2005 (1) TMI 27 - HC - Income Tax

Section 43B - 1. Whether, Tribunal is justified in holding that the issue price charged by the Excise Department does not come in purview of payment within the meaning of section 43B and consequently cannot be disallowed under section 43B? 2. If the answer to question No. 1 is in the negative, whether Tribunal is justified in holding that the sum of Rs. 2,39,527 is allowable as a deduction in spite of the fact that the assessee has not accepted this amount as liability and contesting the same? held that no amount of consideration payable by the asses-see as a price fee for securing exclusive privilege to deal in liquor from the State also by way of tax, duty, cess or fee, by whatever name called fell within the broader sense of tax or duty u/s 43B(a) so as to attract its applicability - if the amount is held to be not payable by the assessee, it will be a question inviting operation of section 40 for including the amount so deducted in the assessment year in question in the taxable income of the assessee in the assessment year when he is relieved of such liability in respect of which he has claimed deduction in the earlier assessment year - application is rejected

Summary

Issues:
1. Interpretation of section 43B of the Income-tax Act, 1961 regarding the deductibility of 'issue price' charged by the Excise Department.
2. Whether the sum claimed as a deduction by the assessee is allowable despite not being accepted as a liability.

Issue 1: Interpretation of Section 43B regarding 'Issue Price' Deductibility

The case involved a liquor contractor who claimed a deduction for a rebate amount from the 'issue price' payable to the Excise Department under a license. The Assessing Officer disallowed the deduction under section 43B of the Income-tax Act, 1961, stating that the amount was akin to tax and needed to be actually paid. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal reversed the decision, stating that 'issue price' was neither a duty nor a tax, hence not covered by section 43B. The High Court concurred, emphasizing that 'issue price' did not fall under the categories specified in section 43B during the relevant assessment year of 1987-88. The court referred to a previous case to establish that 'issue price' was a consideration for acquiring the exclusive privilege to trade in liquor, not a tax or duty.

Issue 2: Allowability of Deduction Despite Non-Acceptance as Liability

The second issue revolved around the claim for deduction by the assessee, despite not accepting the amount as a liability. The court clarified that the liability accrued under a contract does not become contingent due to pending litigation. The court highlighted that if the amount claimed as a deduction is later deemed non-payable, it would invoke section 40 for inclusion in the taxable income of the relevant assessment year. The court rejected the Revenue's application, stating that the second question raised did not involve a question of law and the matter was adequately addressed by existing legal principles.

In conclusion, the High Court of Rajasthan analyzed the interpretation of section 43B of the Income-tax Act, 1961 in the context of the 'issue price' payable by a liquor contractor to the Excise Department. The judgment emphasized that 'issue price' did not qualify as tax or duty under section 43B during the relevant assessment year. Additionally, the court clarified the treatment of accrued liabilities under contracts and the implications of claiming deductions for amounts not accepted as liabilities. The decision provided a detailed legal analysis and upheld the Tribunal's ruling, ultimately rejecting the Revenue's application for reference to the court.