2019 (5) TMI 1207 - HC - Income Tax

Disallowance u/s 43B - nomination charges paid by it to the State Government at the rate of 10% of the turnover of granite blocks - can be equated with the terms tax, duty, cess or fee appearing in Section 43B(a) - allowability as business expenditure u/s.37 - HELD THAT - We find that the 'nomination charges' specified and prescribed by the State Government through various Government Orders, are none of these four imposts specified in Section 43B. It is simply a contractual payment of lease rental specified by the State Government being the Lessor for which both the Lessor and the Lessee had agreed at a prior point of time to fix and pay the said prescription of nomination charges. Rule 8-C(7) of the Rules, does not take it out from the four corners of Lease Deed which is a non-statutory contract between the parties. A mere reference of the statute, ie., Rule 8-C(7) of the Tamil Nadu Minor Mineral Concession Rules, 1959, does not make it a statutory levy, in the realm of 'tax, duty, cess or fees'. The view that it is a contractual payment is further fortified by the enabling powers as provided under Clause-2 of the Annexure to the Lease Deed in question and the State Government was at liberty to fix the nomination charges or not to impose the same altogether. Therefore the said prescription of nomination charges cannot be held to be a compulsorily impost falling within the four corners of Section 43B. The State Government not only has the power to impose the same but also to waive, reduce or modify the same as well, depending upon the quantum of commercial exploitation and other relevant circumstances. It could also be treated as 'Royalty' payable by the Assessee TAMIN, to the State for parting with its exclusive rights by giving Leasehold right to the Assessee. Royalty is not a tax, is a settled legal position by the Constitution Bench decision. The statutory levy in general, will apply to all subjects uniformly and not to a specific Assessee or a person. In the present case, therefore, the levy in question in the name of 'nomination charges' emanates only from the contract of Lease between the parties, a privately contracted levy. Even with reference to the statutory rule, it does not, in our considered opinion, fall within the mischief or the specified zone of Section 43B. It is neither tax nor a cess nor a duty nor a fee. Therefore, Section 43B does not stand attracted in the present case at all. Once we come to the conclusion that Section 43B of the Act does not apply to the present payment, the question of applying the rigor of payment within the time schedule will not decide the allowability or otherwise of the said payment under Section 43B, which would then depend upon the method of accounting followed by the Assessee and if the Assessee has made a provision for this payment in its Books of Account and has claimed it as accrued liability in the Assessment Year 2004-2005, he is entitled to get that deduction in the Assessment Year 2004-2005 itself, without any application of Section 43B. The reasons assigned by the authorities below in the present case on an incorrect interpretation for application of Section 43B made to the present levy in question, was not sustainable and therefore, in our opinion, the Assessee deserves to succeed in the present appeal.

Summary

Issues Involved:
1. Whether the "nomination charges" paid by the appellant can be equated with "tax, duty, cess or fee" under Section 43B(a) of the Income Tax Act, 1961.
2. Whether the "nomination charges" are allowable as business expenditure under Section 37 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Equating "Nomination Charges" with "Tax, Duty, Cess or Fee" under Section 43B(a)
The appellant, Tamil Nadu Minerals Limited (TAMIN), challenged the disallowance of "nomination charges" amounting to ?11.54 Crores paid to the State Government, which was not made within the due date for filing the return of income for the Assessment Year 2004-2005. The Income Tax Appellate Tribunal held that these charges were liable to be disallowed under Section 43B of the Income Tax Act, as they were not paid within the prescribed time.

The appellant argued that the "nomination charges" were not a statutory levy but a contractual payment, and thus, did not fall under the ambit of "tax, duty, cess or fee" as specified in Section 43B. The appellant cited Rule 8-C(7) of the Tamil Nadu Minor Mineral Concession Rules, 1959, which provides for quarrying of granite by the State Government and granting leases to a State Government Company or Corporation, implying that the charges were more akin to lease rentals rather than statutory levies.

The court examined various judgments, including the Supreme Court's decision in Commissioner of Income Tax v. McDowell & Co. Ltd., which clarified that only statutory imposts fall under Section 43B. The court also referred to the decision in Kerala State Electricity Board v. Kurien E. Kalathil, emphasizing that even State Government undertakings can enter into commercial contracts, and payments under such contracts are not statutory levies.

The court concluded that "nomination charges" were indeed contractual payments and not statutory levies. Therefore, they did not fall within the scope of "tax, duty, cess or fee" under Section 43B of the Income Tax Act.

Issue 2: Allowability of "Nomination Charges" under Section 37
The appellant contended that the "nomination charges" should be allowable as business expenditure under Section 37 of the Income Tax Act. The court noted that the charges were linked to the turnover of the appellant and were prescribed by various Government Orders, indicating a commercial arrangement rather than a statutory obligation.

The court referred to the decision in State of West Bengal v. Kesoram Industries Ltd., which clarified that royalty is not a tax and distinguished between statutory levies and contractual payments. The court also examined the nature of the "nomination charges" and found them to be akin to lease rentals or royalty, which are contractual payments and not statutory imposts.

The court held that since the "nomination charges" were contractual payments, they were allowable as business expenditure under Section 37 of the Income Tax Act. The court emphasized that Section 43B's application depends on the nature of the levy being either statutory or contractual. Since the "nomination charges" were contractual, Section 43B did not apply.

Conclusion:
The court allowed the appeal in favor of the appellant, holding that the "nomination charges" were not statutory levies and thus did not fall under Section 43B of the Income Tax Act. Consequently, these charges were allowable as business expenditure under Section 37. The substantial questions of law were answered in favor of the appellant and against the Revenue.