A division bench of the Orissa High Court has held that deposit of amount in ‘no-lien/escrow account’ will not constitute ‘actual payment’ under Section 43-B of the Income Tax Act, 1961.
The bench comprising of Chief Justice Dr. S. Muralidhar and Justice R.K. Pattanaik was considering an appeal by M/s. Indian Metal and Ferro Alloys Ltd wherein the assessee-company challenged the decision of the department.
The Assessee paid electricity duty to the Government of Odisha at the rate of 6 paise per unit. This was enhanced to 20 paise per unit by the Government and demand was raised on that basis. The Assessee challenged the hike in the rate of the electricity duty and the consequent demand. By an interim order passed in the said writ petition, the High Court directed the Assessee to continue to pay electricity duty at the rate of 6 paise per unit to the Government and to deposit the differential duty of 14 paise per unit in a separate ‘no-lien’ account till the disposal of the case.
The Assessing Officer disallowed the payment of electricity duty in the sum of Rs. 6,29,11,949/- by holding that in terms of Section 43-B of the Act, the deposit of a sum in a no-lien account cannot be regarded as actual payment of electricity duty. Aggrieved by the decision of the AO, the Assessee appealed to the Commissioner of Income Tax (Appeals) [(CIT(A)] who confirmed the order of the AO. The Assessee then went in further appeal to the Income Tax Appellate Tribunal, which concurred with the AO as well as the CIT(A).
While denying relief to the appellant, a Division Bench of Chief Justice Dr. S. Muralidhar and Justice R.K. Pattanaik observed, “A payment envisages a payer and a payee. If only one part is fulfilled viz., the payer has made the payment, but the payee has not received it, then it cannot be said that the sum has been ‘actually’ paid. While the Assessee as payer may have parted with the amount, it has not totally lost control over it. The payment has been made conditional and it has been ensured that if the Assessee ultimately succeeds in the litigation, the amount will not be actually paid to the State Government.”
The Court observed that the objective of Section 43B of the Act was to ensure that liability could be claimed as deduction only if the Assessee has actually parted with the sum without any recourse to it thereafter. In the present case, the interim stay granted in favour of the Assessee was only to ensure that the disputed amount of electricity duty did not go to the State Government. Thus, the Court held, short of such ‘actual’ payment, the Assessee was permitted, first by the High Court and then by the Supreme Court, to deposit the disputed amount of duty in a ‘no-lien’/escrow account. The very nature of the stay was to prevent the State Government from having access to the amount placed in such no-lien/escrow account. Therefore, while it may be correct to say that the Assessee ‘paid’ the amount in dispute, it paid it only into an account from which the State Government could not withdraw the amount.
M/s Indian Metal and Ferro Alloys Ltd vs Commissioner of Income Tax, Bhubaneshwar
CITATION: 2022 TAXSCAN (HC) 104Subscribe Taxscan Premium to view the Judgment
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