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 shown that a vend fee (i.e. charges which Karnataka State compulsorily takes from three mills for the purpose of conferring a special benefit on the said three mills, viz., the repairs and replacement of existing machinery and equipment.) 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.
Question of Law:
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 outstanding as a liability payable to the Government of Kerala as on the last day of the accounting year?
Contention of the Revenue:
The Revenue was of the contention that with effect from 01.04.1989, the scope of section 43B(a) has been considerably widened by adding the words “by whatever name called”.
The judgment under appeal has missed the purport of the 1988 Finance Act amendment to the Income Tax Act. Whether a particular vend fee is called “privilege” in law, 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 stated that the Karnataka High Court has placed reliance on a judgment passed in 246 ITR 750 in the year 2000 ‘Commissioner of Income Tax v. Sri Balaji and Co.’ (AY 1984-85) in holding that kist or rentals paid to the Government in respect of vending, toddy/ arracks is not a duty, tax, cess or fee. This being incorrect as this case pertains to a period prior to the amendment made whereas the present case is 1990-91 which would clearly attract the amendment so made.
Contention of the Assessee:
The Assessee contented 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.
The Assessee 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.
Held by the Apex Court:
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.
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.
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 Apex Court citing the above points upheld the contentions of the Revenue and disposed of the appeal.
Analysed by Our Team Member CA Priya Fulwani