The respondent-assessee is engaged in the
manufacture and sale of foreign liquor and sugar. The
assessee filed its return of income for assessment year
1990-1991 declaring an income of Rs. 15,84,398/-. The
assessee had itself shown that a vend fee of Rs.
22,87,512/- was disallowable under Section 43B of the
Income Tax Act (hereinafter referred to as 'Act') since
it was not actually paid before the expiry of the
relevant previous year.
On 30.04.1993,JUDGMENTthe assessing officer completed the
assessment for the year 1990-1991 and inter alia
confirmed disallowance of the vend fee. Against this,
the assessee preferred an appeal before the Commissioner
of Income Tax (Appeals), who, by his order dated
24.05.1993, deleted the disallowance under Section 43B
and allowed the appeal of the respondent-assessee.
Aggrieved by the said order, the Revenue preferred an
appeal before the Income Tax Appellate Tribunal, which
confirmed the aforesaid order of the Commissioner
(Appeals) by its judgment and order dated 15.04.1998.
Against the said order, the Revenue preferred a
Reference Application before the Income Tax Appellate
Tribunal under Section 256(1) of the Act, which referred
two questions of law to the High Court. In the present
appeal, we are concerned with Question No. 2 which reads
as follows: -
“2. “Whether, on the facts and in the
circumstances of the case, the Tribunal is right
in law in upholding the deletion of disallowance
under S. 43B of the I.T. Act in respect of the
vend fee of Rs. 22,87,512/- outstanding as a
liability payable to the Government of Kerala as
on the last day of the accounting year?”
Section 43B of the Income Tax Act allows certain
deductions only to be on actual payment. Section 43B
reads as follows: -
“43B. 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
(b) 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, or
(c) any sum referred to in clause (ii) of
sub-section (1) of section 36, or
(d) 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, or
(e) any sum payable by the assessee as
interest on any loan or advances from a scheduled
bank in accordance with the terms and conditions
of the agreement governing such loan or advances,
or
(f) any sum payable by the assessee as an
employer in lieu of any leave at the credit of
his employee,
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:”
A reading of the Section after it was substituted
by Finance Act, 1988 with effect from 01.04.1989 shows
that sub clause (a) in Section 43B has been considerably
widened by the amendment by the addition of the words
“by whatever name called”. It is clear, therefore, that
to attract this section any sum that is payable whether
it is called tax, duty, cess or fee or called by some
other name, becomes a deduction allowable under the said
Section provided that in the previous year, relevant to
the assessment year, such sum should be actually paid by the assessee. JUDGMENT
Shri Arijit Prasad, learned counsel appearing on
behalf of the appellant, has submitted before us that
the judgment under appeal has missed the purport of the
1988 Finance Act amendment to the Income Tax Act. He
also claimed that whether a particular vend fee is
called “privilege” in law, thanks to certain judgments
of this court, makes no difference in view of the
amendment, and whether it is a fee stricto sensu as
understood in the legislative lists in the Seventh
Schedule to the Constitution of India or it is called by
some other name would not make any difference. Further,
he argued before us that reliance placed on a judgment
of the Karnataka High Court reported in 246 ITR 750 in
the year 2000 'Commissioner of Income Tax v. Sri Balaji
and Co.' was also misplaced inasmuch as the Karnataka
High Court, in holding that kist or rentals paid to the
Government in respect of vending, toddy/ arracks is not
a duty, tax, cess or fee so held only because this case
pertains to a period prior to the amendment made with
effect from 01.04.1989.
Shri C. N. Sreekumar, learned counsel on behalf of
the respondent, referred us to the counter affidavit
filed in this Court and to an Annexure to the said
counter affidavit. His argument was that it is clear JUDGMENT that the so-called vend fee in the present case is
nothing but a consensual arrangement by which ultimately
machinery and equipment used by sugar mills which were
very old and which require urgent repair / replacement
could be so repaired or replaced. According to him, the
aforesaid vend fee not being a compulsory exaction by
the State, would not, therefore, fall within any of the
expressions used in Section 43B(a) of the Act.
Having heard learned counsel for the parties, we
think there is force in the submission made by Shri
Arijit Prasad on behalf of the Revenue. First and
foremost, he is correct in saying that the impugned
judgment does not refer to the amendment made in Section
43B with effect from 1.4.1989 at all. The assessment
year with which we are involved on facts in the present
case is 1990-1991 which would clearly attract the
amendment so made. Secondly, he is also correct in
stating that the Karnataka High Court judgment referred
to supra, decided a question arising under Section 43B
in respect of assessment years 1984-1985, i.e., it was a
judgment relating to an assessment year prior to the
amendment made on 01.04.1989. It was in these
circumstances that the Karnataka High Court held:
“The provisions of section 17 of the
Karnataka Excise Act, 1965, have referred to the
power to grant lease of the right to manufacture. Section 24 has conferred the additional power on
the State Government to accept payment of a sum or
levy such licence fee or privilege fee as may be
prescribed, in consideration of grant of lease or
licence or both, by or under this Act. This power
is in addition to any excise duty or
countervailing duty leviable under sections 22 and
23. If the Legislature has used specific language
then it cannot be stretched to include certain
sums which are not in the nature of payment
mentioned by the Legislature. Payment of lease
money/ rental may be a statutory liability but
however any statutory liability does not come
within the purview of section 43B. It is only
that the statutory liability which is in the
nature of tax, duty, cess or fee to which the
provisions of section 43B are attracted. Since
the kist/rental could not be considered to be
falling under either of the items, the provisions
of section 43B cannot be attracted and as such we
are of the view that the Tribunal was justified in
law in holding that the kist amount payable to the
Government by the assessee could not be brought
within the purview of the provisions of section
43B of the Income Tax Act, 1961. It is a
different matter that the licensees are not paying
the rent in time for which it is only the
Legislature which could intervene and not the
courts.”
Shri Arijit Prasad also referred us to the Notes
on clauses which preceded the 1989 amendment which reads
as follows: -
“21.2 The words “tax” and “duty” have been
the subject matter of judicial interpretation and
there is a controversy as to whether they cover
statutory levies like cess, fees, etc. Some
appellate authorities have held that such cess or
fees cannot be covered by the expressions “tax” or
“duty”. Such an interpretation is against the
legislative intent and, therefore, by way of
clarification, an amendment has been carried out
to provide that cess or fees by whatever name
called, which have been imposed by any statutory
authority, including a local authority, will be
allowed as a deduction only if these are actually
paid.”
On a reading of the document on which Shri C. N.
Sreekumar has placed reliance, namely, a Government of
Kerala order dated 28.04.1988, what becomes clear is
that the Government proposed to impose and then imposed
a levy on three sugar mills by way of collecting of vend
fee of Rs. 0.50 paisa per bulk litre of arrack sold by
them which would go into a fund which would then be used
for the repair / replacement of old machinery and
equipment in these three mills. This document shows
that the vend fee collected from the three mills is, in
fact, a fee in the classic sense of the term as used in
'Commissioner, Hindu Religious Endowments v. Sri
Lakshmindra Thirtha Swamiar of Sri Shirur Mutt' reported
in [1954 SCR 1005]. It is clear, on a reading of this
document, that the State compulsorily takes from the
three mills, a vend fee for the purpose of conferring a
special benefit on the said three mills, viz., the
repair and replacement of existing machinery and
equipment.
On facts in the present case, it is clear that the
amendment made to Section 43B is attracted. Even if the
vend fee that is paid by the respondent to the State
does not directly fall within the expression 'fee'
contained in Section 43B(a), it would be a 'fee' by
'whatever name called', that is even if the vend fee is
called 'privilege' as has been held by the High Court in JUDGMENT the judgment under appeal. This being the case, we find
that question No. 2 which was answered in favour of the
assessee and against the Revenue by the High Court was
not answered correctly.
We therefore, set aside the aforesaid judgment and
allow the present appeal in favour of the Revenue. In
case the respondent has actually paid the aforesaid fee
in a previous year relevant to some other assessment
year, he will be entitled to claim the benefit of
Section 43B for that particular assessment year in
accordance with law. The appeal stands disposed of in
the aforesaid terms.
[ A.K. SIKRI ]
New Delhi; May 07, 2015.