V K Subramani – [2026] 183 taxmann.com 723 (Article)
The provisions of Income-tax law continue to remain magical due to various usage of expressions at different points in time by the legislature and their interpretations by the courts at various situations. While the legislature has the privilege of doing retrospective amendments and correcting the errors in the legislation, the courts have the limited power to change the interpretation of a legal provision. However, various layers of appellate authority (read as tribunal or High court) tend to differ from one another by giving reasons for disagreement or deviations from the co-ordinate benches, in the case of tribunal or other high courts. The taxpayers have no choice but to adhere to the jurisdictional court decision unless the apex court resolves the issue to set at rest the correct legal position.
The Income-tax Act, 1961 has stood the test of time and the legal decisions of the Income-tax Act, 1922 have been followed and adopted in its interpretation. The Income-tax Act, 2025 also will carry the legacy of the Income-tax Act, 1961 in respect of settled matters since the intent and substance of the law is more or less the same.
This refresher takes note of the statutory dues when assigned to another company at net present value vis a vis its impact under section 41(1) and section 43B.
1. Section 43B of the Income Tax Act, 1961
Section 43B has the title ‘Certain deductions to be on actual payment’. The section says that notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under the Act in respect of the statutory payments and other payments mentioned therein shall be allowed only in computing the income referred to in section 28 of that previous year in which the sum is actually paid. This is irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting employed by it. Thus, these payments are deductible on actual payment basis subject to some extended time limit contained in the proviso to section 43B.
At the threshold, it may be noted that section 43B will not apply where the assessee offers income under sections 44AD, 44ADA, 44AE and 44BBB (foreign companies engaged in certain turnkey power projects).
Clause (a) of section 43B covers any sum payable by way of tax, duty, cess or fee by whatever name called under any law for the time being in force;
Clause (b) of section 43B covers 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;
Clause (c) of section 43B covers any sum referred to in section 36(1)(ii) of the Act. It covers any sum paid to an employee as bonus or commission for services rendered where such sum would not have been payable as profit or dividend if it was not payable as bonus or commission.
Clause (d) of section 43B covers 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;
Clause (da) of section 43B covers any sum payable by the assessee as interest on any loan or borrowing from non-banking financial companies notified by the Central Government in the official gazette in this behalf, in accordance with the terms and conditions of the agreement governing such loan or borrowing;
Clause (e) of section 43B covers any sum payable as interest on any loan or advance from a scheduled bank or a co-operative bank (other than primary agricultural credit society or primary co-operative agricultural and rural development bank) in accordance with the terms and conditions of the agreement governing such loan or advance;
Clause (f) of section 43B covers any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee;
Clause (g) of section 43B covers any sum payable by the assessee to the Indian Railways for use of railway assets; and
Clause (h) of section 43B covers any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006.
In respect of payments [except payments to MSMEs covered in clause (h)] there is extended time period whereby if the liability to pay is discharged on or before the ‘due date’ applicable for furnishing the return of income under section 139(1) of the Act, such payment is eligible for deduction.
2. Section 41(1) of Income Tax Act, 1961
Section 41(1)(a) says that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee obtains whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.
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