COMMNR. OF INCOME TAX, KERALA Vs. M/S. TRAVANCORE SUGARS & CHEMICALS LTD.

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 2558 of 2005, Judgment Date: May 07, 2015

                                                                'REPORTABLE'
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 2558 OF 2005

COMMISSIONER OF INCOME TAX, KERALA                            ... Appellant

                                   VERSUS

M/S. TRAVANCORE SUGARS & CHEMICALS LTD.                     ... Respondent


                               J U D G M E N T

R. F. NARIMAN, J.

            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, the 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.

            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 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 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.


                                                  ......................, J.
                                                             [ A.K. SIKRI ]



                                                  ......................, J.
                                                  [ ROHINTON FALI NARIMAN ]

New Delhi;
May 07, 2015.