2009 (5) TMI 28 - SC - Income Tax

Section 43B - Furnishing of bank guarantee cannot be equated with actual payment which requires that money must flow from the assessee to the public exchequer as required under Section 43B. By no stretch of imagination it can be said that furnishing of bank guarantee is actual payment of tax or duty in cash further - the expression now used in Section 43B (i)(a) is Tax, Duty, Cess or fee or by whatever name called . It denotes that items enumerated constitute species of the same genus and the expression by whatever name called which follows preceding words Tax , Duty , Cess or fee has been used ejusdem generis to confine the application of the provisions not on the basis of mere nomenclatures, but notwithstanding name, they must fall within the genus taxation to which expression Tax , Duty , Cess or Fee as a. group of its specie belong vis. - bottling fees chargeable from the assessee under the Rules framed under the Rajasthan Excise Act, 1950 and interest chargeable on late payment of bottling fees not covered by provisions of section 43B.

Issues Involved:
1. Applicability of Section 43B of the Income Tax Act, 1961.
2. Deduction of unpaid bottling fee on furnishing of bank guarantee.
3. Disallowance of landscaping expenses.
4. Nature of bottling fees under the Rajasthan Excise Act, 1950.
5. Depreciation on research and development assets related to a closed business unit.

Issue-wise Detailed Analysis:

1. Applicability of Section 43B of the Income Tax Act, 1961:
The primary issue revolved around whether Section 43B of the Income Tax Act, 1961, was applicable to the unpaid bottling fee for which a bank guarantee was furnished. The Supreme Court held that Section 43B requires actual payment for deductions and that furnishing a bank guarantee does not equate to actual payment. The Court emphasized that the requirement of Section 43B is the actual payment and not deemed payment, and furnishing a bank guarantee cannot be considered as actual payment since it does not involve money flowing from the assessee to the public exchequer.

2. Deduction of Unpaid Bottling Fee on Furnishing of Bank Guarantee:
The Court addressed whether the unpaid bottling fee, upon furnishing a bank guarantee, could be treated as an actual payment under Section 43B. It concluded that a bank guarantee is merely a promise of payment upon a certain condition and does not constitute an actual payment. Therefore, the deduction under Section 43B could not be allowed based on the furnishing of a bank guarantee.

3. Disallowance of Landscaping Expenses:
The second question involved the disallowance of landscaping expenses. The High Court had decided in favor of the revenue, and this decision became final. There was no further dispute or alteration to this part of the judgment.

4. Nature of Bottling Fees Under the Rajasthan Excise Act, 1950:
The Court examined whether bottling fees chargeable under the Rajasthan Excise Act, 1950, and the interest on late payment of such fees amounted to tax, duty, cess, or fees within the meaning of Section 43B. It was determined that bottling fees are not in the nature of tax, duty, or cess but are a consideration for acquiring the exclusive privilege of bottling liquor. The Court clarified that bottling fees are a contractual payment for the right to bottle liquor and do not fall under the compulsory exaction by the state as a tax or duty.

5. Depreciation on Research and Development Assets Related to a Closed Business Unit:
The issue of allowing depreciation on research and development assets related to a closed business unit was also addressed. The Court remitted the matter back to the Assessing Officer for factual adjudication, similar to the directions given in related appeals for other assessment years. This indicates that the factual determination of whether the assets were used during the relevant previous year is necessary for deciding the depreciation claim.

Conclusion:
The Supreme Court upheld the view that actual payment is required under Section 43B for deductions, and furnishing a bank guarantee does not suffice. Bottling fees were determined to be a contractual payment rather than a tax or duty, and the issue of depreciation on assets related to a closed business unit was remitted for factual determination. The appeal was dismissed with these clarifications, affirming the High Court's decision on the primary issues.

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