TMI Blog2019 (5) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. The view that it is a contractual payment is further fortified by the enabling powers as provided under Clause-2 of the Annexure to the Lease Deed in question and the State Government was at liberty to fix the nomination charges or not to impose the same altogether. Therefore the said prescription of nomination charges cannot be held to be a compulsorily impost falling within the four corners of Section 43B. The State Government not only has the power to impose the same but also to waive, reduce or modify the same as well, depending upon the quantum of commercial exploitation and other relevant circumstances. It could also be treated as 'Royalty' payable by the Assessee TAMIN, to the State for parting with its exclusive rights by giving Leasehold right to the Assessee. Royalty is not a tax, is a settled legal position by the Constitution Bench decision. The statutory levy in general, will apply to all subjects uniformly and not to a specific Assessee or a person. In the present case, therefore, the levy in question in the name of 'nomination charges' emanates only from the contract of Lease between the parties, a privately contracted levy. Even with refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment was not made within the time allowed for filing of Return of income for the Assessment Year 2004-2005, ie., 30.11.2004, but was paid to the State Government with a delay of 9 days on 09.12.2004, and thus the amount of ₹ 11.54 Crores which was paid as 'nomination charges' by the present Assessee to the State Government, was disallowed as an expenditure in the computation of income in the present Assessment Year 2004-2005 and the tax thereon was imposed by the Assessing Authority to the extent of about ₹ 5 Crores for the year in question. 2.The questions of law on which the present appeal was admitted on 11.11.2008 are as follows: 1.Whether on the facts and in the circumstances of the case, the appellate Tribunal was right in holding that the nomination charges , being special levy imposed by the Government for allotment of land for quarrying of granite on nomination basis, can be equated with the terms tax, duty, cess or fee appearing in Section 43B(a), and the same had to be disallowed u/s.43B, when not paid within the due date for filing the return of Income? 2.Whether on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/Mines leased to Tamil Nadu Minerals Limited - Orders - Issued. _________________________________________________ INDUSTRIES (MME-2) DEPARTMENT G.O.(D)NO.232 DATED : 23.08.2002 --- ORDER: Under Rule 8A of Tamil Nadu Minor Mineral Concession Rules, 1959, the Government grant lease in respect of granite quarries in Government lands to private persons who offer highest amount through Tender-cum-auction process and the lease amount shall be paid by the lessee besides Dead Rent, Seigniorage fee etc. as per the provisions contained in the said Rules. However , in respect of Tamil Nadu Minerals limited (TAMIN), a Government of Tamil Nadu Undertaking, the Government grant granite quarry lease to TAMIN under Rule 8C of Tamil Nadu Minor Mineral Concession Rules, 1959 on nomination basis and not through tender-cum-auction process . Since granite quarry leases on Government lands are granted to TAMIN on nomination basis, TAMIN pays only Dead Rent, Seigniorage fee etc., and not paying any lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in s.43B(i)(a) is tax, duty, cess or fee, 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. ..... ..... ..... ..... 15.The well known and well settled characteristic of 'tax' in its wider sense includes all imposts. Imposts in the context have following characteristics: (i) The power to tax is an incident of sovereignty. (ii) 'Law' in the context of Art.265 means an Act of legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. He further submitted that the Proviso to Section 43B of the Act was later on inserted by the Finance Act, 1987, with effect from 01.04.1988 to somewhat relax the rigor of the said provisions of Section 43B of the Act and permitted such allowance, if such payment of tax, duty, cess or fee if not made before the end of previous year but was made before the due date of filing of the Return by the Assessee under Section 139 of the Act, the same would be allowed as a deduction. Section 43B of the Act, is quoted below for ready reference: Certain deductions to be only on actual payment. 43B. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 43B of the Act, viz. tax, duty, cess or fees. He further urged that the words 'by whatever name called' employed in Section 43B of the Act will also refer back to these four components only, which are compulsory imposts imposed by the State Government in exercise of its sovereign powers to tax only and not the other contractual payments like by 'nomination charges' as in the present case, which could not be covered by Section 43B of the Act. He also relied upon the following position of law in Paragraph-11 of the said judgment: 11.A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied . The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is clear from reading the judgment in its entirety. Vide paras. 22 and 31, which precede para. 34 above said, their Lordships have held that royalty is not a tax. Even the last line of para. 34 records royalty on mineral rights is not a tax on land but a payment for the user of land . The very first sentence of the paragraph records in quick succession ... as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature ... What their Lordships have intended to record is ... that cess on royalty is a tax, and as such a cess on royalty being a tax on royalty is beyond the competence of the State Legislature... That makes correct and sensible reading. A doubtful expression occurring in a judgment, apparently by mistake or inadvertence, ought to be read by assuming that the court had intended to say only that which is correct according to the settled position of law, and the apparent error should be ignored, far from making any capital out of it, giving way to the correct expression which ought to be implied or necessarily read in the context, also having regard to what has been said a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax paid by them. This was not intended by section 43B. Hence, the first proviso was inserted in section 43B. The amendment which was made by the Finance Act of 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Looking to the curative nature of the amendment made by the Finance Act of 1987, it has been submitted before us that the proviso which is inserted by the amending Finance Act of 1987, should be given retrospective effect and be read as forming a part of section 43B from its inception. This submission has taken support from decisions of a number of High Courts before whom this question came up for consideration. The High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhra Pradesh, Patna and Kerala appear to have taken the view that the proviso must be given retrospective effect. Some of these High Courts have held that sum payable under section 43B(a) refers only to the sum payable in the same accounting year, thus excludin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from April 1, 1984. While interpreting section 43B without the first proviso, some of the High Courts, in order to prevent undue hardship to the assessee, had taken the view that section 43B would not be attracted unless the sum payable by the assessee by way of tax, duty, cess or fee was payable in the same accounting year. If the tax was payable in the next accounting year, section 43B would not be attracted. This was done in order to prevent any undue hardship to assessees such as the ones before us. The memorandum of reasons takes note of the combined effect of section 43B and the first proviso inserted by the Finance Act, 1987. After referring to the fact that the first proviso now removes the hardship caused to such taxpayers, it explains the insertion of Explanation 2 as being for the purpose of removing any ambiguity about the term any sum payable under clause (a) of section 43B. This Explanation is made retrospective. The Memorandum seems to proceed on the basis that section 43B read with the proviso takes care of the hardship situation and hence Explanation 2 can be inserted with retrospective effect to make clear the ambit of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f inserting an Explanation, it has been clarified that the words any sum payable , shall mean any sum, liability for which has been incurred by the taxpayer during the previous year irrespective of the date by which such sum is statutorily payable . . . The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions. 11.On the other hand, Mr.M.Swaminathan, learned counsel appearing for the Revenue, made the following submissions. He urged that the payment in question of 'nomination charges' is nothing but a statutory payment under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the document on which Shri C.N. Sreekumar has placed reliance, namely, a Government of Kerala order dated 28.04.1988, what becomes clear is that the Government proposed to impose and then imposed a levy on three sugar mills by way of collecting of vend fee of ₹ 0.50 paisa per bulk litre of arrack sold by them which would go into a fund which would then be used for the repair/replacement of old machinery and equipment in these three mills . This document shows that the vend fee collected from the three mills is, in fact, a fee in the classic sense of the term as used in 'Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt' 1954 SCR 1005. It is clear, on a reading of this document, that the State compulsorily takes from the three mills, a vend fee for the purpose of conferring a special benefit on the said three mills, viz., the repair and replacement of existing machinery and equipment. 10.On facts in the present case, it is clear that the amendment made to Section 43B is attracted. Even if the vend fee that is paid by the respondent to the State does not directly fall within the expression 'fee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court. 16.Similarly, the decision of the Madhya Pradesh High Court in the case of Commissioner of Income Tax v. Gorelal Dubey, (1998) 232 ITR 246, wherein royalty paid by the Assessee was treated as tax, is also impliedly overruled now. 17.Learned counsel for the Revenue also drew our attention to the Circular issued by the Central Board of Direct Taxes in Circular No.674 dated 29.12.1993, in which the Board held that the sales tax payment under the Deferral scheme notified by the State Government would meet the requirements of 'actual payment' within the meaning of Section 43B of the Act. It was also notified that the amount of sales tax liability converted into loans may be allowed as deduction in the assessment for the previous year in which such conversion has been notified by or under Government Orders. He, therefore, submitted that since the payment in question was under the Government Order, Section 43B of the Act would stand attracted in the present case also. 18.We have heard the learned counsels at length and perused the materials on record including the case laws cited. 19.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Trading of Liquor, over the Minor Minerals, viz. Granite, in the present case. But for the leasehold conferred by the State Government in favour of the present Assessee TAMIN, the Assessee would not have any right to exploit the minerals / granites in the present case. The lease right is the only right conferred by the State Government upon the Assessee under the Rules. The exception made for the Government Undertakings under Rule 8-C(7) of the said Rules, is that the Government Undertaking do not have to undergo the process of bidding in open auctions for taking such leases of Quarries from the State Government and therefore they form a Special Class. Rule 8-C has been separately carved out under these Rules, to provide for Dead rent and Seigniorage fee. Sub-Rule(7) of Rule 8-C provides for 'other levies' also as may be prescribed from time to time. Merely because the said levy is prescribed by the Government Orders issued by the State Government, it does not bear the character of a statutory levy much less as a tax, duty, cess or fees, the four components covered by Section 43B of the Act and all these four imposts have a definite and defined connotations in law. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.) indicates, Shinde Bros. v. Commr., AIR 1967 SC 1512: (1967) 1 SCR 548. 21.5. Means the goods and services tax compensation cess levied under Section 8 of Goods and Services Tax (Compensation to States) Act, 2017, [Section 2(1)(c), Goods and Services Tax (Compensation to States) Act, 2017 (India)] . 22. TAX 22.1. A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered . This definition brings out the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the tax-payer's consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect or indirect. A direct tax is one that is demanded from the very persons who are intended or desired to pay it. Indirect taxes are those which are demanded from one person, in the expectation and intention that he shall indemnify himself at the expense of another, such as the excise or customs. [Wharton s Law Lexicon.] 23. Tax and Fee 23.1.The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. Fees confer a special capacity, although the special advantage, as for example in the case of registration fees for documents or marriage licences, is secondary to the primary motive of regulation in the public interest, (vide Findlay Shirras on Science of Public Finance , Vol. I). Commr., Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282: 1954 SCR 1005: 20 Cut LT 250. 23.2.A fee is generally defined to be a charge for a special service rendered to individuals by some governmental agency, State of Gujarat v. Akhil Gujarat Pravasi V.S. Mahamandal, (2004) 5 SCC 155. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282: 1954 SCR 1005: (1954) 1 MLJ 596: 20 Cut LT 250. 25.2.Property peculiar; reward or recompense for services. Also an estate of inheritance divided into three species: ( 1 ) fee-simple absolute; ( 2 ) qualified or base fee; ( 3 ) fee-tail, formerly feeconditional.[ Wharton s Law Lexicon.] 25.3.Fees are a sort of return or consideration for services rendered, which makes it necessary that there should be an element of quid pro quo in the imposition of a fee. There has to be a corelationship between the fee levied by an authority and the services rendered by it to the person who is required to pay the fee, Govt. of A.P. v. Hindustan Machine Tools Ltd., (1975) 2 SCC 274. 25.4.Perquisites allowed to officers in the administration of justice, as a recompense for their labour and trouble, ascertained either by Acts of Parliament, by rule or order of Court or by ancient usage.[Wharton s Law Lexicon.] 25.5.Means the charges specified by the food authority for clearance of imported food consignments, [Regulation 2(j), Food Safety and Standards (Import) Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public purposes and is not and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. There is, however, an element of compulsion in the imposition of both tax and fee, Hingir-Rampur Coal Co. Ltd. v. State of Orissa, AIR 1961 SC 459, 464: (1961) 2 SCR 537. 27.2.Conceptually fee and tax stand on different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable event takes place and the facility of postponement of collection of duty under the Act or the rules framed thereunder, can in no way affect the incidence of duty on the imported goods, S.K. Pattanaik v. State of Orissa, (2000) 1 SCC 413. 31. Levy, Imposition and Assessment - The term levy appears to be wider in its import than the term assessment . It may include both imposition of a tax as well as assessment. The term imposition is generally used for the levy of a tax or duty by legislative provisions indicating the subject-matter of the tax and the rates at which it has to be taxed. The term assessment , on the other hand, is generally used in this country for the actual procedure adopted in fixing the liability to pay a tax on account of particular goods or property or whatever may be the object of the tax in a particular case and determining its amount, Asstt. Collector of Central Excise, CCE v. National Tobacco Co. of India Ltd., (1972) 2 SCC 560: AIR 1972 SC 2563: (1973) 1 SCR 822: 1973 Tax LR 1607. 32. DUTY 32.1.Means a duty of customs leviable under the Act, [Section 2(15), Customs Act, 1962 (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Law Lexicon.] 33.6.In its primary and natural sense royalty , in the legal world, is known as the equivalent or translation of jura regalia or jura regia. Royal rights and prerogatives of a sovereign are covered thereunder. In its secondary sense the word royalty would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained, Inderjeet Singh Sial v. Karam Chand Thapar, (1995) 6 SCC 166. 34. Royalty and compensation - Royalty means remuneration paid to an author in respect of the exploitation of a work, usually referring to payment on a continuing basis (e.g. 10% of the sale price) rather than a payment consisting of a lump sum in consideration of acquisition of rights. It may also be applied to payment to performers. In the context of the Act, royalty is a genus and compensation is a species. Where a licence has to be granted, it has to be for a period. A compensation may be paid by way of annuity. A compensation may be payable on a periodical basis, as apart from compensation, other terms and conditions can also be imposed. The compensation must be dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso a royalty or galeage rent, consisting of royalties (q.v.) varying with the quantity of minerals, bricks, etc., produced during each year. In this case the fixed rent is called a dead rent. Royalty is defined in Jowitt's Dictionary of English Law, 2nd Edn., at p. 1595, inter alia, as: Royalty , a payment reserved by the grantor of a patent, lease of a mine or similar right and payable proportionately to the use made of the right by the grantee. It is usually a payment of money, but may be a payment in kind, that is, of part of the produce of the exercise of the right. See Rent. Royalty is defined in Wharton's Law Lexicon , 14th Edn., at p. 893, as: Royalty, payment to a patentee by agreement on every article made according to his patent; or to an author by a publisher on every copy of his book sold; or to the owner of minerals for the right of working the same on every ton or other weight raised. In H.R.S. Murthy v. Collector , AIR 1965 SC 177: (1964) 6 SCR 666, this Court said that royalty normally connotes the payment made for the materials or minerals won from the land. In Halsbury's Laws of England, 4th Edn. in the volume which deals with Mines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year when he gets such deduction upon actual payment to present previous year. Even a bona fide Assessee, who may not have sufficient cash or fund flow available to pay such Government dues immediately also suffers a double whammy and a heavier income tax liability on account of such disallowance under Section 43B of the Act. 39.Therefore, such penal provision requires a literal and not liberal interpretation of its operative field and only the specified four imposts namely, tax, duty, cess or fees, have to be timely paid. It cannot be extended to special levies or contractual levies by an extended interpretation. The exercise of sovereign power to tax behind the levy in question is necessary as held by the Hon'ble Supreme Court in the case of CIT v. McDowell Co.Ltd. (supra), which is not available in the present case of nomination charges. 40.In the present case, we find that the 'nomination charges' specified and prescribed by the State Government through various Government Orders, are none of these four imposts specified in Section 43B. It is simply a contractual payment of lease rental specified by the State Government being the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reased to 10% of turnover which was further increased to 15% of turnover. 43.The statutory levy in general, will apply to all subjects uniformly and not to a specific Assessee or a person. In the present case, therefore, the levy in question in the name of 'nomination charges' emanates only from the contract of Lease between the parties, a privately contracted levy. Even with reference to the statutory rule, it does not, in our considered opinion, fall within the mischief or the specified zone of Section 43B of the Act. It is neither tax nor a cess nor a duty nor a fee. Therefore, Section 43B of the Act does not stand attracted in the present case at all. 44.Once we come to the conclusion that Section 43B of the Act does not apply to the present payment, the question of applying the rigor of payment within the time schedule will not decide the allowability or otherwise of the said payment under Section 43B of the Act, which would then depend upon the method of accounting followed by the Assessee and if the Assessee has made a provision for this payment in its Books of Account and has claimed it as accrued liability in the Assessment Year 2004-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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