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TMI Blog2024 (10) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) has erred in deleting the addition of Rs.1,49,53,15,488/- made by the AO on account of electricity duty u/s 43B of the Income Tax Act, 1961 ignoring the fact that the electricity duty collected by the assessee from consumer forms an integral part of a commercial transaction of supplying and distributing the electricity, thus, the duty collected by the assessee constitutes trading receipts received during the ordinary course of its business and consequently when the payment is made to the government, the deduction under the Income Tax Act is allowed as business expenditure. Thus, if any sum is not actually paid, it is to be disallowed u/s 43B of the Income Tax Act. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the AO on account of the electricity duty u/s 43B of the Income Tax Act, 1961 ignoring the fact that the electricity duty collected by the assessee from consumers has not been actually paid to the State Government and is was only a set off against electricity subsidy. 2. Bench noted from the grounds of appeal so raised by the parties, it would be appropriate to adjudicate upon both the appeals first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be advanced to the appellant as 100% loans leading to the appellant paying interest to the State Government on the entire amount. Subsequently, the State Government would return to the appellant the interest received on the grant component as interest subsidy. This method of payment of interest on the entire amount of loan to the State Government and subsequent return of interest on grant component as interest subsidy was in practice during the impugned financial year, 2015-16 as well. 9.4 As can be seen from the above, the loan was advanced by the State Government and the appellant paid interest also to the State Government. In fact, leave alone the appellant, even the State Government did not receive funds directly from World Bank; the funds were always received through the Central Government. As such, the payments of interest in question were always to the State Government, and it is for this reason, all payments of interest were to the State Government treasury via e-challans only. Under such circumstances, the payment of interest shall be covered u/s 43B of the Act. 9.5 The contention that the appellant has accounted for more interest subsidy than the amount of interest unpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the Act is reproduced below: (a) Public financial institutions shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1) of 1956. Section 4A of the Companies Act reads as under:- Public financial institutions: (1) Each of the financial institutions specified in this subsection shall be regarded, for the purposes of this Act, as a public financial institution, namely:- (i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913); (ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948); (iii) the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964); (iv) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (v) the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963). (2) Subject to the provisions of sub- section (1), the Central Government may, by notification in the Official Gazette, sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of sub-section (1) of section 36. ( d) co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P. For ready reference, explanation to subsection (4) of Section 80P reads as under: i) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); ii) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. (e) deposit taking non-banking financial company means a non-banking financial company which is accepting or holding public deposits and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). Thus, from the plain reading of the above definitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loan from state government and the assessee paid interest to state government. It is also not in dispute that 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 of the Act. As per the terms of the loan first the assessee has to pay the interest and then the same is received on grant will not change the nature of expenditure incurred and the liability of the assessee on interest to financial institutions. Based on this argument the ld. DR supported the orders of the lower authority. 3.5 We have heard both the parties and perused the materials available on record. In this ground, the moot issue is whether the payment of interest to World Bank or the Central/ State Govt. is covered u/s 43B or not. The provision of section 43B reads as under; Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee along with such return 56 . Explanation 1 For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 2. For the purposes of clause (a), as in force at all material times, any sum payable means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. Explanation 3. For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest referred to in that clause which has been converted into a loan or borrowing 57[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid. Explanation 3CA. For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (da), shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing 57[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid. Explanation 3D. For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance 57[or debenture or any other instrument by which the liability to pay is deferred to a future date] shall not be deemed to have been actually paid. Explanation 4. For the purposes of this section, (a) public financial institutions sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5. For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applies.] 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 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 Co- operative Bank. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set-off, the non-payment of electricity duty operates as a violation of the obligation imposed by section 43B of the Act. Accordingly Rs.149,53,15,488/- was disallowed u/s 43B of the Act. 4.2 The Ld. CIT(A) at Para 10.5 to 10.8 at Page 19 to 21 of its order held that section 43B (a) covers sum payable by assessee by way of taxes / duty. The electricity duty is not a charge on the assessee which is in the business of distribution of electricity to consumers. Electricity duty is paid by the consumers of the electricity and the role of the assessee is only limited to collection and subsequent transfer thereof to the State Govt. and therefore the provision of section 43B (a) is not applicable in the case of the assessee. Further, as per correct letter dt.09.04.2015 (APB 31), government has sanctioned electricity subsidy of 545.6426 crore against the electricity duty and therefore also the electricity duty gets adjusted against the subsidy, hence no disallowance u/s 43B(a) can be made. The relevant observation from recorded at para 10.5 to 10.8 as verbatim is reproduced as under:- 10.5 I find both the arguments of the appellant quite persuasive. What is covered u/s 43B(a) is any sum pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the addition deleted by him is in account of incorrect appreciation of the facts already on record and therefore, the addition deleted should be restored. 4.4 On the other hand, the ld. AR of the assessee made the following submissions in support of the finding recorded in the order of the ld. CIT(A): Submission: We may point out that section 43B allows deduction to the assessee in respect of tax, duty, cess or fees in the year in which it is actually paid by the assessee. However, electricity duty collected on behalf of the State Government is not in the nature of tax, duty, cess or fees as specified in Section 43B. The electricity duty is collected from the consumer as per section 3 of the Rajasthan Electricity Duty Act, 1962 on behalf of the State Govt. Relevant para of section 3 of Rajasthan Electricity Duty Act, 1962 is reproduced below for your ready reference: There shall be levied for, and paid to, the State Government on the energy consumed by a consumer or by a person other than a supplier generating energy for his own use or consumption a duty (hereinafter referred to as the electricity duty ) computed at such rate as may be fixed by the State Government from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. To support the contention so raised the ld. AR relied on the decision of Hon ble Kerala High Court in case of Kerala State Electricity Board Vs. DCIT , 329 ITR 91 where in Para 27 of the order it held as under: 27. On a plain reading of s. 43B we are of the opinion that the only clause if at all is relevant in the context of the facts of the appellant's case is cl. (a) which deals with any sum payable by the assessee by way of tax, duty, under any law for the time being in force . In our opinion, the words, 'by way of tax' are relevant as they are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign. Whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation, in our opinion, continues to be fiduciary even in a case wherein the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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