Home Income Tax DISALLOWANCE UNDER SECTION 43B

DISALLOWANCE UNDER SECTION 43B

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Certain deductions to be only on actual payment-Section 43B

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of following shall be allowed  only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.

Provision of this section shall apply 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.

 

(i) 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 For eg. VAT, CST, Custom Duty etc
(ii) 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, Employer’s Contribution to ESI, PF, Labour Welfare Fund etc.
(iii) any sum referred to in clause (ii) of sub-section (1) of section 36 Bonus or Commission to employee
(iv) any  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 Interest
(v) any 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 Interest
(vi) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, Leave Encashment
(vii) any sum payable by the assessee to the Indian Railways for the use of railway assets (w.e.f A.Y. 2017-18, by the F.A. 2016] Railway Freight etc.

No disallowance if paid on or before due date of return filing-Proviso Nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

Meaning of Any Sum payable- Explanation 2 For point no. (i), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.

Conversion of interest into loan is not payment-Explanation 3C & 3D  Deduction of any sum, being interest payable under point no. (iv) & (v) , shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.

Case Laws

Arrears of salary and other benefits payable to employees are not covered by section 43B. CIT v Hindustan Times (2012) 211 Taxman 202 (Delhi)

Depositing of bonus amounts payable to employees into a separate bank account does not amount to actual payment. Thanjaur Textiles Ltd. v JCIT(2012) 210 Taxman 111(Mad)

Where overdue interest payable by assessee had been converted into loan amount and there was no actual payment of interest, section 43B deduction would not be allowed. CIT v Lotus Roofings (P.) Ltd. (2012) 207 Taxman 102 (Mad)

Circular issued by State of Bihar in relation to scheme for deferred payment of sales tax would be valid for purposes of giving concession to assessee under section 43B. Such deferred payment of sales tax would be deemed to be a loan which was paid subsequently and in that view of the matter, the deduction was held permissible. CIT v Bihar Foundry and Castings Ltd. (2011) 336 ITR 387 (Jhar)

Section 43B is applicable only in respect of any amount paid as interest to a scheduled bank. Therefore, on-payment of interest on loan taken from a co-operative bank would not attract provisions of section 43B. CIT v Upendra T. Kapadia (2013) 213 Taxman 384 (Bombay)

Phrase ‘by whatever name called’ explained- CIT v Travancore Sugars & Chemicals Ltd. (2015) 58 Taxmann.com 86 (SC)- With the addition of words ‘by whatever name called’ vide clause (a) to section 43B by Finance Act, 1988, any sum payable whether called tax, duty, cess or fee or called by some other name, attracts section 43B. Vend fee collected by State Government from manufacturer for giving special benefit to repair or replace old machinery would be a ‘fee’ by ‘whatever name called’ to be allowed only on actual payment in previous year, relevant to assessment year.   Even if the vend fee that is paid by the assessee to the State does not directly fall within the expression ‘fee’ contained in section 43B(a), it would be a ‘fee’ by ‘whatever name called’, that is even if the vend fee is called ‘privilege’ as has been held by the High Court in the judgment under appeal.

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