2003 (12) TMI 663 - HC - Income Tax

Court rejects appellant's contentions on payment classification. Adhesive labels cost, not fee. Appeal dismissed.

The Commissioner of Income tax, The Assistant Commissioner of Income-tax Versus M/s Distillers Co; Ltd.

The Court rejected all contentions raised by the appellant. It held that the payment towards the maturity period shortfall is an additional levy, ... - Issues Involved:1. Treatment of payment towards shortfall of maturity period under Section 37 of the Income-tax Act.2. Classification of the additional amount paid as fee or excise duty within the meaning of Section 43B(a) of the Income-tax Act.3. Classification of payment towards adhesive labels as fee or cost under sub-Rule (8) of Rule 15 of the Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987.Detailed Analysis:Issue 1: Treatment of payment towards shortfall of maturity period under Section 37 of the Income-tax ActThe appellant contended that the Tribunal erred in law by treating the payment made by the assessee towards the shortfall within the maturity period as an allowable deduction under Section 37 of the Income-tax Act. It was argued that this payment should be considered a penalty and thus not deductible as per the explanation given to Section 37. The respondent countered that this contention was not raised before the Tribunal and thus should not be allowed to be raised for the first time before the High Court under Section 260A of the Act.The Court, however, found no merit in the preliminary objection and held that if a substantial question of law is made out based on the records, it could be entertained by the High Court even if not raised before the Tribunal. The Court referred to the case of Ugar Sugar Works Ltd., where it was established that the payment towards the shortfall of the maturity period is an additional levy and not a penalty. The Court also cited the Supreme Court's decision in COMMISSIONER OF INCOME-TAX vs. AHMEDABAD COTTON MFG. CO. LTD., which emphasized the substance over the form of the transaction. Consequently, the Court rejected the appellant's contention, affirming that the payment is not a penalty but an additional levy and thus allowable as a deduction under Section 37.Issue 2: Classification of the additional amount paid as fee or excise duty within the meaning of Section 43B(a) of the Income-tax ActThe appellant argued that the additional amount paid towards the shortfall of maturity period should be treated as either a fee or excise duty under Section 43B(a) of the Act. The Court, however, found no merit in this submission. It clarified that the additional amount paid is neither a fee nor an excise duty but an additional levy, as established in the Ugar Sugar Works Ltd. case. The Court emphasized that fee payments involve quid pro quo or services rendered, which is not applicable in the case of the shortfall payment. Thus, the second contention was also rejected.Issue 3: Classification of payment towards adhesive labels as fee or cost under sub-Rule (8) of Rule 15 of the Karnataka Excise (Manufacture and Bottling of Arrack) Rules, 1987The appellant contended that the payment towards adhesive labels should be treated as a fee, despite sub-Rule (8) of Rule 15 stating it as the cost of labels. The Court rejected this submission, highlighting that the rule explicitly states the payment is towards the cost of labels. The rule mandates that every licensee must affix excise labels at their cost, and in the absence of labels, the Commissioner may allow the release of bottled arrack on payment of the cost of labels to the government. The Court concluded that the payment is indeed towards the cost of labels and not a fee, thereby rejecting the third contention.Conclusion:The Court found no merit in any of the contentions raised by the appellant. It held that the payment towards the shortfall of maturity period is an additional levy and not a penalty, thus deductible under Section 37. The additional amount paid cannot be classified as either a fee or excise duty under Section 43B(a). Lastly, the payment towards adhesive labels is indeed the cost of labels and not a fee. Consequently, the appeal was rejected with no order as to costs.