2008 (1) TMI 453 - AT - Income Tax

Summary

Issues Involved:
1. Amalgamation and successor company.
2. Deduction of SEBI turnover fee under Section 43B of the Income Tax Act.
3. Eligibility for deduction based on the method of accounting.
4. Interpretation of "actual payment" under Section 43B.

Issue-wise Detailed Analysis:

1. Amalgamation and Successor Company:
The appeal was initially filed by the assessee, Vasavi Securities Limited. During the hearing, it was submitted that Vasavi Securities Limited had amalgamated with Rao Investments Private Limited and was subsequently dissolved without winding up. The appointed date for the amalgamation under the court-approved scheme was April 1, 2003, and the court order approving the amalgamation was dated December 8, 2004. The successor company was renamed "GMR Holdings Private Limited." The tribunal allowed the successor company, GMR Holdings Private Limited, to be brought on record as the respondent in this appeal.

2. Deduction of SEBI Turnover Fee under Section 43B:
The assessee, engaged in share broking, claimed a deduction of Rs. 18,06,000 towards SEBI turnover fee in its Profit & Loss Account for the assessment year 2001-02. The Assessing Officer disallowed this deduction on the grounds that the amount was not paid by March 2001, as stipulated under Section 43B of the Income Tax Act. The CIT(A) overturned this disallowance, directing the Assessing Officer to allow the expenditure, reasoning that taxes referred to in Section 43B(a) are allowed if paid by the due date of filing the return.

3. Eligibility for Deduction Based on the Method of Accounting:
The revenue argued that the CIT(A) did not provide a specific finding on the Assessing Officer's conclusion that the assessee was not eligible for the deduction since the accounts were maintained on a mercantile basis. The CIT(A) should have considered that the liability was not discharged either by cash or cheque before the due date for filing the return, which is a requirement under Section 43B.

4. Interpretation of "Actual Payment" under Section 43B:
The tribunal examined whether the letter dated August 24, 2001, from the assessee to SEBI requesting adjustment of the turnover fee against the security deposit could be considered as "actual payment" under Section 43B. The tribunal noted that there was no material evidence to show that the amount was actually paid before the due date for filing the return. The tribunal referred to various provisions and circulars related to Section 43B, emphasizing that deductions are allowed only in the year the sum is actually paid. The tribunal concluded that the letter to SEBI did not equate to actual payment or issuance of a cheque, as it lacked legal sanctity and acceptance by SEBI.

The tribunal cited the decision of the Hon'ble Supreme Court in CIT v. Ogale Glass Works Ltd., which dealt with the receipt of income through cheques, but found it inapplicable to the present case. Similarly, the tribunal distinguished the decision of the Ahmedabad Bench in Pratibha Syntex Ltd. v. Jt. CIT, noting that the facts were different and did not support the assessee's case.

The tribunal supported its decision with the ruling of the Hon'ble Rajasthan High Court in CIT v. Rajasthan Patrika Ltd., which held that furnishing a bank guarantee does not constitute actual payment under Section 43B.

Conclusion:
The tribunal reversed the CIT(A)'s order that treated the assessee's letter as deemed payment and restored the disallowance of Rs. 18,06,000 made by the Assessing Officer. The appeal by the revenue was allowed.