Section 40A(3) cash payment exceptions applied to statutory excise deposits through the wholesale licensee's bank account.

Under the West Bengal excise payment mechanism for country spirit, retail vendors were required to deposit duty, cost price and related charges through the wholesale licensee's bank account in the manner prescribed by the State rules. On those facts, such payments were treated as made under a statutory framework requiring payment in the prescribed form and as payments to an agent acting for the payer. The result is that the amounts fell within the exceptions in rule 6DD(b) and rule 6DD(k) of the Income-tax Rules, 1962, so disallowance under section 40A(3) of the Income-tax Act, 1961 was not attracted.

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Issues: Whether cash payments made by a retail vendor of country spirit to the wholesale licensee, by direct deposit into the wholesaler's bank account under the State excise regime, attracted disallowance under section 40A(3) of the Income-tax Act, 1961.

Analysis: The payment mechanism was prescribed by the West Bengal Excise (Supply of Country Spirit on Payment of Duty) Rules, 2005, framed under the Bengal Excise Act, 1909, and required the retail vendor to pay the duty, cost price and other charges to the credit of the wholesale licensee. The wholesale licensee functioned under the statutory excise framework and the payments were made in the manner mandated by the State authorities. On those facts, the payment fell within the exception for payments made to the Government under rules requiring payment in legal tender and also within the exception for payment to an agent required to make cash payment on behalf of the payer.

Conclusion: The cash payments were covered by the exceptions in rule 6DD(b) and rule 6DD(k) of the Income-tax Rules, 1962, and no disallowance under section 40A(3) of the Income-tax Act, 1961 was permissible.

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