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Income Tax Laws – I

Notes limits laid down under the relevant provisions) to a recognised provident fund or an
approved gratuity fund or an approved superannuation fund or for the purposes of and to
the extent required by or under any other law.
It is further provided that where the Assessing Officer, is satisfied that the fund, trust,
company, association of persons, body of individuals, society or other institution referred
above has, before March 1, 1984 bona fide laid out or expended any expenditure (not being
in the nature of capital expenditure) wholly or exclusively for the welfare of the employees
of the assessee out of the sum referred above, the amount of such expenditure shall, in case
no deduction has been allowed to the assessee in respect of such sum, be deducted in
computing the business income of the assessee of the previous year in which such
expenditure is so laid out or expended. It is also provided that where the assessee has
before March 1, 1984, paid any sum to any fund, trust, company, association of persons,
body of individuals, society or other institutions, then notwithstanding anything contained
in any other law or in any instrument, he would be entitled:
to claim the unutilised amount be repaid to him and where any claim is so made, the
unutilised amount shall be repaid, as soon as may be, to him; and

to claim that land, building, machinery, plant and furniture acquired or constructed
by the fund, trust, company, association of persons, body of individuals, society or
other institution out of the sum paid by the assessee, be transferred to him and
where any claim is so made, such asset shall be transferred, as soon as may be to
him.

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Caution The aforesaid provisions took effect retrospectively from 1st April, 1980, and
accordingly, apply in relation to the assessment year 1980–81 and subsequent years.

9.6.3 Disallowance of Unpaid Statutory Liability (Section 43B)

Under the income-tax law, a person carrying on a business or profession can account for his
income either on cash or mercantile basis. The latter, however, have to reckon with the restrictions
contained in Section 43B. This section cuts into the freedom of a business to claim certain specified
expenses on due basis. The section has broadly divided the targeted expenses into two i.e.,
according to section 43B even if an assessee maintains books on mercantile system then he will
be allowed exemption of the following expenses only on payment basis.
In the first category are:
(a) taxes, duties, cess or fees payable under any law;
(b) bonus and commission to employees;
(c) interest to public financial institutions, state financial corporations, state industrial
investment corporations and to scheduled banks in respect of term loans or advances;
(d) leave encashment.
(e) any sum payable by employer by way of contribution to provident fund or super annuation
fund or any other fund for welfare of employees.
These four sets of expenses outstanding at the end of the previous year would be allowed as
deduction only to the extent they have been actually paid on or before the due date of filing the
income-tax return failing which they would be allowed in the previous year they have been
actually paid. Where interest as stipulated in (d) above is converted into a loan, borrowing or
advance and is not paid, interest so converted will not be treated as having been actually paid,
and accordingly, will not be allowed as a deduction from business income.

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