that since the goods warehoused are kept in for a longer period, such delay entails delayed payment of duty and so interest is charged for such delayed payment of duty. Therefore, this is not relevant for the present controversy as the question whether it forms part of duty for the purpose of s. 43B of the Act of 1961 was not the question which the Court was addressing and we leave it at that. As a result of the aforesaid discussion, we hold that interest accrued on delayed payment of tax which is otherwise allowable as deduction under the provisions of the IT Act while computing the total income is part of tax within the meaning of s. 43B. The appeal has therefore, no force and the same is hereby dismissed.
[Citation : 289 ITR 154]
