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'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

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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

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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

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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

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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

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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

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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

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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.

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