COMMISSIONER OF INCOME TAX, KERALA vs. M/S. TRAVANCORE SUGAR AND CHEMICALS LTD.

CIVIL APPEAL No. 2558/2005Supreme Court[2015] 6 S.C.R. 78207 May 2015Bench: 2 JudgesAuthor: A.K. SIKRI, R.F. NARIMAN9 pages
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What were the facts?

The assessee, M/s. Travancore Sugar and Chemicals Ltd., engaged in manufacturing and selling foreign liquor and sugar, filed its return for assessment year 1990-1991. The assessee itself had shown a vend fee of Rs. 22,87,512/- as disallowable under Section 43B of the Income Tax Act, 1961, as it was not paid before the expiry of the relevant previous year. The Assessing Officer confirmed this disallowance. The Commissioner of Income Tax (Appeals) deleted the disallowance, which was upheld by the Income Tax Appellate Tribunal. The Revenue appealed to the High Court, which referred two questions of law to it. This appeal concerns Question No. 2.

What did the Supreme Court hold?

The Supreme Court held that the amendment to Section 43B of the Income Tax Act, 1961, by the Finance Act, 1988, with effect from April 1, 1989, significantly widened the scope of sub-clause (a) by adding the words 'by whatever name called'. This means any sum payable, regardless of whether it is called tax, duty, cess, or fee, or by some other name, is subject to Section 43B, provided it is actually paid in the previous year relevant to the assessment year. The assessment year in question, 1990-1991, clearly attracts this amendment. The Court found that the vend fee collected by the Government of Kerala, as evidenced by an order dated April 28, 1988, was a fee in the classic sense, conferring a special benefit on the mills for repair and replacement of machinery. Therefore, even if the vend fee was not strictly a 'fee', it would be covered by the phrase 'by whatever name called'. The High Court's judgment, which did not consider the amendment, was not answered correctly. The appeal was allowed in favour of the Revenue, setting aside the High Court's judgment. The assessee would be entitled to claim the benefit of Section 43B for the assessment year in which the fee was actually paid.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the deletion of disallowance under Section 43B of the Income Tax Act in respect of the vend fee of Rs. 22,87,512/- outstanding as a liability payable to the Government of Kerala as on the last day of the accounting year? Assessee's contention: The vend fee is not a compulsory exaction by the State and therefore does not fall within the expressions in Section 43B(a). It is a consensual arrangement for repair and replacement of machinery. Revenue's contention: The High Court's judgment failed to consider the amendment to Section 43B by the Finance Act, 1988, effective from April 1, 1989. The amendment widened the scope of Section 43B to include sums payable by 'whatever name called'. The reliance on the Karnataka High Court judgment in Commissioner of Income Tax v. Sri Balaji and Co. (246 ITR 750) was misplaced as it pertained to a period prior to the amendment.

Which sections of the Income-tax Act were involved?

Section 43B,Section 256(1)

AI-generated summary — verify with the full judgment below

[2015] 6 S.C.R. 782 A COMMISSIONER OF INCOME TAX, KERALA B v. M/S. TRAVANCORE SUGAR AND CHEMICALS LTD. (Civil appeal No.2558 of 2005)

May?,2015 [A.K. SIKRI AND ROHINTON FALi NARIMAN, JJ.] C Income Tax Act, 1961 - s. 43B(a) - Deduction under- Disallowance of - For the assessment of assessment year 1990-1991 - Propriety of- Held: The assessment year in question would attract amendment to s.438 by Finance Act, 1988 w.e.f. 1.4.1989- In view of the amendment even ifthe o vend fee paid by the assessee does not directly fall within the expression 'fee' contained in s.43B(a), it would be a 'fee' by 'whatever name called' - Hence disallowance of vend fee under s. 438 is correct since it was not paid before expiry of the relevant previous year. E Disposing of the appeal, the Court HELD: 1.Areading ofs. 438 of Income TaxAct, 1961 after it was substituted by Finance Act, 1988 with effect F from 01.04.1989 shows that sub clause (a) in Section 438 has been considerably widened by the amendment by the addition of the words "by whatever name called".

It is clear, therefore, that to attract th:s section, any sum that is payable whether it is called tax, duty, cess or fee

The order continues below.

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