Case Law Details

Case Name : Oswal Agro Mills Ltd. Vs CIT (Delhi High Court)
Appeal Number : ITA 41/2000
Date of Judgement/Order : 07/02/2014
Related Assessment Year :
Courts : All High Courts (4668) Delhi High Court (1367)

Section 43B applies only to Statutory liability not to contractual liability

It is necessary to consider the controversy whether the obligation of the assessee to pay the additional custom duty, in terms of clause 11 of the Agreement with the importers, can be considered as a statutory liability. Although, the assessee is obliged to pay the additional customs duty as and when the importers are called upon to pay the same, nonetheless, it cannot be considered as a statutory liability because the same is not imposed on the assessee by virtue of any statute. Customs duty is an incident of import of goods and an importer is obliged to pay the same under the Customs Act. Therefore, the liability to pay the additional customs duty is a statutory liability of the importers. However, in the hands of the assessee, the liability to pay the quantum of custom duty imposed on the importers, either directly to them or on their behalf, cannot be considered as a statutory liability as this obligation is not imposed by any statute but from the contracts entered into between the assessee and the importers. The liability in question is thus, clearly a contractual liability insofar as the assessee is concerned.

Section 43B applies only in cases of statutory liability. By virtue of the said section, a statutory liability is not deductable in the year in which it accrues if the same remains unpaid. A deduction with respect to a statutory liability is allowed only on payment of the same. This provision would have no application insofar as the assessee is concerned, as the liability to pay the amount of additional customs duty on behalf of the importers as and when they are called upon to discharge the same is, clearly, a contractual liability and not a statutory liability as discussed earlier. Therefore, in our view, the question whether the said liability should be considered as deductible under Section 43B of the Income Tax Act does not arise.

Arranging  bank guarantee would not amounts to actual payment of Statutory liability Under Section 43B

The decision of the Supreme Court in CIT v. Mcdowell and Co. Ltd.: (2009) 10 SCC 755, squarely answers the point in issue against the assessee. In that case the Supreme Court held as under:-

“15. We shall first deal with the question whether furnishing of bank guarantee amounts to actual payment and fulfils the conditions stipulated in Section 43-B of the Act.

16.  The requirement of Section 43-B of the Act is the actual payment and not deemed payment as condition precedent for making the claim for deduction in respect of any of the expenditure incurred by the assessee during the relevant previous year specified in Section 43-B. The furnishing of bank guarantee cannot be equated with actual payment which requires that money must flow from the assessee to the public exchequer as required under Section 43-B. By no stretch of imagination it can be said that furnishing of bank guarantee is actual payment of tax or duty in cash. The bank guarantee is nothing but a guarantee for payment on some happening and that cannot be actual payment as required under Section 43-B of the Act for allowance as deduction in the computation of profits.

17.  Section 43-B after amendment w.e.f. 1-4-1989 refers to any sum payable by the assessee by way of tax, duty or fee by whatever name called under any law for the time being in force. The basic requirement, therefore, is that the amount payable must be by way of tax, duty and cess under any law for the time being in force. The bottling fees for acquiring a right of bottling of IMFL which is determined under the Excise Act and Rule 69 of the Rules is payable by the assessee as consideration for acquiring the exclusive privilege. It is neither fee nor tax but the consideration for grant of approval by the Government as terms of contract in exercise of its rights to enter a contract in respect of the exclusive right to deal in bottling liquor in all its manifestations.”

We are also unable to accept the contention that arranging a bank guarantee would amount to actual payment.

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