2001 (10) TMI 10 - HC - Income Tax

1. Whether, Tribunal is right in deleting the addition on account of unpaid sales tax liability invoking the provisions of section 43B? 2. Whether, the Appellate Tribunal is right in deleting the additions made on account of unpaid royalty invoking the provisions of section 43B? - we find no infirmity in the reasoning of the Tribunal when it applied the provisions as were applicable to the assessment year under consideration, viz., that as the words cess or fee had been added with effect from April 1, 1989, no disallowance in respect of the royalty amount could be made by resorting to the provision of section 43B - Both the questions, therefore, referred to us are answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

Summary

Issues:
1. Application of section 43B of the Income-tax Act, 1961 on unpaid sales tax liability.
2. Application of section 43B on unpaid royalty.

Analysis:
1. The first issue pertains to the application of section 43B of the Income-tax Act, 1961 on unpaid sales tax liability. The case involved the deletion of additions made by the Income-tax Officer on account of outstanding sales tax liability. The Tribunal upheld the decision to delete the addition, citing a previous apex court decision in the case of Allied Motors (P) Ltd. v. CIT [1997] 224 ITR 677. The Tribunal found that the provisions of section 43B were not applicable in this scenario, thus ruling in favor of the assessee.

2. The second issue revolves around the application of section 43B on unpaid royalty. The Revenue argued that section 43B, which mandates deductions only upon actual payment, should apply to the unpaid royalty despite the assessee following the mercantile system of accounting. However, the court noted that for the relevant assessment year, the provision of section 43B did not encompass royalty payments. The court highlighted that the amendment to section 43B in 1988 did not include "cess" or "fee" for the relevant year, and royalty did not fall under the category of "tax" or "duty." The court also emphasized that royalty payments are distinct from taxes and are essentially payments for the use of land, not statutory levies. Additionally, the court acknowledged that both sales tax and royalty liabilities were paid in the subsequent accounting year before the due date of the return, further supporting the assessee's position.

In conclusion, the court answered both questions in favor of the assessee and against the Revenue, affirming the Tribunal's decision to delete the additions on unpaid sales tax liability and unpaid royalty. The judgment provides a detailed analysis of the application of section 43B in the context of the specific liabilities under consideration, ultimately ruling in favor of the assessee based on the provisions applicable for the assessment year in question.