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2021 (2) TMI 1271 - AT - Income TaxAddition u/s 40A(3) - payments in question made by the assessee to Government undertakings - payment of legal tender - Whether the cash payments made by the assessee towards purchase of wine to the aforementioned undertakings of the Government, viz. (i) M/s Rajasthan State Ganganagar Sugar Mills Ltd; and (ii) M/s Rajasthan State Beverages Corporation Ltd., which as per him were to be considered as an arm of the State Government that had received the payment in legal tender, i.e., in Indian currency, would by virtue of the exception carved out in Rule 6DD(b) of the Income Tax Rules, 1962 be saved from the disallowance contemplated in Sec. 40A(3)? - HELD THAT:- Referring to tests laid down by the Hon’ble Apex Court in the case of Som Prakash Rekhi [1980 (11) TMI 113 - SUPREME COURT] we are of the considered view, that as both of the aforesaid undertakings, viz. (i) M/s Rajasthan State Ganganagar Sugar Mills Ltd; and (ii) M/s Rajasthan State Beverages Corporation Ltd., are State Government Companies wherein 100% share holding is held by the State Government; there is an existence of deep and pervasive control of the State Government on the said undertakings, and the full control of their working, policy and framework is vested with the State Government, therefore, they can safely be brought within the meaning of “State”. As regards the requirements contemplated in Rule 6DD(b) that the payment is required to be made in legal tender, we find that the term “legal tender” has not been defined in the Income-Tax Act. The dictionary meaning of “legal tender” as mentioned in “Aiyer’s Law Terms and Phrases”, is “the coinage of a country in which debts may be paid and which the creditor is bound to accept”. The dictionary meaning of the coin is; “metal used for the time being as money and stamped and issued by the authorities of the state in order to be used.” Therefore, it can be said that “legal tender” means the currency of a state which is to be used as money. Backed up our aforesaid observations, we are of the considered view, that as in the case of the assessee before us the payments in question to the aforementioned State Government undertakings have been made by the assessee in Indian currency, therefore, it can safely, or in fact inescapably be concluded that the same have been made in legal tender. Thus the payments made by the assessee to the aforementioned Government undertakings , which could safely be held as a part of the Government would fall within the realm of the exception carved out in Clause (b) of Rule 6DD of the Income- Tax Rues, 1962, qua, the applicability of the provisions of Sec. 40A(3) of the Act - Payments in question made by the assessee to the State Government entities in legal tender were covered by the exception contemplated in Rule 6DD(b) of the Income Tax Rules, 1962, therefore, the same could not have been disallowed u/s 40A(3) of the Act, uphold his order. - Decided in favour of assessee.
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