Tribunal rules interest payments to Government not disallowable under sec 43B

The Tribunal ruled in favor of the appellant, holding that interest payments made to the Government of Tamil Nadu are not subject to disallowance under section 43B. The Commissioner's decision on the crystallization of the liability was upheld, but the Tribunal rejected the application of section 43B to payments to the government. The matter was remanded for verification, with instructions to allow the interest if paid to the government. The appeal was partly allowed for statistical purposes.

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Issues:
1. Disallowance of interest paid to Government of Tamil Nadu under section 43B.
2. Disallowance of another interest amount paid to Government of Tamil Nadu under section 43B.

Issue 1: Disallowance of interest paid to Government of Tamil Nadu under section 43B:
The appellant contested the disallowance of Rs. 5,09,22,000 under section 43B as interest paid to the Government of Tamil Nadu, claiming exemption as a government company. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the liability crystallized when the interest was paid during the financial year 2007-08, relevant to the assessment year 2008-09. The Commissioner observed that the interest payments were governed by section 43B as they were payable to public financial institutions or governmental bodies. However, the appellant argued that the interest paid to the Government of Tamil Nadu was not subject to section 43B. The Tribunal agreed, noting that payments to the government are not covered by section 43B. While the Commissioner's conclusion on the crystallization of the liability was accepted, the applicability of section 43B to payments to the Government of Tamil Nadu was rejected.

Issue 2: Disallowance of another interest amount paid to Government of Tamil Nadu under section 43B:
The appellant also challenged the disallowance of Rs. 2,08,64,000 under section 43B as interest paid to the Government of Tamil Nadu. The Assessing Officer disallowed this amount, considering it a provision for payment and subject to section 43B. The Commissioner directed a verification of whether the amount was paid before the due date for filing the return. The appellant argued that since Rs. 183.90 lakhs of this interest was paid to the Government of Tamil Nadu, section 43B did not apply. The Tribunal concurred, emphasizing that payments to the Government of Tamil Nadu are not covered by section 43B. The matter was remanded to the Assessing Officer for verification, with instructions to allow the interest if paid to the government. The appeal was partly allowed for statistical purposes.

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