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Issues involved: Interpretation of section 40A(3) of the Income-tax Act, 1961 regarding disallowance of market fees payment and applicability of section 43B of the Act on interest payable to the Government of Haryana.
Interpretation of section 40A(3): The assessee, a company engaged in the purchase and sale of cotton, faced disallowance of market fees payment to Market Committee, Sirsa, under section 40A(3) for payments exceeding Rs. 2,500 made in cash. The Income-tax Officer, Commissioner of Income-tax (Appeals), and Tribunal upheld the disallowance, citing non-compliance with the rules allowing cash payments. The Tribunal found the assessee failed to prove unavoidable circumstances for cash payment, leading to the disallowance under section 40A(3). Market Committee's refusal of cheque payment: The Tribunal did not consider a letter from the Marketing Committee stating their refusal of cheque payments. However, the Tribunal deemed the Committee's certificate as an afterthought, upholding the original disallowance of market fees payment by cash. Applicability of section 43B on interest payment: The second issue pertained to interest amounting to Rs. 41,666 payable to the Government of Haryana and its classification under section 43B. The debate revolved around whether the interest payable constituted tax under the Haryana General Sales Tax Act, 1973. Reference was made to a previous case where interest was distinguished from tax, leading to the conclusion that interest cannot be treated as tax under section 43B of the Income-tax Act. Deemed tax vs. actual tax: The distinction between deemed tax and actual tax was crucial in determining the treatment of interest payable to the Haryana Government. The argument centered on whether interest, treated as deemed tax under the Haryana General Sales Tax Act, should be considered tax under section 43B. Citing precedents and legislative interpretation, it was concluded that interest, not being tax under the Income-tax Act, cannot be subjected to section 43B provisions. Judgment: The High Court ruled in favor of the Revenue regarding the disallowance of market fees payment under section 40A(3). Conversely, the Court sided with the assessee on the issue of interest payment to the Government of Haryana, stating that interest cannot be equated to tax under section 43B. The decision aligned with previous judicial interpretations and legislative intent, emphasizing the distinction between tax and interest for the purpose of income tax provisions.
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