In instances where the liability to pay sales tax on sales is set off against the sales tax already paid on purchases, such a treatment of adjustment is to be considered as deemed payment.
As per Section 43B of the Income tax Act, deduction is allowed of 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 the previous year in which the liability to make the payment arises., provided the same has been paid before the due date of return filing for the assessment year of the aforementioned previous year.
The relevant portion of Section 43B concerning the subject matter reads as –
“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……..
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 section 28 of that previous year in which such sum is actually paid by him.“
The adjustment made for meeting the sales tax liability on sales is a deemed payment by legal fiction. The same will be considered an actual payment for the purpose of Section 43B and be allowed as deduction. Thus, adjustment resulting into deemed actual payment amounts to payment for attracting provisions of Section 43B.
The same has been held by Bombay HC in the case of MERCK LTD. FORMERLY KNOWN AS E. MERCK (INDIA) LTD. VERSUS DY. COMMISSIONER OF INCOME TAX dated 16.09.2021.
