I have given the excise authorities a bank guarantee for unpaid bottling fee. Does that count as actual payment under section 43B - and is bottling fee even covered by section 43B?
A bank guarantee is not payment, but bottling fee is outside section 43B altogether, so the deduction stood. The Supreme Court held that section 43B requires actual payment, meaning money must flow from the assessee to the public exchequer, and a guarantee of payment on a future event is not that. But it also held that tax, duty, cess or fee, by whatever name called, must be read ejusdem generis: the sum must belong to the genus of taxation, a compulsory exaction under the State's taxing power. Bottling fee under the Rajasthan Excise Act is the consideration for parting with an exclusive privilege - contractual, not an impost - so section 43B did not apply. The Revenue's appeal was dismissed.
Decided by the Supreme Court (Supreme Court of India - Arijit Pasayat and Mukundakam Sharma, JJ. (judgments per Arijit Pasayat, J.)) on 2009-05-08, reported as AIRONLINE 2009 SC 278; (2009) 8 SCALE 272. It bears on section 43B, section 139(1), section 37(1) of the Income Tax Act 1961, in Deductions & Disallowances matters.
Two separate propositions come out of this, and practitioners use both. The first closes off the argument that a security given to the authority satisfies section 43B; nothing short of money reaching the exchequer will do, and this is the answer to bank guarantees, letters of credit and similar devices. The second is the more valuable: section 43B(a) is not triggered by the label on a payment but by its character. The words by whatever name called are read ejusdem generis with tax, duty, cess and fee, so what is caught is a compulsory exaction authorised by law under Article 265, and a liability founded on contract is not. That is why licence fee or fixed fee under State excise laws, which is the price the State charges for parting with its exclusive privilege in potable liquor, falls outside. The Court traced that characterisation through Balsara, Har Shankar and Sheopat Rai.
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The batch arose from decisions of a Division Bench of the Rajasthan High Court at Jodhpur covering assessment years 1988-89 to 1995-96. In the lead appeal, for assessment year 1988-89, the assessee had not paid bottling fee chargeable under the Rajasthan Excise Act, 1950 and Rule 69 of the Rajasthan Excise Rules, 1962, together with interest of Rs.40,000 for late payment, but had furnished a bank guarantee for the amount. The Assessing Officer and the Commissioner (Appeals) held section 43B barred the deduction. The Tribunal decided for the assessee. Before the High Court the assessee argued both that the bank guarantee answered section 43B and that bottling fee was not tax, duty, cess or fee within it. The High Court held that furnishing a bank guarantee is not the same as payment, but that bottling fee is not covered by section 43B, and so dismissed the Revenue's appeal. The Revenue came to the Supreme Court. The connected appeals raised the same section 43B question for other years along with three further issues: depreciation on research and development assets said to belong to a closed fast food division, whether the cost of a new transformer was capital expenditure while the old transformer remained in the block of assets, and technical service charges paid under a fresh agreement of April 1992 at a higher rate than the December 1990 agreement.
The appeal in the lead matter was dismissed. Furnishing a bank guarantee is not actual payment for section 43B; the section requires actual and not deemed payment, and money must move from the assessee to the public exchequer. But bottling fee, payable under the Excise Act and Rule 69 as consideration for acquiring the exclusive privilege of bottling Indian made foreign liquor, is neither a fee nor a tax; it is the consideration for the grant of the Government's approval under a contract. The High Court was right to hold that the amount does not fall within section 43B, and that answer governed the other years. On the other questions, the transformer issue was remitted to the Assessing Officer to be examined on the facts in the light of Saravana Spinning Mills and Ramaraju Surgical Cotton Mills; the claim to depreciation on the research and development machinery was remitted for a finding whether it was used for the liquor unit as well as the closed fast food unit; and the disallowance of technical service charges was not restored, the Tribunal and High Court having found as a fact that the fresh agreement was not a device but was entered into on commercial considerations.
On the first limb the Court read section 43B as it stood from 1 April 1989, which allows the specified deductions only in the previous year in which the sum is actually paid, with a proviso saving payment before the section 139(1) due date supported by evidence filed with the return. Actual payment means what it says, and a bank guarantee is only a guarantee of payment on some future happening. On the second limb the Court applied the ejusdem generis rule. Tax, duty, cess and fee are an enumeration of specific words forming a class not exhausted by the enumeration, followed by the general words by whatever name called; those general words are therefore confined to the same genus. That genus is taxation - a compulsory exaction in exercise of the State's sovereign power, levied and collected under authority of law as Article 265 requires, taxation being defined in Article 366(28) to include any impost. A liability founded on contract is not a tax in that sense. The Court then applied the settled characterisation of State excise levies, beginning with State of Bombay v. F.N. Balsara and reaffirmed in Har Shankar and State of U.P. v. Sheopat Rai: there is no fundamental right to trade in intoxicants, the State may prohibit every form of dealing in them, and what it charges a licensee is the price for parting with its exclusive privilege, so the word fee in excise law is not used in its technical sense. Since section 43B turns on a sum payable by way of tax, duty, cess or fee, it was for the revenue authorities to ascertain whether the sum answered that description, and bottling fee did not.
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.
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Handle my notice → Ask a CA on WhatsAppA bank guarantee is not payment, but bottling fee is outside section 43B altogether, so the deduction stood. The Supreme Court held that section 43B requires actual payment, meaning money must flow from the assessee to the public exchequer, and a guarantee of payment on a future event is not that. But it also held that tax, duty, cess or fee, by whatever name called, must be read ejusdem generis: the sum must belong to the genus of taxation, a compulsory exaction under the State's taxing power. Bottling fee under the Rajasthan Excise Act is the consideration for parting with an exclusive privilege - contractual, not an impost - so section 43B did not apply. The Revenue's appeal was dismissed. This was decided by the Supreme Court (Supreme Court of India - Arijit Pasayat and Mukundakam Sharma, JJ. (judgments per Arijit Pasayat, J.)) and bears on section 43B, section 139(1), section 37(1) of the Income Tax Act 1961. It is reported as AIRONLINE 2009 SC 278; (2009) 8 SCALE 272. Two separate propositions come out of this, and practitioners use both. The first closes off the argument that a security given to the authority satisfies section 43B; nothing short of money reaching the exchequer will do, and this is the answer to bank guarantees, letters of credit and similar devices. The second is the more valuable: section 43B(a) is not triggered by the label on a payment but by its character. The words by whatever name called are read ejusdem generis with tax, duty, cess and fee, so what is caught is a compulsory exaction authorised by law under Article 265, and a liability founded on contract is not. That is why licence fee or fixed fee under State excise laws, which is the price the State charges for parting with its exclusive privilege in potable liquor, falls outside. The Court traced that characterisation through Balsara, Har Shankar and Sheopat Rai. If it applies to you, the first step is this: Ask first whether the sum is within section 43B(a) at all: is it a compulsory exaction authorised by law, or the price of a privilege or a contractual consideration? The name given to it does not decide.
The batch arose from decisions of a Division Bench of the Rajasthan High Court at Jodhpur covering assessment years 1988-89 to 1995-96. In the lead appeal, for assessment year 1988-89, the assessee had not paid bottling fee chargeable under the Rajasthan Excise Act, 1950 and Rule 69 of the Rajasthan Excise Rules, 1962, together with interest of Rs.40,000 for late payment, but had furnished a bank guarantee for the amount. The Assessing Officer and the Commissioner (Appeals) held section 43B barred the deduction. The Tribunal decided for the assessee. Before the High Court the assessee argued both that the bank guarantee answered section 43B and that bottling fee was not tax, duty, cess or fee within it. The High Court held that furnishing a bank guarantee is not the same as payment, but that bottling fee is not covered by section 43B, and so dismissed the Revenue's appeal. The Revenue came to the Supreme Court. The connected appeals raised the same section 43B question for other years along with three further issues: depreciation on research and development assets said to belong to a closed fast food division, whether the cost of a new transformer was capital expenditure while the old transformer remained in the block of assets, and technical service charges paid under a fresh agreement of April 1992 at a higher rate than the December 1990 agreement. The matter was decided on 2009-05-08 by the Supreme Court (Supreme Court of India - Arijit Pasayat and Mukundakam Sharma, JJ. (judgments per Arijit Pasayat, J.)). On those facts the Supreme Court held as follows. The appeal in the lead matter was dismissed. Furnishing a bank guarantee is not actual payment for section 43B; the section requires actual and not deemed payment, and money must move from the assessee to the public exchequer. But bottling fee, payable under the Excise Act and Rule 69 as consideration for acquiring the exclusive privilege of bottling Indian made foreign liquor, is neither a fee nor a tax; it is the consideration for the grant of the Government's approval under a contract. The High Court was right to hold that the amount does not fall within section 43B, and that answer governed the other years. On the other questions, the transformer issue was remitted to the Assessing Officer to be examined on the facts in the light of Saravana Spinning Mills and Ramaraju Surgical Cotton Mills; the claim to depreciation on the research and development machinery was remitted for a finding whether it was used for the liquor unit as well as the closed fast food unit; and the disallowance of technical service charges was not restored, the Tribunal and High Court having found as a fact that the fresh agreement was not a device but was entered into on commercial considerations.
On the first limb the Court read section 43B as it stood from 1 April 1989, which allows the specified deductions only in the previous year in which the sum is actually paid, with a proviso saving payment before the section 139(1) due date supported by evidence filed with the return. Actual payment means what it says, and a bank guarantee is only a guarantee of payment on some future happening. On the second limb the Court applied the ejusdem generis rule. Tax, duty, cess and fee are an enumeration of specific words forming a class not exhausted by the enumeration, followed by the general words by whatever name called; those general words are therefore confined to the same genus. That genus is taxation - a compulsory exaction in exercise of the State's sovereign power, levied and collected under authority of law as Article 265 requires, taxation being defined in Article 366(28) to include any impost. A liability founded on contract is not a tax in that sense. The Court then applied the settled characterisation of State excise levies, beginning with State of Bombay v. F.N. Balsara and reaffirmed in Har Shankar and State of U.P. v. Sheopat Rai: there is no fundamental right to trade in intoxicants, the State may prohibit every form of dealing in them, and what it charges a licensee is the price for parting with its exclusive privilege, so the word fee in excise law is not used in its technical sense. Since section 43B turns on a sum payable by way of tax, duty, cess or fee, it was for the revenue authorities to ascertain whether the sum answered that description, and bottling fee did not. In the words reproduced by the source cited on this page: "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."
It was decided by the Supreme Court on 2009-05-08 and is reported as AIRONLINE 2009 SC 278; (2009) 8 SCALE 272. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 43B, section 139(1), section 37(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal in the lead matter was dismissed. Furnishing a bank guarantee is not actual payment for section 43B; the section requires actual and not deemed payment, and money must move from the assessee to the public exchequer. But bottling fee, payable under the Excise Act and Rule 69 as consideration for acquiring the exclusive privilege of bottling Indian made foreign liquor, is neither a fee nor a tax; it is the consideration for the grant of the Government's approval under a contract. The High Court was right to hold that the amount does not fall within section 43B, and that answer governed the other years. On the other questions, the transformer issue was remitted to the Assessing Officer to be examined on the facts in the light of Saravana Spinning Mills and Ramaraju Surgical Cotton Mills; the claim to depreciation on the research and development machinery was remitted for a finding whether it was used for the liquor unit as well as the closed fast food unit; and the disallowance of technical service charges was not restored, the Tribunal and High Court having found as a fact that the fresh agreement was not a device but was entered into on commercial considerations. It arises in Deductions & Disallowances matters, on section 43B, section 139(1), section 37(1) of the Income Tax Act 1961, and was decided by Supreme Court of India - Arijit Pasayat and Mukundakam Sharma, JJ. (judgments per Arijit Pasayat, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the sum is a State excise licence fee, fixed fee or bottling fee, plead the exclusive privilege line of cases and put the governing rules on record. Do not offer a bank guarantee expecting it to preserve the deduction; if section 43B applies, pay before the section 139(1) due date and file the evidence with the return. Where a claim is really under section 37(1) rather than a specific section, say so and lead facts on the nature of the expenditure - the Court remitted the transformer question because neither the Tribunal nor the High Court had examined the facts. On depreciation for assets of a closed division, be ready to prove actual use in a surviving business; the claim was remitted for exactly that examination.
Still good law. The harvested page carries the full text of five separate judgments delivered the same day in this batch, each read to its operative order. Both holdings are stated in terms and rest on settled constitutional characterisation of State excise levies. I have not checked for any later decision considering them, and the second holding depends on the particular character of the levy in the State law concerned, so it should not be applied to a differently framed levy without examining that law. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line's citation list mixes in references that appear garbled or unrelated, including a criminal law journal citation; only the two that appear sound are given. The judgment attributes the observation that the crucial expression in section 43B is 'by way of' to Ahmedabad Urban Development Authority v. Sharad Kumar Jayantgi Kumar Pasawalla, which is a case on the power to levy fees, and the connection is not explained in the text. Three of the issues in the batch - the transformer, the research and development depreciation and, in one appeal, landscaping expenses - were remitted or had already become final, so nothing here settles them. The Rajasthan High Court judgments under appeal were not read. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal in the lead matter was dismissed. Furnishing a bank guarantee is not actual payment for section 43B; the section requires actual and not deemed payment, and money must move from the assessee to the public exchequer. But bottling fee, payable under the Excise Act and Rule 69 as consideration for acquiring the exclusive privilege of bottling Indian made foreign liquor, is neither a fee nor a tax; it is the consideration for the grant of the Government's approval under a contract. The High Court was right to hold that the amount does not fall within section 43B, and that answer governed the other years. On the other questions, the transformer issue was remitted to the Assessing Officer to be examined on the facts in the light of Saravana Spinning Mills and Ramaraju Surgical Cotton Mills; the claim to depreciation on the research and development machinery was remitted for a finding whether it was used for the liquor unit as well as the closed fast food unit; and the disallowance of technical service charges was not restored, the Tribunal and High Court having found as a fact that the fresh agreement was not a device but was entered into on commercial considerations.
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