SUPREME COURT OF INDIA CIT v. Mcdowell & Co. Ltd.

 
Furnishing of bank guarantee cannot be equated with actual payment which requires that money must flow from assessee to public exchequer as required under Section 43B of IT Act


 
By no stretch of imagination it can be said that furnishing of bank guarantee is actual payment of tax or duty in cash; the bank guarantee is nothing but a guarantee for payment on some happening and that cannot be actual payment as required under section 43B for allowance as deduction in the computation of profits


 
 






SUPREME COURT OF INDIA



CIT



v.



Mcdowell & Co. Ltd.



Civil Appeal No. 3471 of 2007



May 8, 2009



RELEVANT EXTRACTS :



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8. We shall first deal with the question whether furnishing of bank guarantee amounts to actual payment and fulfils the conditions stipulated in section 43B of the Act. The requirement of Section 43B of the Act is the actual payment and not deemed payment as condition precedent for making the claim for deduction in respect of any of the expenditure incurred by the assessee during the relevant previous year specified in Section 43B. The furnishing of bank guarantee cannot be equated with actual payment which requires that money must flow from the assessee to the public exchequer as required under Section 43B. By no stretch of imagination it can be said that furnishing of bank guarantee is actual payment of tax or duty in cash. The bank guarantee is nothing but a guarantee for payment on some happening and that cannot be actual payment as required under Section 43B of Act for allowance as deduction in the computation of profits. Section 43B after amendment w.e.f. 1.4.1989 refers to any sum payable by assessee by way of tax, duty or fee by whatever name called under any law for the time being in force. The basic requirement, therefore, is that the amount payable must be by way of tax, duty and cess under any law for the time being in force. The bottling fees for acquiring a right of bottling of IMFL which is determined under the Excise Act and Rule 69 of the Rules is payable by the assessee as consideration for acquiring the exclusive privilege. It is neither fee nor tax but the consideration for grant of approval by the Government as terms of contract in exercise of its rights to enter a contract in respect of the exclusive right to deal in bottling liquor in all its manifestations.





9. Section 43B as it stood on 1.4.1989 reads as follows:



  "43B. Certain deductions to be only on actual payment--

  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 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, or



  (c) any sum referred to in Clause (ii) of Sub-section (1) of

  Section 36; or



  (d) any sum payable by the assessee as interest on any loan

  or borrowing from any public financial institution or a State

  Financial Corporation or a State Industrial Investment

  Corporation, in accordance with the terms and conditions of the

  agreement governing such loan or borrowing, or



  (e) any sum payable by the assessee as interest on any term

  loan from a scheduled bank in accordance with the terms and

  conditions of the agreement governing such loan or advances,

  or



  (f) any sum payable by the assessee as an employer in lieu of

  any leave at the credit of his employee,

  shall be allowed irrespective of the previous year in which the

  liability to pay such sum was incurred by the assessee

  according to the method of accounting regularly employed by

  him only in computing the 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 referred to in Clause (a) or Clause

  (c) or Clause (d) or Clause (e) or Clause (f) which 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 (1)

  of Section 139 in respect of the previous year in which the

  liability to pay such sum was incurred as aforesaid and the

  evidence of such payment is furnished by the assessee along

  with such return."



10. It would be pertinent to note that the expression now used in Section 43B (i)(a) is "Tax, Duty, Cess or fee or by whatever name called". It denotes that items enumerated constitute species of the same genus and the expression 'by whatever name called' which follows preceding words 'Tax', 'Duty', 'Cess' or 'fee' has been used ejusdem generis to confine the application of the provisions not on the basis of mere nomenclatures, but notwithstanding name, they must fall within the genus 'taxation' to which expression 'Tax', 'Duty', 'Cess' or 'Fee' as a. group of its specie belong vis. compulsory exaction in the exercise of State's power of taxation where levy and collection is duly authorised by law as distinct from amount chargeable on principle as consideration payable under contract.



11. The principle of statutory interpretation is well known and well settled that when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule is known as the rule of ejusdem generic. It applies when:





  (1) the statute contains an enumeration of specific words;



  (2) the subjects of enumeration constitute a class or category;



  (3) that class or category is not exhausted by the enumeration;



  (4) the general terms follow the enumeration; and



  (5) there is no indication of a different legislative intent.



12. Reference in this connection may be made to Amar Chandra v. Collector of Excise, Tripura (AIR 1972 SC 1863) and Housing Board of Haryana v. Haryana (AIR 1996 SC 434)



13. The 'Tax', 'Duty', 'Cess' or 'fee' constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged under Article 265 which uses only expression that no 'tax' shall be levied and collected except authorized by law.



16. This Court in the light of decisions starting from State of Bombay v. F.N. Balsara (AIR 1951 SC 318) held that the expression "fee" is not used in the State excise laws or rules in the technical sense of the expression. By `licence fee' or `fixed fee' under excise laws relating to potable liquors/intoxicant is meant the price or consideration which the Government charges to the licences for parting with its exclusive privilege and granting them to the licencees. There is no fundamental right to do trade or business in intoxicants. The State under its regulatory powers has the right to prohibit absolutely every form of activity in relation to intoxicants, its manufacture, storage, export, import, sale and possession in all their manifestations these rights are vested in the State. The decision was re-iterated in Har Shankar v. Dy. Excise and Taxation Commissioner (AIR 1975 SC 1121) and State of U.P. v. Sheopat Rai (AIR 1994 SC 813).



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