1995 (3) TMI 145 - AT - Income Tax

Advance Tax Assessing Officer Business Expenditure Interest Payable By Assessee Previous Year Provident Fund Total Income

Issues Involved:
1. Disallowance of service charges paid to the Government of Kerala.
2. Disallowance under section 43B of the Income-tax Act, 1961.
3. Levy of interest under section 234B of the Income-tax Act, 1961.

Detailed Analysis of the Judgment:

1. Disallowance of Service Charges Paid to the Government of Kerala

The assessee, a government-owned company, paid service charges to the Government of Kerala amounting to Rs. 5,75,15,000 at the rate of Rs. 5,000 per ton of Titanium Dioxide manufactured. This payment was based on a Government Order, citing various services provided by the Government, such as policy decision-making, ensuring raw material supply, technical upgradation, resolving local disputes, and maintaining industrial relations. The Assessing Officer disallowed this payment, arguing that these services were part of the Government's statutory responsibilities and not special services rendered exclusively to the assessee. The CIT (Appeals) upheld this disallowance, noting that the payment was not a statutory levy and lacked evidence of commercial expediency.

The Tribunal, however, deleted the disallowance, emphasizing that the payment was made under a Government Order, which has the force of a statute. The Tribunal noted that the services rendered by the Government were specifically listed and there was no evidence to suggest otherwise. The Tribunal also referenced Sampath Iyengar's Law of Income-tax, which supports the view that payments made under executive orders can be considered business expenditures if they are made in the interest of business expediency. The Tribunal concluded that the expenditure was allowable as it was laid out wholly and exclusively for the purpose of the business.

2. Disallowance under Section 43B of the Income-tax Act, 1961

The assessee faced a disallowance of Rs. 6,72,429 under section 43B, related to the employer's contribution to the provident fund for March 1991, which was paid on 13-4-1991. The CIT (Appeals) held that for claiming deduction under section 43B, the payment must be made within the previous year. However, the Tribunal modified this view, noting that the second proviso to section 43B allows for the deduction if the payment is made before the due date prescribed under the relevant rules, even if it falls in the succeeding month. The Tribunal highlighted that the omission of the words "during the previous year" from the proviso after 1-4-1989 indicated that the payment need not be made within the previous year to claim the deduction. Thus, the disallowance was deleted.

3. Levy of Interest under Section 234B of the Income-tax Act, 1961

The assessee contended that interest under section 234B should be limited to the date of assessment under section 143(1)(a). However, the CIT (Appeals) held that interest could be levied up to the date of the regular assessment under section 143(3). The Tribunal upheld this view, stating that section 234B allows for the levy of interest from the first day of April following the financial year to the date of determination of the total income under section 143(1) or regular assessment. The Tribunal directed the Assessing Officer to recalculate the interest in light of the relief granted to the assessee.

Conclusion

The appeal of the assessee was partly allowed. The disallowance of service charges was deleted, the disallowance under section 43B was also deleted, and the interest under section 234B was to be recalculated.

← Previous Next →