Traders appeal against 43B(h) rule
Supreme Court on May 06 declined to address a collective plea against 45-day MSME payment rule and directed the traders to approach High court to pursue any relief.
i) Petitioners: The petition was filed by Madras Merchants & Manufacturers Association , Federation of All India Vyapar Mandal (FAIVM)and Confederation of West Bengal Trade Associations, contesting the legality of Section 43B (h) of Income Tax Act and seeking interim stay on the new clause or quashing it.
ii) What is section 43B? Section 43B covers a list of expenses that are allowed to be claimed as a deduction from business income only in year of actual payment, instead of year in which the liability accrues/ incurred.
iii) What does clause (h) say:
In Budget 2023, an amendment to this section by way of inserting Clause (h) was introduced to address the issue of delayed payments faced by MSE sellers from their buyers.
In Budget 2023, an amendment to this section by way of inserting Clause (h) was introduced to address the issue of delayed payments faced by MSE sellers from their buyers.
According to this amendment which takes effective from April 1, 2024, if a buyer entity does not pay an MSME on time ie within 45 days (where agreement exists) and within 15 days if there is no agreement- it cannot deduct that expense from its taxable income, obviously leading to higher taxes.
iv) Why petition: These trade associations believe that the amendment is breach of right vested by the constitution (Article 19(1)(g)- Freedom to Practice Profession, Occupation, Trade, or Business), to decide on payment terms between the parties ie the buyer and the seller, that are involved in a transaction.
Basis of claim: while larger entities/businesses are supposed to make payments to their MSME sellers within this prescribed time-line (15/45D as applicable), more often the payment cycle with their buyers are more than 45 days and this leads to working capital issues.
v) Reaction w.r.t appeal: In an interview to Financial express, representing firm on behalf of the petitioner, told that their client is planning to move to as per supreme court's advice, they are planning to appeal to Madras/Calcutta high court
Confederation of All India traders, had also appealed to the Government
to defer implementation of the amendment from 1st April 2024 to 1st April 2025, given the lack of clarity and awareness surrounding the applicability of the law to traders.
vi) Fact sheet:
According to Central Government’s delayed payment monitoring
portal https://msefc.msme.gov.in
1.95 lakh applications have been filed with the portal so far by the MSMEs against their buyers for delayed payments, involving ₹44,037 crores of which only 37,088 cases involving ₹6,331 crore have been disposed so far by the MSE Facilitation Councils.
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