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2024 (10) TMI 417 - AT - Income TaxDisallowance of unpaid interest u/s 43B - loan taken by the assessee from the World Bank by incorrectly presuming that loan was advanced by State Government and interest was paid to State Government even when neither the World Bank nor the State Government falls under any of clause (d), (da) or (e) of section 43B - HELD THAT - We note that clause (d), (da) or (e) of Section 43B do not cover interest payable on any loan or borrowing taken from World Bank /Government. It is noted that in these clauses interest payable to specific financial institutions / NBFC / Schedule Banks / Co-operative Banks are only covered. The interest payable to State Government/ World Bank is not covered under any of these clauses. Explanation no. 4 to section 43B of the Act specifies the institutions which are covered under this section as has been elaborately discussed in the written submission filed by assessee. Therefore, from the plain reading of the definitions, it is clear that neither the State Government nor the World Bank falls under the definition of Public Financial Institution, State Financial Corporation, State Industrial Investment Corporation, Deposit taking NBFC, Scheduled Bank and Co- operative Bank. Interest payable on loan taken from State Government / World Bank is not covered with in the provision of section 43B of the Act. Hence disallowance of Rs.2,56,43,688/- confirmed by CIT(A) u/s 43B is not as per the provision of law and therefore the same is directed to be deleted. Addition on account of electricity duty u/s 43B - electricity duty collected by the assessee from consumer forms an integral part of a commercial transaction of supplying and distributing the electricity - HELD THAT - This is not a tax or duty or cess levied on the assessee. Hence, provision of section 43B is not applicable in the case of the assessee. Assessee simply remits the electricity duty only to the extent it is collected. The uncollected electricity duty is not payable / recoverable from the assessee. Further the State Govt. grants subsidy to the assessee which it allows to adjust against the electricity duty payable by the assessee. Thus section 43B is not applicable as the State Government do not impose electricity duty on the assessee and therefore it is not a deduction which is otherwise allowable to the assessee. See Kerala State Electricity Board 2010 (11) TMI 127 - KERALA HIGH COURT the words, 'by way of tax' are relevant as they are indicative of the nature of liability - when sec 43B(a) speaks of the sum payable by way of tax etc., the said provision is dealing with the amounts payable to the sovereign qua sovereign, but not the amounts payable to the sovereign qua principal. We are therefore of the opinion that sec 43B cannot be invoked in making the assessment of the liability of the appellant under the IT Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under s. 5 of the Electricity Duty Act, 1963 - Assessee appeal allowed.
Issues Involved:
1. Validity of the order passed by the Assessing Officer (AO) under Section 147 of the Income Tax Act. 2. Disallowance of unpaid interest on a World Bank loan under Section 43B of the Income Tax Act. 3. Deletion of addition made by the AO on account of electricity duty under Section 43B of the Income Tax Act. Detailed Analysis: 1. Validity of the Order Passed by AO under Section 147: The assessee challenged the validity of the order passed by the AO under Section 147 of the Income Tax Act. However, since the appeal of the assessee was allowed on merits and the grounds of the Department were dismissed, the legal issue regarding the validity of the order under Section 147 was deemed academic and did not require adjudication. 2. Disallowance of Unpaid Interest on World Bank Loan: The primary issue contested by the assessee was the disallowance of unpaid interest of Rs. 2,56,43,688/- under Section 43B of the Income Tax Act. The AO disallowed the interest, presuming that the loan was advanced by the State Government and interest was paid to the State Government, which would fall under the purview of Section 43B. The CIT(A) confirmed this disallowance, stating that the loan was advanced by the State Government and interest payments were made to the State Government treasury, thus falling within the ambit of Section 43B. The assessee argued that neither the State Government nor the World Bank falls under the categories specified in clauses (d), (da), or (e) of Section 43B, which cover interest payable to specific financial institutions. The Tribunal agreed with the assessee's contention, noting that the interest payable on loans from the State Government or World Bank is not covered under Section 43B, as neither entity is classified as a Public Financial Institution, State Financial Corporation, State Industrial Investment Corporation, Deposit-taking NBFC, Scheduled Bank, or Co-operative Bank. Consequently, the disallowance of Rs. 2,56,43,688/- was directed to be deleted. 3. Deletion of Addition on Account of Electricity Duty: The Revenue challenged the deletion of an addition of Rs. 1,49,53,15,488/- made by the AO on account of electricity duty under Section 43B. The AO had disallowed this amount, arguing that electricity duty collected by the assessee formed part of its trading receipts and should be disallowed if not actually paid. The CIT(A) held that the electricity duty was not a charge on the assessee but was collected from consumers as an indirect tax, with the assessee acting as a conduit for the State Government. Therefore, Section 43B(a) was not applicable. Furthermore, the State Government had sanctioned electricity subsidy against the duty, allowing for a book adjustment rather than actual payment. The Tribunal upheld this view, citing a decision by the Kerala High Court, which was affirmed by the Supreme Court, supporting the position that Section 43B does not apply to amounts collected on behalf of the government. Consequently, the Tribunal found no merit in the Revenue's grounds, affirming the deletion of the addition. Conclusion: The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal concluded that the disallowance of unpaid interest under Section 43B was not justified, and the deletion of the addition on account of electricity duty was appropriate. The legal issue concerning the validity of the order under Section 147 was considered academic and not adjudicated.
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