2008 (1) TMI 1001 - HC - Income Tax

Summary

Issues involved: Interpretation of Section 43B of the Income-tax Act, 1961 regarding unpaid royalty to Government.

Summary:

Issue 1:
The Income-tax Appellate Tribunal referred a question regarding the applicability of Section 43B of the Income-tax Act, 1961 to unpaid royalty to the Government for the Assessment Year 1985-86. The Assessee claimed deduction of royalty paid to the Government based on the mercantile system of accounting, but the deduction was disallowed by the Assessing Officer invoking Section 43B. The Commissioner (Appeals) deleted the addition, and the Revenue appealed to the Tribunal, which upheld the Commissioner's order based on a previous case involving Gujarat State Forest Development Corporation.

Issue 2:
Mr. M.R. Bhatt, representing the Revenue, cited a judgment of the Apex Court in the case of STATE OF WEST BENGAL & ANR. V/s. KESORAM INDUSTRIES LTD. & OTHERS, stating that the issue is concluded against the Revenue. The Apex Court clarified that royalty is not considered a tax, and therefore, the provisions of Section 43B, which pertain to tax deductions, do not apply to royalty payments. As royalty is not classified as a tax, the restriction under Section 43B does not extend to royalty payments.

Conclusion:
The High Court held that the Appellate Tribunal was correct in ruling that Section 43B of the Income-tax Act, 1961 does not apply to unpaid royalty to the Government. As royalty is not considered a tax, the provisions of Section 43B, which relate to tax deductions, are not attracted. Therefore, the question was answered in favor of the assessee and against the Revenue, and the reference was disposed of accordingly with no costs.