2015 (5) TMI 397 - SC - Income Tax

Disallowance u/s 43B - vend fee outstanding as a liability payable to the Government of Kerala as on the last day of the accounting year - ITAT upholding deletion of disallownce - Held that - Reading of the document, namely, a Government of Kerala order dated 28.04.1988 it is clear that the State compulsorily takes from the three mills, a vend fee for the purpose of conferring a special benefit on the said three mills, viz., the repair and replacement of existing machinery and equipment. On facts in the present case, it is clear that the amendment made to Section 43B is attracted. 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. This being the case, we find that question which was answered in favour of the assessee and against the Revenue by the High Court in Commissioner Of Income-Tax Versus Sri Balaji And Co. 2000 (1) TMI 17 - KARNATAKA High Court was not answered correctly. We therefore, set aside the aforesaid judgment and allow the present appeal in favour of the Revenue. 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. - Decided in favour of revenue.

Summary

Issues:
Interpretation of Section 43B of the Income Tax Act - Disallowance of vend fee under Section 43B - Correct application of the 1988 Finance Act amendment to the Income Tax Act - Distinction between compulsory exaction by the State and consensual arrangement for fee collection - Judicial interpretation of tax, duty, cess, and fee - Application of Section 43B to vend fee collected for repair/replacement of machinery - Correctness of High Court's judgment on the deletion of disallowance under Section 43B.

Analysis:
The Supreme Court judgment involved the interpretation of Section 43B of the Income Tax Act concerning the disallowance of a vend fee under the said section. The respondent-assessee, engaged in liquor and sugar manufacturing, declared an income for the assessment year 1990-1991, including a disallowable vend fee of Rs. 22,87,512 under Section 43B. The assessing officer disallowed the vend fee, but the Commissioner of Income Tax (Appeals) deleted the disallowance. Subsequent appeals upheld the deletion, leading to a Reference Application before the High Court on the correctness of the deletion under Section 43B.

The key issue revolved around the correct application of the 1988 Finance Act amendment to Section 43B, which widened the scope of deductions to include sums payable under various categories. The appellant argued that the High Court's judgment failed to consider the impact of the 1988 amendment and misinterpreted the nature of the vend fee. The respondent contended that the vend fee was a consensual arrangement for machinery repair/replacement, not a compulsory exaction by the State, thus falling outside Section 43B's purview.

The Court analyzed precedents and legislative intent to determine the applicability of Section 43B to the vend fee. Referring to a Karnataka High Court judgment and government orders, it concluded that the vend fee, irrespective of nomenclature, qualified as a fee under Section 43B. The Court emphasized that even if the fee did not fit the traditional fee definition, the "by whatever name called" provision encompassed such payments. Therefore, the High Court's deletion of the disallowance was deemed incorrect, and the appeal was allowed in favor of the Revenue.

In summary, the judgment clarified the application of Section 43B to vend fees, emphasizing the broad interpretation of the provision post the 1988 amendment. It underscored that the nature of the payment, whether termed a fee or privilege, was immaterial as long as it fell within the ambit of Section 43B. The decision highlighted the legislative intent to include various statutory levies under the deduction provisions, ensuring consistency in tax treatment.