TaxTMI 
TaxTMI 
2019 (5) TMI 1207
X X X X Extracts X X X X
X X X X Extracts X X X X
....inst the Assessee that the "nomination charges" paid by it to the State Government at the rate of 10% of the turnover of granite blocks was liable to be disallowed as an expenditure on account of Section 43B of the Act, since the said payment 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 Rs. 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 Rs. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oted below for ready reference: ABSTRACT Tamil Nadu Minerals Limited (TAMIN) - Special levy of "Nomination Charges" for the lands/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 pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt" as required under Section 43B of the Act as the tax, duty, cess or fee constituting a class of various imposts by the State, covered by the ambit and scope of Section 43B of the Act. He drew our attention to Paragraphs-10, 15, 16 and 17 of the said judgment of the Hon'ble Supreme Court, which are quoted below for ready reference: "10.It would be pertinent to note that the expression now 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 payab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uoted below, were brought in, to ensure the timely payment of the Government statutory dues in the form of tax, duty, cess or fee by whatever name called, under any law for the time being in force and the delay in payment thereof results in disallowance of such payment in the hands of the Assessee. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, 1959, will not be a statutory payment, but only a contractual payment and therefore, it will not fall within the mischief of four components covered by Section 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar to have been inadvertently or erroneously omitted while typing the text of judgment. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....timate deduction in respect 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 section 43B(a). Therefore, section 43B(a), the fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an 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 8-C(7) of the Rules for which the State issued Government Orders from time to time and therefore, such payments ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oposed to impose and then imposed a levy on three sugar mills by way of collecting of vend fee of Rs. 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' contained in Section 43B(a), it would be a 'fee' by 'whatever name called', that is even if the vend fee is called 'privilege' as has been held by the High ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax, 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.There is no dispute that the Assessee is a Government of Tamil Nadu Undertaking and is fully owned by the State Government itself. Equally, there is no dispute about the existence of Lease Deed for the Granite Quarry between the State Government and the present Assessee-TAMIN. A co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. While the tax is a compulsory levy by the State Government going to the General Revenue of the State, the Duty is an indirect tax, the incidence of which could be passed on to the customers. Cess is a tax for specific purpose, while fees envisages a quid pro quo. Such revenue in the form of fees has to be spent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected, forms part of the public revenues of the State. As the object of the tax is not to confirm any special benefit upon any particular individual there is, as it is said, no element of "quid pro quo" between the tax-payer and the public authority. (See Findlay Shirras on Science of Public Finance, Vol. 1).....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 23.3.Taxation includes every charge or burden imposed by the sovereign power upon persons, property or property right, for the use and support of the Government and to enable it to discharge its appropriate functions and in that broad definition there is included a proportionate levy upon persons or property and various other methods or devices by which revenue is extracted from persons and property. The term "tax" is to be read in all-embracing and sweeping sense. Such methods or device used by the Government from time to time are not ordinarily open to serious questions b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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) Regulations, 2017(India)]. 26.Levy and Fee 26.1.A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual services rendered by the authority to each individual who obtains the benefit of the service. If with a view to provide a specific service, levy is imposed by law and expenses for maintaining the service are met out of the amounts collected there being a reasonable relation between the levy and the expenses incurred for rendering the service, the levy would be in the nature of a fee and not in the nature of a tax. It is true that ordinarily a fee is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded 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 footings; whereas the element of tax is based on the principle of compulsory exaction, the concept of fee relates to the principle of quid pro quo. The validity of tax cannot, therefore, be upheld on the ground that the same would be a fee, State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201. 28.LEVY 28.1.Means to realise or to collect. Only necessary condition is that the proceedings for realisation of the fine must be commenced within the stipulated period, Mehtab Singh v. State of U.P., (1979) 4 SCC 597: 1980 SCC (Cri) 142. 28.2.Includes proceedings for assessment, Ashok Singh v. CED, (1992) 3 SCC 169. 28.3.Levy includes not only the imposition of the charge but also the whole process up to raising of the demand, Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536. 28.4.The term "le....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 (India)]. 32.2.A tax, an impost or imposition; also an obligation. [Wharton's Law Lexicon.] 32.3.Duty, direct taxes and indirect taxes - The word "duty" means an indirect tax imposed on the importation or consumption of goods. "Customs" are duties charged upon commodities on their being imported into or exported from a country. The expression direct taxes includes those assessed upon the property, person, business, income, etc., of those who are to pay them, while indirect taxes are levied upon commodities before they reach the consumer and are paid by those upon whom they ultimately fall, not as taxes, but as part of the market price of the commodity, Union of India v. Nitdip Textile Processors (P) Ltd., (2012) 1 SCC 226. 33.ROYALTY 33.1.It is 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, State of Orissa v. Titaghur Paper Mills Co. Ltd., 1985 Supp SCC 280. 33.2."Royalty" according to Jowitts' Dictionary of English Law m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with certain other terms and conditions which may be imposed, Entertainment Network (India) Ltd. v. Super Cassette Industries Ltd., (2008) 13 SCC 30. 35.Royalty and Dead rent - In State of Orissa v. Titaghur Paper Mills Co. Ltd., 1985 Supp SCC 280: 1985 SCC (Tax) 538, it was, inter alia, observed as follows: "102. ... 'Royalty' is not a term used in legal parlance for the price of goods sold. 'Royalty' is defined in Jowitt's Dictionary of English Law, 5th Edn., Vol. 2, as follows: 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. Royalty also means a payment which is made to an author or composer by a publisher in respect of each copy of his work which is sold or to an inventor in respect of each article sold under the patent. "Royalty" is not a tax. Simply because the royalty is levied by reference to the quantity of the minerals produced and the impugned cess too is quantified by taking into consideration the same quantity of the miner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5. Dead rent. - It is usual in mining leases to reserve both a fixed annual rent (otherwise known as a 'dead rent', 'minimum rent' or 'certain rent') and royalties varying with the amount of minerals worked. The object of the fixed rent is to ensure that the lessee will work the mine; but it is sometimes ineffective for that purpose. Another function of the fixed rent is to ensure a definite minimum income to the lessor in respect of the demise, State of H.P. v. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499. 36.The purpose of Section 43B of the Act was to ensure that the Assessee does not delay the payment of these Government dues or statutory levies or imposts beyond the previous year itself, as in Section 43B originally enacted. The Proviso was later on brought by the Finance Act, 1987 with effect from 01.04.1988 to reduce the said rigor that if such payment of tax, duty, cess or fee was made before the due date of filing of the Return by the Assessee under Section 139 of the Act, the said accrued liabilities of Government dues in the form of tax, duty, cess or fee will also be allowed as deduction in that very previous year, even though payment was made after the expiry of pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ules, does not take it out from the four corners of Lease Deed which is a non-statutory contract between the parties. A mere reference of the statute, ie., Rule 8-C(7) of the Tamil Nadu Minor Mineral Concession Rules, 1959, does not make it a statutory levy, in the realm of 'tax, duty, cess or fees'. 41.In our opinion, the application of Section 43B depends upon the character of the levy being either statutory or contractual (nonstatutory). Once the levy in the present case in the form of 'nomination charges' depending upon the quantum of land and the commercial exploitation of the minerals by the Assessee is held to be non-statutory contractual payment, then Section 43B of the Act will not cover the case in hand and therefore, the Assessee was entitled to deduction of such 'nomination charges' paid by the Assessee to the State Government on 09.12.2007 even in the present Assessment Year 2004-05 on the basis of accrual of liability to pay the same arising for this relevant previous year only. 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....