Frontier Information Tech Ltd. Vs DCIT (Telangana High Court)
On December 23, 2024, the Telangana High Court in Frontier Information Tech Ltd. V. Deputy Commissioner Of Income-Tax (ITTA 239 of 2008 ITTASR 1928 of 2007) addressed what constitutes “actual payment” under Section 43B of the Income-tax Act, 1961.
Case Overview
The case involved Frontier Information Tech Ltd., a software development company with an interest liability of ₹75.75 lakhs payable to the Andhra Pradesh Industrial Development Corporation (APIDC). Instead of paying the interest in cash, the company extinguished its liability by issuing 5,05,000 equity shares of ₹10 each. The Revenue disallowed the deduction under Section 43B, arguing that such conversion does not qualify as “actual payment.”
The assessee argued that since the liability ceased to exist after issuing the shares, it met the requirement of “actual payment.” The High Court ruled in favour of the assessee, holding that extinguishing the liability through the issuance of equity shares qualifies as “actual payment” under Section 43B. The court emphasised that the key criterion is whether the liability has been extinguished, regardless of the mode of settlement.
Legal Framework: What is “Actual Payment”?
Section 43B was introduced to prevent taxpayers from claiming deductions for statutory liabilities without discharging them. Deductions under this provision are allowed only when the liability is settled through actual payment.
