2024 (6) TMI 684 - AT - Income Tax

Disallowance of unpaid interest u/s 43B on loan taken from World Bank - loan was advanced by State Government and interest was paid to State Government - as per DR ultimate source of money received was from the World Bank and thus the payment of interest to World Bank covers the provision of section 43B - HELD 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 the ld. AR of the 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 Cooperative 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 confirmed by ld. CIT(A) u/s 43B is not as per the provision of law and therefore the same is directed to be deleted. Based on these observations grounds of appeal no. 2 and 2.1 raised by the assessee stand allowed. Addition on account of electricity duty u/s 43B - whether electricity duty collected by the assessee from consumers constitutes trading receipts? - DR supporting the finding recorded in the order of the assessment argued that electricity duty is a tax and is a forming part of trading receipt and forms an integral part of a commercial transaction of supplying and distributing the electricity therefore if such tax is not paid on or before the due date of filing of return the same is to be added to the income of the assessee u/s 43B - HELD THAT - Assessee collects the electricity duty from the consumers on behalf of the Government of Rajasthan. 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 as approved by SC 2022 (10) TMI 363 - SC ORDER held when s. 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 u/s 5 of the Electricity Duty Act 1963 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of order passed by AO u/s 147 of IT Act.
2. Disallowance of unpaid interest u/s 43B of IT Act on loan taken from World Bank.
3. Deletion of addition on account of electricity duty u/s 43B of IT Act.

Summary:

1. Validity of Order Passed by AO u/s 147 of IT Act:
The legal issue raised by the assessee challenging the validity of the order passed by the AO u/s 147 of the Act was deemed academic and did not require adjudication, as the appeal of the assessee was allowed on merits and the grounds of the Department were dismissed.

2. Disallowance of Unpaid Interest u/s 43B of IT Act on Loan Taken from World Bank:
The assessee contested the disallowance of unpaid interest of Rs. 2,56,43,688/- u/s 43B of the IT Act. The AO had disallowed the interest, considering it as payment to a public financial institution. The CIT(A) upheld this view, stating that the loan was advanced by the State Government and interest was paid to the State Government, thus falling under section 43B. However, the tribunal found that neither the State Government nor the World Bank falls under the definitions provided in clause (d), (da), or (e) of section 43B. Therefore, the interest payable on the loan taken from the State Government/World Bank is not covered under section 43B, and the disallowance of Rs. 2,56,43,688/- was directed to be deleted.

3. Deletion of Addition on Account of Electricity Duty u/s 43B of IT Act:
The Revenue challenged the deletion of an addition of Rs. 1,49,53,15,488/- made by the AO on account of electricity duty u/s 43B. The CIT(A) held that the electricity duty collected by the assessee from consumers is not a charge on the assessee but is collected on behalf of the State Government, thus not falling under section 43B(a). Additionally, the electricity duty was adjusted against the subsidy payable by the State Government to the assessee. The tribunal upheld the CIT(A)'s decision, referencing the Kerala High Court's judgment in Kerala State Electricity Board Vs. DCIT, which was approved by the Supreme Court, confirming that section 43B does not apply to such collections.

Conclusion:
The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The tribunal's decision was based on the interpretation that neither the interest payable on loans from the State Government/World Bank nor the electricity duty collected from consumers falls under the purview of section 43B of the IT Act.