Applicability of Section 43B(h) of the Income

Tax – Deduction for payment to MSEs

Presented by
CMA Vishnu Upadhyay
M. Com (ABST) & Real Estate Valuation, FCMA, MBA-F, LLB, IP (IBBI), RV (IBBI & Wealth Tax),
DISSA, DFA, CFE, DRA (IIBF)
Contact: +91 98182 18505, vishnu.upadhyay@gmail.com
Section 43B(h) of the Income-tax Act – Deductions for
Payments to MSEs
• The Income-tax Act allows the deduction of expenditure according to the system of
accounting followed by the assessee. Where the assessee follows a cash system of
accounting, the deduction should be allowed on an actual payment basis. In the case of a
mercantile system of accounting, the deduction is allowed on an accrual basis.
• However, Section 43B of the Income-tax Act, 1961 (IT Act) provides a list of several
expenses which are allowed as a deduction on a payment basis. Thus, even if an assessee
follows the mercantile method of accounting, deduction of the specified expenses shall be
allowed if the payment is made on or before the due date of furnishing the return of
income, except the sum payable to micro and small enterprises.
Section 43B(h) of the Income-tax Act – Deductions for
Payments to MSEs ….continued
• The Finance Act 2023 added one more item to the list in Section 43B by virtue of clause (h), the
deduction of which shall be allowed on a payment basis. It provides that any sum payable to a
micro or small enterprise (MSEs) beyond the time limit specified in Section 15 of the Micro,
Small and Medium Enterprises Development Act 2006 (MSMED Act) shall be allowed as a
deduction in the previous year in which such sum is actually paid.
What does the recently introduced clause (h) offer, and
how does it distinguish itself from the other clauses
within Section 43B?
• Section 43B applies to sums outstanding as of year-end and paid off after the 31st of March
of the financial year.
• The newly inserted clause (h) provides that any sum payable by the assessee to a micro or
small enterprise beyond the time limit specified in Section 15 of the MSME Act shall be
allowed in the previous year in which such sum is actually paid.
• Other clauses of Section 43B allow a deduction of year-end outstanding on an accrual basis
if the payment is made on or before the due date of filing the ITR. In contrast, the
deduction for the sum payable to MSEs covered by clause (h) shall be deductible only if
paid on or before the time allowed by Section 15 of the MSMED Act.
Who are classified as micro and small enterprises?
• In Explanation 4 of Section 43B, clauses (e) and (g) have been substituted to define the
expression “micro enterprise” and “small enterprise” respectively as under:
• ‘(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of Section 2 of
the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’);
• (g) “small enterprise” shall have the meaning assigned to it in clause (m) of Section 2 of the
Micro, Small and Medium Enterprises Development Act, 2006.’
• As clauses (e) and (g) of Explanation 4 to Section 43B make applicable the definitions of
“micro” and “small” enterprises in the MSMED Act to Section 43B(h), it is necessary to
examine the definitions in the MSMED Act.
Who are classified as micro and small enterprises?
• Section 2(h) of the MSMED Act defines “micro enterprise” to mean an enterprise classified
as such under sub-section (1) of Section 7.
• Section 2(m) of the MSMED Act defines “small enterprise” to mean an enterprise classified
as such under sub-section (1) of Section 7
• Sub-section (1) of Section 7 of the MSMED Act provides that the Central Government may,
for the purposes of this Act, by notification (in the Official Gazette), classify any class or
classes of manufacturing or service enterprises, whether proprietorship, HUF, association
of persons, co-operative society, partnership firm, company or undertaking, by whatever
name called, into:
- Micro Enterprises, Small Enterprises, Medium Enterprises
Who are classified as micro and small enterprises?
• Sub-section (9) of Section 7 of the MSMED Act provides that the Central Government may,
while classifying any class or classes of enterprises under sub-section (1), vary, from time
to time, the criterion of investment and also consider criteria or standards in respect of
employment or turnover of the enterprises and include in such classification the micro or
tiny enterprises or the village enterprises, as part of small enterprises.
• The Central Government has issued Notification No. 2119(E), dated 26-6-2020, under
Section 7(1) read with Section 7(9) of the MSMED Act. Para 3(1) of the said Notification
provides that a composite criterion of investment and turnover shall apply for the
classification of an enterprise as micro, small or medium. Para 1 provides that an
enterprise shall be classified as a micro, small or medium enterprise on the basis of the
following criteria:
Who are classified as micro and small enterprises?

Category of Enterprise Criteria for classification

Micro Enterprise • Net investment in plant and machinery or equipment does
not exceed Rs 1 crore; and
• Net turnover does not exceed Rs 5 crores.
Small Enterprise • Net investment in plant and machinery or equipment does
not exceed Rs 10 crore; and
• Net turnover does not exceed Rs 50 crores.
Medium Enterprise • Net investment in plant and machinery or equipment does
not exceed Rs 50 crore; and
• Net turnover does not exceed Rs 250 crores.
It must be noted that only micro and small enterprises
are considered suppliers for the purpose of Section
43B(h). Medium enterprises are not regarded as
suppliers and are not entitled to enforce prompt
payment and interest for delayed payment.
How are turnover and investment reckoned for the
classification of enterprises as micro, small and
medium?

• Turnover is calculated based on a net turnover basis, which means it encompasses the
turnover of goods and services minus the exports of goods and services. Similarly, when
evaluating investment in plant and machinery or equipment, it is assessed on a net
investment basis as per the income-tax return. This entails the depreciated cost of plant
and machinery or equipment as per the ITR, subtracting the costs associated with pollution
control, research and development, and industrial safety devices.
Computation of Investment
• Para 4 of Notification No. 2119(E), dated 26-06-2020, deals with the calculation of
investment in plant and machinery or equipment. It provides that the calculation of
investment in plant and machinery or equipment will be linked to the ITR of previous years
filed under the IT Act.
• In the case of a new enterprise, where no prior ITR is available, the investment will be
based on the self-declaration of the promoter of the enterprise, and such relaxation shall
end after the 31st March of the financial year in which it files its first ITR. The expression
“plant and machinery or equipment” of the enterprise shall have the same meaning as
assigned to the plant and machinery in the Income-tax Rules, 1962 and shall include all
tangible assets (other than land and building, furniture and fittings). The purchase (invoice)
value of a plant and machinery or equipment, whether purchased first-hand or second-
hand, shall be taken into account, excluding GST.
• The cost of certain items specified in Explanation I to sub-section (1) of Section 7 of the Act
shall be excluded from the calculation of the amount of investment in plant and machinery.
Computation of Turnover
• Para 5 of the Notification deals with the calculation of turnover as follows:
• Exports of goods or services or both shall be excluded while calculating the turnover of
any enterprise, whether micro, small or medium, for the purposes of classification.
• Information regarding the turnover and export turnover of an enterprise shall be linked to
the Income-tax Act or the CGST Act and the GSTIN.
• The turnover-related figures of such enterprises which do not have PAN will be considered
on a self-declaration basis for a period up to 31st March 2021, and thereafter, PAN and
GSTIN shall be mandatory.
• The exemption from the requirement of having GSTIN shall be as per the provisions of the
CGST Act, 2017.
What is the time limit prescribed under Section 15 of
the MSMED Act for making payment
• Section 43B(h) refers to the limitation period specified under Section 15 of the MSMED
Act, which provides that where any supplier supplies any goods or renders any services to
any buyer, the buyer shall make payment therefor on or before the date agreed upon
between him and the supplier in writing. However, this agreed date cannot exceed 45 days.
• If there is no agreement on this behalf, the buyer shall make the payment before the
appointed day.
• As per Section 2(b) of the MSMED Act, “appointed day” means the day immediately after
the expiry of the period of 15 days from the day of acceptance or the day of deemed
acceptance of any goods or any services by a buyer from a supplier.
For example, where goods are supplied and accepted on 30-03-2024, the due date for
payment under Section 15 of the MSMED Act shall be computed as follows:
Date of acceptance Credit period Due date for Remarks
of supply payment
30-03-2024 30 days 28-04-2024 Due date as per terms of the
Agreement
30-03-2024 60 days 13-05-2024 Due date cannot exceed 45 days from
the date of acceptance
30-03-2024 No agreement 13-04-2023 In the absence of an agreement, the
due date cannot exceed 15 days from
the date of acceptance
If the payment is made on or before the due date specified in the third column, no disallowanc
e shall be made under Section 43B(h).
Should terms mentioned on the invoice or purchase
order be treated as an agreement
• The MSMED Act does not define the term ‘agreement’. Thus, it can be said that agreement
can be written as well oral. In common parlance, an agreement means when one person
makes an offer and another person agrees to it. It includes terms like due dates,
acceptance of goods/services, consequences for late payment, and dispute resolution. So,
if an invoice or purchase order has these details, it can be seen as an agreement.
What is meant by the terms “the Appointed Day”, “the
day of acceptance”, and “the day of deemed
acceptance”?
• The “appointed day” is relevant only if the buyer and the seller have not agreed to any due date for
payment in writing. As per Section 2(b) of the MSMED Act, “appointed day” means the day
immediately after the expiry of the period of fifteen days from the day of acceptance or the day of
deemed acceptance of any goods or any services by a buyer from a supplier. The following points are
noteworthy:

• “The day of acceptance” means the day of the actual delivery of goods or the rendering of services;

• Where any objection is made in writing by the buyer regarding the acceptance of goods or services
within fifteen days from the day of the delivery of goods or the rendering of services, “the day of
acceptance” means the day on which the supplier removes such objection;

• “The day of deemed acceptance” means where no objection is made in writing by the buyer regarding
the acceptance of goods or services within fifteen days from the day of the delivery of goods or the
rendering of services, the day of the actual delivery of goods or the rendering of services.
What does the term “Supplier” mean in Section 15 of
the MSMED Act?
• The term “Supplier” is defined in Section 2(n) of the MSMED Act. Only a “supplier”, as defined in Section
2(n) of the MSMED Act, can avail of the rights under Chapter V of the MSMED Act, such as right to timely
payment under Section 15, right to interest on delayed payment under Section 16, Right to file plaint with
MSEFC for recovery of dues from buyer etc.

• Section 2(n) defines “supplier” to mean a micro or small enterprise that has filed a memorandum with
authority referred to in Section 8(1) (i.e., Udyam Registration). The term “supplier” also includes:

• National Small Industries Corporation;

• Small Industries Development Corporation of a State or a Union territory; and

• Any company, co-operative society, trust or body registered or constituted under any law and engaged in
selling goods produced by micro or small enterprises and rendering services which are provided by such
enterprises.

• It must be noted that only micro and small enterprises that are Udyam-registered are considered suppliers
for the purpose of Section 15 of the MSMED Act. Further, they shall be regarded as suppliers, in respect of
goods supplied by them or services rendered by them on or after the date of Udyam Registration. Udyam
Registration is not retrospective.
Will the disallowance apply to the sum payable to
retail traders or wholesalers?
Para 2 of Office Memorandum: No. 5/2(2)/2020/E/P&G/POLICY dated 2-7-2021 issued by Central
Government has clarified that “The Government has received various representations and it has
been decided to include Retail and wholesale trades as MSMEs and they are allowed to be registered
on Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are to be
restricted to Priority Sector Lending only.” Central Government’s office memorandum 1/4(1)/2021-
P&G Policy, dated 01.09.2021, further clarifies that “the benefit to Retail and wholesale trade
MSMEs are restricted up to priority sector landing only and other benefit, including provisions of
delayed payment as per MSMED Act, 2006, are excluded.
In view of the above Office Memorandum, dated 01.09.2021, a Supplier who is a micro or small
enterprise cannot be treated as “Supplier” for section 15 and section 43B(h) purposes if his Udyam
Certificate shows his activity as only a trader.
Although there does not appear to be any legal basis in MSMED Act for the Office Memorandum and
Wholesale & Retail Trade are treated as distribution services under GATT/WTO, the above position
will prevail till any Trader/Traders body challenges the OM in Court and gets it quashed.
Will the GST component be disallowed if the sum
payable to MSE attracts Section 43B(h) disallowance?
If the sum payable to the Micro or Small Enterprise includes GST, the disallowance is
restricted to the amount excluding GST if the GST is claimed as Input Tax Credit (ITC) in the
books of accounts. However, if the buyer opts not to claim the input tax credit under GST
and treats it as an expense in its Profit and Loss account, deduction against GST will only be
allowed based on actual payment.
Are the provisions of Section 43B(h) applicable to non-
registered suppliers?
Para 2 of the Notification provides that any person who intends to establish a micro, small or
medium enterprise may file Udyam Registration online on the Udyam Registration portal
based on self-declaration with no requirement to upload documents, papers, certificates or
proof. The word ‘may’, used in the notification, indicates that it is not mandatory for an
enterprise to get registered to establish itself as an MSME. However, Section 43B(h)
mentions Section 15 of the MSMED Act, which talks about the delay in payment to a
‘supplier’. Section 2(n) defines “supplier” to mean a micro or small enterprise that has filed a
memorandum with authority referred to in Section 8(1) (i.e., Udyam Registration). So,
without registration on the Udyam Portal, Section 15 of the MSMED Act may not be invoked
for disallowance under Section 43B of the IT Act.
Further, it is well-nigh impossible for any buyer to scrutinise the financials, ITRs and GSTRs of
all his suppliers to determine their classification into micro, small or medium enterprises and
to call for financials, ITR and GST data from suppliers every now and then to check whether
there is any change in classification. The only feasible and accurate method to validate the
classification of the supplier is to refer to his Udyam Registration.
Is the disallowance under Section 43B applicable if
supplies are made before obtaining Udyam
registration?
Section 43B(h) will not apply with respect to payments for supplies made before the date of
Udyam Registration. He would be regarded as a micro-enterprise only from the date of
obtaining such registration as Udyam Registration does not operate retrospectively.
How can an assessee identify that his supplier is a
micro or small enterprise?
It is the duty of the supplier to mention his MSE status on supply orders, invoices,
letterheads and other relevant documents. In the absence of suppliers mentioning their MSE
status on their supply orders, invoices, letterheads and other relevant documents, it would
be very difficult for the assessee to identify MSE suppliers, and their dues, disclose them in
annual accounts, comply with Section 15 and for auditors of buyer entities to verify required
disclosures in annual accounts.
The Government of India had also issued OM No. 2(28)/2007-MSME(Pol), dated 26-08-2008,
which clarifies that
“it is advisable that the Micro or Small Enterprises should mention/get printed on their
letterheads, supply order sheets, invoices, bills and relevant documents, the Entrepreneurs
Memorandum (EM) number…., so that there always remains an identification of being an
MSE supplier.”
How can an assessee identify that his supplier is a
micro or small enterprise?…continued
The above circular seems to absolve the assessee and his auditors of any blame if their non-
detection or omission of disclosures of dues to MSEs is due to suppliers not mentioning their
Udyam Registration Numbers on their letterheads, invoices, bills and other relevant
documents. Possibly, the buyer entity would also be absolved of obligations under Sections
15 and 16 of the MSMED Act in such a situation.
It is also possible to take a contrary view that mere non-mention of Udyam Registration
Number on Bills/Invoices/correspondence by MSEs will no longer absolve the buyers from
obligations under Chapter V of MSMED Act or under clause (h) of Section 43B. It is advisable
that the buyer entities should request all suppliers to confirm whether they are registered
MSEs and, if so, to furnish the Registration Number and a copy of the Udyam certificate.
They should also request the supplier for information on the MSE status and a copy of the
Udyam certificate when placing a purchase order or receiving the sales order to ensure
registered MSE suppliers are paid within the time limit stipulated in Section 15 of the
MSMED Act.
How can an assessee ensure their supplier does not
transition from a micro/small to a medium enterprise
or vice-versa during the financial year?

The Udyam Registration Certificate provides the classification of registered enterprises as

micro, small and medium financial year-wise since its incorporation. Thus, Udyam
Registration is the only acceptable evidence of the micro-enterprise or small enterprise
status of the supplier entity. The buyer entities should ask for such a certificate every year to
determine the status of the supplier in that year.
Is it mandatory for the supplier to update the details of
turnover and investment on the Udyam Registration
Portal?
Para 8 of the Notification No. 2119(E) provides that an enterprise having Udyam Registration
shall update its information online in the Udyam Registration portal, including the details of
the ITR and the GST Return for the previous financial year and such other additional
information as may be required, on self-declaration basis.
These details are automatically pulled by the Udhyam Portal from the ITR and GST returns
filed on the respective portals. So, there is no requirement to manually upload the details of
turnover and investment on the Udhyam Portal. However, if there is any change in the
business activity, the entity should update the details of such new business activities. Failure
to update the relevant information in the online Udyam Registration portal will render the
enterprise liable for suspension of its status.
A supplier, who is a Udyam-registered small enterprise,
has purchased a plot of land worth Rs. 10 crores. Will
this investment impact his status as a small enterprise?
Investment in land and buildings does not count for the investment ceilings under Para 1 of
Notification No. 2119(E).
A supplier, who is a Udyam-registered small enterprise,
has purchased plant and machinery worth Rs. 10
crores. Will this investment impact his status as a small
enterprise?
Yes, this investment will impact its status and will turn it into a medium enterprise. However,
even after this upward re-classification, the entity shall continue to avail of all non-tax
benefits of the category for a period of three years from the date of such upward change.
There is no definition of “non-tax benefit” in the MSMED Act or the
Notification. Investopedia defines “tax benefit” as “any tax law that helps you reduce your
tax liability.” Section 43B(h) provides no tax benefit in the above sense to the supplier who is
a micro or small enterprise. It provides him with a non-tax benefit of protection against
delayed payments by the buyer by providing a tax disincentive to the buyer who delays the
payment. Section 43B(h) is clearly a non-tax benefit to the Supplier, within the meaning of
para 8(5) of the Notification.
A supplier, who is a Udyam-registered small enterprise,
has purchased plant and machinery worth Rs. 10
crores. Will this investment impact his status as a small
enterprise?
Yes, this investment will impact its status and will turn it into a medium enterprise. However,
even after this upward re-classification, the entity shall continue to avail of all non-tax
benefits of the category for a period of three years from the date of such upward change.
There is no definition of “non-tax benefit” in the MSMED Act or the
Notification. Investopedia defines “tax benefit” as “any tax law that helps you reduce your
tax liability.” Section 43B(h) provides no tax benefit in the above sense to the supplier who is
a micro or small enterprise. It provides him with a non-tax benefit of protection against
delayed payments by the buyer by providing a tax disincentive to the buyer who delays the
payment. Section 43B(h) is clearly a non-tax benefit to the Supplier, within the meaning of
para 8(5) of the Notification.
Will Micro or Small Enterprises having Udyog Aadhaar
Memorandum or EM-II be regarded as micro or small
enterprises for Section 43B(h) purposes?
UAM or EM-II Registration was valid only up to 30-06-2022. These registrations are not valid
with effect from 01-07-2022. There is no process of automatically migrating the enterprises
from UAM/EM-II to Udyam Registration unless the enterprise files Udyam. Therefore,
enterprises with UAM/EM will not be regarded as micro or small enterprises for Section
43B(h) purposes.
What if the amount outstanding at year-end (i.e., 31-
03-2024) is paid in the next financial year 2024-25 but
beyond the time allowed by Section 15 of the MSMED
Act?
Where the amount outstanding at year-end is paid next year beyond the time allowed in
Section 15 of the MSMED Act, such amount shall be disallowed while computing the
business income for the current financial year 2023-24. However, this disallowance is not
permanent or irreversible. Where the amount outstanding at year-end is paid next year but
beyond the limitation period of Section 15 of the MSMED Act, such amount shall be allowed
while computing the business income in the next FY 2024-25 on an actual payment basis.
If goods were purchased from MSEs on 01-04-2023 and
payment was made on 31-03-2024, will it be
disallowed under Section 43B(h) for the assessment
year 2024-25?
There will be no disallowance. Even though payment is made beyond the time specified in
Section 15 of the MSMED Act, it is made during the same year and is not outstanding as at
the year-end. Therefore, the amount will be allowed on an actual basis and not disallowed.
However, such a delay is not a smart strategy as interest under Section 16 of the MSMED
Act, 2006 will be payable by the assessee to the supplier at three times the bank rate
compounded at monthly rests.
Is interest payable to Micro/Small enterprises for
delayed payments allowable as a deduction under the
Income-tax Act?
Section 23 of the MSMED Act states that interest paid by a buyer for delayed payments is not
deductible under the IT Act.
Is disallowance applicable if the assessee follows a
cash system of accounting?
Section 43B of the IT Act mandates the allowability of various expenses only on a payment
basis, irrespective of the fact that the assessee follows a mercantile system of accounting.
In the cash method, the revenues and expenses are recognized only when cash is received or
paid out respectively. In other words, income is recorded when the cash is received, and
expenses are recorded when the cash is paid. Therefore, it will not impact any situation if
the assessee follows a cash basis of accounting as the assessee is already recording the
expenses on a payment basis.
Does Section 43B(h) apply with respect to the amounts
due towards the purchase of Capital Goods?
Unlike Section 37(1), the deductibility under Section 43B is not linked to the distinction between
capital expenditure and revenue expenditure. Section 43B applies to sums payable in respect of
which a deduction is otherwise allowable under this Act.
Therefore, Section 43B(h) would apply to amounts payable to micro or small enterprises with
respect to the purchase of capital goods for which a 100% deduction is admissible under
Sections 30 to 36. For example, the deduction of 100% of capital expenditure under Section
35AD and the deduction of 100% of capital expenditure on scientific research under Section.
If a 100% deduction of capital expenditure is not allowable, there would be no disallowance
with respect to depreciation on capital goods purchased if the MSE supplier of capital goods is
not paid in time. This is because depreciation is not a “sum payable in respect of which
deduction is otherwise allowable”. What can be disallowed under Section 43B(h) must have the
character of a sum payable in respect of which deduction is otherwise allowable.
The Courts had taken the view that depreciation cannot be disallowed on the cost of the asset
which was capitalised in books of account, but tax thereon was not deducted under Section
40(a)(i)/(ia) of the Act.
Can depreciation be disallowed if payment for the
purchase of a fixed asset is made beyond a prescribed
limit?
Depreciation cannot be disallowed under Section 43B.
Whether disallowance attracts if the assessee opts for
a presumptive taxation scheme under Section
44AD, Section 44ADA, Section 44AE, etc.?
Section 43B(h) begins with a non-obstante clause “notwithstanding anything contained in
any other provision of this Act”. Therefore, apparently, Section 43B overrides all provisions
of the Act including provisions of presumptive taxation under Section 44AD, Section 44ADA,
Section 44AE, Section 44BBB and Section 115VA (Tonnage Tax)
However, Sections 44AD, 44ADA, 44AE, 44BBB and 115VA also begin with non-
obstante clauses as ‘Notwithstanding anything to the contrary contained in Sections 28 to
43C,…….’
Therefore, Section 43B(h) overrides all other provisions of the Act except Sections 44AD,
44AE, 44ADA, 44BBB and 115VA. Therefore, Section 43B(h) will not apply to eligible
assessee-buyers who opt for presumptive taxation under Sections 44AD, 44AE, 44ADA,
44BBB or 115VA.
What if the advance is paid to the supplier, who is a
micro or small enterprise?
The advance payment made to the MSEs shall be allowed as a deduction in the year of
payment itself, even if it does not fall due for payment in that year. The Supreme Court has
upheld the deduction under Section 43B for the advance payments.
What if a 50% advance is given in the current year, and
the balance of 50% is paid to the MSE supplier at a
later date?
If the taxpayer settles 50% of the remaining balance during the fiscal year, even after the
due date under Section 15 of the MSMED Act has passed, no disallowance will occur.
However, if this 50% remains outstanding at year-end and is paid after the due date,
disallowance would apply to this portion payable to MSEs.
What if the cheque is handed over to the MSEs on or
before the due date, but it is encashed by them after
the due date?
As per accepted commercial usages, payment is regarded as made on the date the cheque is
handed over to the payee, provided the cheque does not bounce subsequently. Therefore, in
such cases, payment will have to be treated as made within the due date.
Does disallowance attract if provisions are made
instead of crediting individual accounts of the trade
creditors/suppliers?
Provisions represent sums payable in respect of which deduction is otherwise allowable
under Section 37(1). Therefore, they would fall within the ambit of Section 43B(h).
Can disallowance under Section 43B(h) be made while
computing book profit for MAT purposes?
Section 43B(h) is applicable for calculating taxable business profits of a company in regular
assessment under the Act. It is not applicable for the calculation of Minimum Alternate Tax
under Section 115JB.
What if any charitable trust is making payment to an
MSME? Will Section 43B(h) apply?
Section 43B(h) applies to an assessee carrying on a business or profession whose income is computed under
the head “business and profession.” Charitable trusts are subject to Sections 11 to 13, which are special
provisions governing the taxation of charitable or religious institutions.
Section 11 of the IT Act deals with the computation of income from property held for charitable and religious
purposes. Section 11(1) provides that the income shall not be included in the total income of a person to the
extent the income is applied towards charitable or religious purposes in India. It is well-settled law that the
`income’ as referred to in section 11(1) must be computed following commercial principles and not under the
ordinary provisions of the Act. In other words, Section 14 and five heads of income do not apply to
organisations registered under Section 12AB.
It may be noted that under Sections 11 to 13, there are specific references to the provisions of ‘Profits & Gains
of Business or Profession’ which have been made applicable to the computation of income under Section 11,
such as the disallowances for cash payments above Rs. 10,000 or disallowances for non-deduction of tax on
payments made to residents. However, there is no reference to disallowance under Section 43B(h) while
computing income under Section 11. In other words, unless specifically provided, the provisions of the head
‘Profits & Gains of Business or Profession’ shall not apply to charitable institutions.
Hence, the question of disallowance under Section 43B(h) will not arise while computing the application of
income under Section 11 of the Act. However, under Section 16 of the MSMED Act, interest is payable if the
trust delays payments to micro or small enterprises.
Will Section 43B(h) apply to an assessee who is also a
Udyam-Registered Micro or Small Enterprise?
Yes. There is no exemption for buyers who are Micro or Small enterprises. It cannot be said
that Section 43B(h) applies only to medium or large enterprise buyers.
Will Section 43B(h) apply to fees payable to a CA firm?
Nothing in the MSMED Act or Chartered Accountants Act, 1949 disqualifies a CA firm from
filing Udyam Registration as a micro or small enterprise. The MSMED Act does not exclude
professional services from the ambit of the expression “service”. Therefore, a CA firm may be
registered as a micro or small enterprise in terms of specified turnover and investment by
applying for a Udyam Registration.
How to verify if the Udyam Number furnished by the
supplier by printing on the invoice or otherwise is
genuine?
Search his Udyam Registration Number on the Udyam Portal under the newly enabled
“Verify Udyam Registration Number” at the following
link https://udyamregistration.gov.in/udyam_verify.aspx
Can it be inferred from the Udyam Number printed on
the supplier’s invoice that he is a micro or small
enterprise?
No. By looking at Udyam Number, one cannot say whether the supplier is a micro, small or
medium enterprise. The buyer-entity will have to search for the Udyam Certificate in the
Udyam portal by entering the Udyam Number.
The Udyam Number is in UDYAM-XX-00-0000000 format. The XX denotes the State. 00
denotes the first two letters of the PIN Code of the State. And the Seven digits 0000000
represent the number.
Is it possible to get the Udyam Registration details of a
Supplier by searching for his name or PAN in the
Udyam portal?
No. One can obtain his Udyam Certificate details only if one knows his Udyam Registration
Number.
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user and shall not be construed as legal advice. While the Vishnu Upadhyay has exercised
reasonable efforts to ensure the veracity of information/content published, Vishnu
Upadhyay shall be under no liability in any manner whatsoever for incorrect information, if
any.
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Presented by
CMA Vishnu Upadhyay
M. Com (ABST) & Real Estate Valuation, FCMA, MBA-F, LLB, IP (IBBI), RV (IBBI &
Wealth Tax), DISSA, DFA, CFE, DRA (IIBF)
Contact: +91 98182 18505, vishnu.upadhyay@gmail.com