ASSISTANT COMMISSIONER OF INCOME TAX v. GMR HOLDINGS (P) LTD
[Citation -2008-LL-0111]

Citation 2008-LL-0111
Appellant Name ASSISTANT COMMISSIONER OF INCOME TAX
Respondent Name GMR HOLDINGS (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 11/01/2008
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags public financial institution • scheme of amalgamation • method of accounting • superannuation fund • security deposit • payment in cash • foreign company • payment of tax • provident fund • actual payment • bank guarantee • share broking • gratuity fund • customs duty • raw material • reserve bank • debit entry • export duty • term loan
Bot Summary: The learned Departmental Representative submitted that since the assessee did not discharge the liability towards SEBI turnover fees either by way of cash or through cheque before the due date for the filing of the return, the assessee is not eligible for deduction under section 43B of the Act. Main provisions of section 43B have been clarified by the Board vide CBDT Circular No. 372, dated 8-12-1983 146 ITR 9, relevant portion of which reads as under: 35.3 To curb this practice, the Finance Act has inserted a new section 43B to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force or any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees shall irrespective of the previous year in which the liability to pay such sum was incurred, be allowed only in computing the income of that previous year in which such sum is actually paid by the assessee. 23.2 In order to remove undue hardship to the assessees and to bring parity among the conditions for allowance of deduction in respect of both the above types of interest, the Act amends the first proviso to section 43B so as to provide that any sum payable by the assessees as interest on any term-loan, from a scheduled bank referred to in clause shall be allowed as deduction during the previous year if such sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section of section 139. Applying the above provisions of the law to the facts of the assessee's case, we find that except the assessee's letter dated 24-8-2001 to the SEBI requesting to adjust the amount due from them, there is no material on record to show that the amount of Rs. 18.06 lakhs due to SEBI on account of turnover fees has been actually paid by the assessee before the due date of filing of the return under section 139(1) of the Act. As regards the decision of Hon'ble Supreme Court in the case of Ogale Glass Works Ltd., relied upon by the learned counsel for the assessee, we find that in that case, the assessee is a limited liability company incorporated and carrying on business in Aundh outside British India. The assessee has in fact virtually a running account with the Customs Department involving accrual of customs duty benefit on exports receivable by the assessee and customs duty liability on imports of raw material payable by the assessee. The DEEC Book records the credit of export duty benefit available to the assessee and utilisation of the duty benefit by the assessee through instrumentality of imports of raw material.


Per Dinesh K. Agarwal, Judicial Member: This appeal preferred by assessee is directed against order passed by learned CIT(A) dated 12-2-2004 for assessment year 2001- 02. 2. At time of hearing, learned counsel for assessee submitted that respondent-assessee, i.e. Vasavi Securities Limited, has amalgamated with Rao Investments Private Limited and has thus been dissolved without winding up. appointed date under court approved scheme of amalgamation is 1-4-2003. Court order approving amalgamation is dated 8-12-2004. successor company has since been renamed as "GMR Holdings Private Limited", therefore, he requested to bring successor, GMR Holdings Private Limited on record, which was not objected to by learned Departmental Representative.3. Accordingly, successor company, GMR Holdings Private Limited is allowed to be brought on record and named as respondent in this appeal. 4. Briefly stated facts of case are that assessee-company, engaged i n business of share broking, filed return declaring its income at Rs. 12,84,091. While making assessment, it was inter alia found by Assessing Officer that in Schedule "K" to Profit & Loss Account, assessee debited amount of Rs. 18,06,000 towards SEBI turnover fee under head 'Operating and Administration' expenses. When asked, it was explained by assessee that assessee through its letter dated 24-8-2001 requested SEBI to adjust amount due from them against security deposit available with it. It was, therefore submitted that claim for deduction of turnover fee of Rs. 18,06,000 be allowed. However, Assessing Officer was of view that amount was not paid by March, 2001 as stipulated under section 43B of Act, he disallowed deduction claimed of Rs. 18,06,000 and added same to income of assessee, and accordingly completed assessment on total income of Rs. 32,43,000, vide order dated 12-9-2003 passed under section 143(3) of Act. 5. Assessee, being aggrieved preferred appeal before learned CIT(A). learned CIT(A) was of view that under proviso to section 43B, taxes referred to in section 43B(a) are allowed if paid by due date of filing of return and accordingly he directed Assessing Officer to allow expenditure claimed by assessee, and partly allowed appeal. 6. Being aggrieved by order of CIT(A), revenue is in appeal before us taking following grounds of appeal: "1. decision of CIT(A) is not in accordance with law. 2. CIT(A) ought to have given specific finding on Assessing Officer's conclusion that assessee was not eligible for deduction claimed as accounts of assessee-company were maintained on mercantile basis. 3. CIT(A) ought to have taken into consideration fact that assessee did not discharge liability either by way of cash or through cheque making them eligible for deduction under section 43B. 4. CIT(A) ought to have taken into consideration fact that assessee did not discharge liability either by way of payment of cash or through cheque but filed only letter before SEBI before due date for filing return of income and it would not amount to discharge of liability before due date. . . . ." 7. learned Departmental Representative submitted that since assessee did not discharge liability towards SEBI turnover fees either by way of cash or through cheque before due date for filing of return, assessee is not eligible for deduction under section 43B of Act. He further submitted that learned CIT(A) has erred in treating assessee's letter seeking adjustment as deemed payment and directing Assessing Officer to allow expenditure claimed by assessee. He therefore, submitted that disallowance made by Assessing Officer be restored. 8. On other hand, learned counsel for assessee while kly relying on order of learned CIT(A) reiterated same submissions as submitted before Assessing Officer and CIT(A). He further submitted that since assessee vide its letter dated 24-8-2001 requested SEBI to adjust since assessee vide its letter dated 24-8-2001 requested SEBI to adjust turnover fee payable by it against security deposit with it, said letter amounts to payment within time, i.e. before due date for filing of return. He further submitted that said letter is also equivalent to issuance of cheque and it has been clarified by Board in CBDT Circular No. 261 dated 8- 8-1979 and Circular No. 265, dated 11-4-1980, that if cheque or draft is tendered for payment of Government dues and same is honoured on presentation, payment is deemed to have been made on date on which cheque was handed over. learned counsel for assessee also relied on decision of Hon'ble Supreme Court in CIT v. Ogale Glass Works Ltd. [1954] 25 ITR 529 and of Ahmedabad Bench decision of Tribunal in Pratibha Syntex Ltd. v. Jt. CIT [2002] 81 ITD 118. He, therefore, submitted that order passed by CIT(A) in deleting disallowance be upheld. 9. We have carefully considered rival submissions of parties and perused material available on record. We find that there is no dispute that assessee is maintaining its account books on mercantile basis. assessee claimed amount of deduction of SEBI turnover fee of Rs. 18.06 lakhs on ground that matter was crystalised in March, 2001 and therefore, company provided for same in books of account in year under consideration. However, Assessing Officer disallowed same on ground that amount was not actually paid within stipulated time as provided under section 43B of Act. It was claimed by assessee that assessee through their letter dated 24-8-2001 requested SEBI to adjust amount due from them against security deposit available with SEBI. However, on examination of correspondence filed by assessee, it was observed by Assessing Officer that assessee's liability towards SEBI turnover fee was finally settled in month of June, 2003 by way of adjustment of amount due from NSE to assessee. According to Assessing Officer, provisions of SEBI liability pertaining to earlier years as well as for current year in current year itself was not discharged by way of payment in cash or through cheque or by way of adjustment, before due date of filing of return under section 139((1) as stipulated under section 43B of Act and hence, same is not allowable. On appeal, learned CIT(A) however held that assessee's letter seeking adjustment is prior to date of filing of return, it is deemed payment. He accordingly directed Assessing Officer to allow expenditure claimed by assessee. 10. Here, it is apt to refer to relevant provisions of section 43B of Act, which read as under- "Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of-(a) any sum payable by assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, or (b) to (e).................. shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in section 28 of that previous year in which such sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-section (1) of section 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by assessee along with such return." 11. Main provisions of section 43B have been clarified by Board vide CBDT Circular No. 372, dated 8-12-1983 (1984) 146 ITR 9 (St.), relevant portion of which reads as under: "35.3 To curb this practice, Finance Act has inserted new section 43B to provide that deduction for any sum payable by assessee by way of tax or duty under any law for time being in force or any sum payable by assessee as employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees shall irrespective of previous year in which liability to pay such sum was incurred, be allowed only in computing income of that previous year in which such sum is actually paid by assessee." 12. scope and effect of amendment made in first proviso to section 43B, reproduced above, inserted by Finance (No. 2) Act, 1998 have been clarified by CBDT by its Circular No. 772, dated 23-12-1998 (1999) 235 ITR 35 (St.) at page 56, as follows:- "23. Certain expenses to be allowed only on payment: 23.1 Under existing provisions, sums referred to in clauses (a) to (e) of section 43B are allowable as deduction in previous year in which sum is actually paid. first proviso to section 43B provides that provisions of this section shall not apply to any sums referred to in clause (a), (c) or (d) if sum is actually paid on or before date on which return of income is due to be furnished under sub-section (1) of section 139 for previous year in which liability to pay such sum was incurred. Thus, while deduction in respect of any sum payable as interest on any loan or borrowing from any public financial institution or State Financial Corporation or State Industrial Corporation, referred to in clause (d), is allowable during previous year even though sum is actually paid in subsequent year within specified due date, deduction in respect of any sum payable as interest on any term loan from scheduled bank, referred to in clause (e), is allowable only if sum is actually paid within previous year. 23.2 In order to remove undue hardship to assessees and to bring parity among conditions for allowance of deduction in respect of both above types of interest, Act amends first proviso to section 43B so as to provide that any sum payable by assessees as interest on any term-loan, from scheduled bank referred to in clause (e) shall be allowed as deduction during previous year if such sum is actually paid by assessee on or before due date applicable in his case for furnishing return of income under sub-section (1) of section 139. 23.3 These amendments will take effect retrospectively from 1-4-1997, and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years." 13. Applying above provisions of law to facts of assessee's case, we find that except assessee's letter dated 24-8-2001 to SEBI requesting to adjust amount due from them, there is no material on record to show that amount of Rs. 18.06 lakhs due to SEBI on account of turnover fees has been actually paid by assessee before due date of filing of return under section 139(1) of Act. As regards letter dated 24-8-2001, we find that there is no material on record to show that there was any surplus security deposit with SEBI in excess of due security deposit, or any amount of such security deposit was refundable to assessee, at relevant point of time. There is also no material on record to suggest that delay in adjustment of said amount of Rs. 18.06 lakhs which was stated to have been adjusted in June, 2003, was not attributable to assessee. As regards assessee's plea that said letter dated 24-8-2001 to SEBI for adjustment of turnover fee is equivalent to issuance of cheque, reliance was placed on Board's Circular No. 261, dated 8-8-1979 and Circular No. 265, dated 11-4-1980, reported in Vol. 3 at pages 5440-5441 of 5th Edition of Chaturvedi & Pithisaria's Income-tax Law, wherein it has been clarified that if cheque or draft is tendered for payment of Government dues and same is honoured on presentation, payment is deemed to have been made on date on which t h e cheque was handed over. However, we find that said circulars are relating to acceptance to payment of taxes by crossed cheques. Moreover said letter of assessee cannot be considered as equivalent to cheque inasmuch as cheque is negotiable instrument governed by Negotiable Instruments Act, and thus, having legal sanctity. banker is obliged to act on cheque issued by its customer and by issuing cheque, payer allows himself to be governed by factual or legal consequences that follow, whether it is honoured or dishonoured by banker. However, same cannot be said with regard to letter written, that too in absence of anything to suggest acceptance of contents thereof by addressee i.e. other party. There is no material on record to show that SEBI has accepted assessee's request for such adjustment on date of submission of letter dated 24-8-2001. 14. As regards decision of Hon'ble Supreme Court in case of Ogale Glass Works Ltd. (supra), relied upon by learned counsel for assessee, we find that in that case, assessee is limited liability company incorporated and carrying on business in Aundh outside British India. assessee secured some contracts for supply of lanterns and other glasswares to Government of India. price of goods supplied under contracts were paid by cheques drawn on Reserve Bank of India, Bombay. cheque used to be received by assessee in Aundh and cashed through its bank at Bombay as hereinafter stated. ITO and, on appeal, AAC held that assessee received income, profits or gains in British India inasmuch as cheques were drawn on bank in Bombay and had been cashed in Bombay and accordingly taxed assessee under section 4(i)(a) of Income-tax Act. On this factual background considering issue whether on facts of case, income, profits and gains in respect of sales made to Government of India was received in British India within meaning of section 4(i)(a) of Act, Hon'ble Supreme Court held at page 546 of reports as under: ". . . engagement of Government was to make payment by cheques. cheques were drawn in Delhi and received by assessee in Aundh by post. According to course of business usage in general to which, as part of surrounding circumstances, attention has to be paid, under authorities cited above, parties must have intended that cheques should be sent by post which is usual and normal agency for transmission of such articles and according to Tribunal's findings they were in fact received by assessee by post. Apart from implication of agreement arising from such business usage assessee expressly requested Government to "remit" amounts of bills by cheques. This, on authorities cited above, clearly amounted in effect to express request by assessee to send cheques by post. Government did act according to such request and posted cheques in Delhi. It can scarcely be suggested with any semblance of reasonable plausibility that cheques drawn in Delhi and actually received by post in Aundh would in normal course of business be posted in some place outside British India. This Posting in Delhi, in law, amounted to payment in Delhi. In this view of matter referred question should, with respect, have been answered by High Court in affirmative. We, therefore, allow appeal and answer question accordingly. In view of fact that appellant has failed in main argument but has succeeded on new one we think no order should be made as to costs except that each party should bear and pay his or its own costs before us as well as before High Court." In case before us, question as to whether letter dated 24-8- 2001 written by assessee to SEBI could be treated as cheque or as actual payment of turnover fees within time stipulated under section 43B of Act, is entirely different issue and as such, ratio of that decision is not applicable to facts of present case. 15. As regards decision of Ahmedabad Bench of Tribunal in case of Pratibha Syntex Ltd. (supra), relied upon by learned counsel for assessee, we find that Ahmedabad Bench of Tribunal in that case was considering whether debit entry of Rs. 6,22,41,119 is hit by mischief of section 43B. It has summarized facts of that case in opening portion of para- 17 of its order in following manner: "17. Now coming to third question regarding applicability of provisions of section 43B we are afraid that entire approach adopted by revenue is on face of it illogical and unreason- able. liability debited to Purchase Account on account of customs duty in relation to imports of raw material has been liquidated by way of adjustment against credit entry of Rs. 7,00,24,935 which accrued to assessee on account of exports made during year. assessee has in fact virtually running account with Customs Department involving accrual of customs duty benefit on exports receivable by assessee and customs duty liability on imports of raw material payable by assessee. DEEC Book records credit of export duty benefit available to assessee and utilisation of duty benefit by assessee through instrumentality of imports of raw material. entries in books of account of assessee essentially represent mirror account- reflecting account maintained by Customs Department in DEEC Book. Thus statement of account involving adjustment of debit entry against duty benefit receivable by assessee would constitute, in scheme of things, actual payment in terms of provisions of section 43B. . . ." After detailed discussion of matter, Tribunal decided above issue in favour of assessee in following manner in latter part of para 17: ". . . In our opinion assessee has made payment of customs duty claimed during year by way of adjustment entry in running account and therefore provisions of section 43B do not apply. decision of Supreme Court in case of J.B. Boda & Co. (P.) Ltd. cited by learned counsel fully supports view taken by us. assessee in this case was Reinsurance Broker and made remittance of reinsurance premium to foreign reinsurers after retaining his commission. Supreme Court held that commission retained is "income received in convertible foreign exchange" and formal remittance to foreign company and receipt thereafter is not necessary for purpose of relief under section 80-O of Income-tax Act. Their Lordships held- 'A two-way traffic is unnecessary. To insist on formal remittance first and thereafter to receive commission from foreign reinsurer, will be empty formality and meaningless ritual on facts of case.' learned DR has next relied on Supreme Court decision in case of CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 wherein it has been held that assessee ought to get advantage and suffer disadvantage of method of accounting employed by him. This decision in our opinion reinforces conclusion arrived at by us above that method of accounting regularly followed by assessee, which is in accordance with well recognised principles of accounting, cannot be rejected." Thus in abovenoted case it was observed by Tribunal that entries in books of account of assessee which essentially represented mirror account-reflecting account maintained by Customs Department in DEEC Book, whereas in case before us, there is no material to suggest any such mirror account reflecting either turnover fees payable by assessee or amount refundable to assessee. Hence, this decision relied on by learned counsel for assessee is distinguishable on facts, and hence, is not applicable to present case. 16. In this view of matter, we are of view that words used in section 43B are 'actually paid', and since furnishing of letter dated 24-8-2001 by assessee to SEBI cannot be considered either as issuance of cheque or as actual payment of tax or duty in cash, disallowance made by Assessing Officer is justified. This view of ours also finds support from decision of Hon'ble Rajasthan High Court in case of CIT v. Rajasthan Patrika Ltd. [2002] 258 ITR 300, wherein at page 304 of Reports, it has been held as under: "The provisions of section 43B start with non obstante clause. words used that in spite of method of accounting regularly employed by assessee in computing income referred to in section 28 of previous year, deduction will be allowed in which such sum is actually paid by him, words used are "actually paid". By no stretch of imagination can it be said that furnishing of bank guarantee is actual payment of tax, duty in cash. Bank guarantee is only guarantee for payment on some happening and that cannot be actual payment as required under section 43B of Income-tax Act, 1961." Accordingly, order passed by learned CIT(A) treating assessee's letter dated 24-8-2001 to SEBI requesting for adjustment as deemed payment is reversed, and disallowance made by Assessing Officer of Rs. 18,06,000 is restored and grounds taken by Revenue in this appeal are allowed. 17. In result, appeal stands allowed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. GMR HOLDINGS (P) LTD.
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