Sections 37 and 43B of ITA 1961 – Business expenditure – Deduction only on actual payment – Nomination charges levied by State Government emanating from a contract of lease – Not statutory liability falling under “tax, duty, cess or fee” by whatever name called in section 43B – Provision for allowance on actual payment basis not applicable

Sections 37 and 43B of ITA 1961 – Business expenditure
– Deduction only on actual payment – Nomination charges levied by State
Government emanating from a contract of lease – Not statutory liability falling
under “tax, duty, cess or fee” by whatever name called in section 43B –
Provision for allowance on actual payment basis not applicable

The
assessee was a State Government undertaking engaged in mining, quarrying,
manufacture and sale of granite blocks from the mines leased out to it by the
State. For the A.Y. 2004-05, the Assessing Officer (AO) disallowed u/s. 43B of
the Income-tax Act, 1961 the sum paid by the assessee as nomination charges at
the rate of 10% of the turnover to the State Government on the ground that the
payment was not made within the stipulated time allowed to file the return.

The
Commissioner (Appeals) and the Tribunal upheld the AO’s order.

On
appeal by the assessee, the Madras High Court reversed the decision of the
Tribunal and held as under:

“i)   The object and parameters of section 43B are
defined and do not permit transgression of ‘other levies’ made by the State
Government in the realm of contractual laws to enter the specified zone of
impost specified in it.

ii)   The nomination charges specified and
prescribed by the State Government through various orders were none of the four
imposts, namely, tax, duty, cess or fees, specified u/s. 43B, which had to be
paid on time. It was only a contractual payment of lease rental specified by
the State Government being the lessor for which both the lessor and the lessee
had agreed at a prior point of time to fix and pay such prescription of
nomination charges. A mere reference to rule 8C(7) of the Tamil Nadu Minor
Minerals Concession Rule, 1959 did not make it a statutory levy, in the realm
of ‘tax, duty, cess or fees’. The reasons assigned by the authorities below on an
incorrect interpretation for application of section 43B made to the levy in
question were not sustainable.

iii)   Since section 43B did not apply to the
payments of ‘nomination charges’ the question of applying the rigour of payment
within the time schedule would not decide the allowability or otherwise of such
payment under the section, which would then depend upon the method of
accounting followed by the assessee; and if the assessee had made a provision
for the payment in its books of accounts and had claimed it as accrued
liability in the assessment year in question, it was entitled to the deduction
in the assessment year in question without any application of section 43B.”