Law: Income Tax Act, 1961

Section: 43

Income-tax-----Business expenditure---Deduction only on actual payment---Royalty is a tax---Unpaid liability towards royalty payment is disallowable---Indian Income Tax Act, 1961, S.43B. The assessee claimed deduction of liability for payment of royalty. The Income-tax Officer disallowed it treating it as a levy to which section 43B of the Income Tax Act, 1961, was applicable. The Tribunal allowed the appeal of the assessee holding that royalty was a contractual payment for extraction of lime stone. On a reference: Held, that the royalty is a tax. Therefore, the Tribunal was not justified in holding that the provisions of section 43B were not applicable to the unpaid liability towards royalty payment. India Cement Ltd. v. State of Tamil Nadu (1991) 188 ITR 690; AIR 1990 SC 85 and State M. P. v. Mahalaxmi Fabric Mills Ltd. AIR 1995 SC 2213 fol., JUDGMENT This is an income-tax reference under section 256(1) of the Income Tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer by this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the provisions of section 43B of the Income-tax Act were not applicable to the unpaid liability towards royalty payment of Rs.76,956 since royalty was neither tax nor duty?" The brief facts giving rise to this reference are that the assessee in its return for the Assessment Year 1984-85 had among others claimed a deduction of Rs.76,956 towards its liability for payment of royalty. This claim was disallowed by the Assessing Officer in view of the provisions of section 43B of the Income Tax Act, 1961. According to the Assessing Officer, the payment of royalty was a levy to which provisions of section 43B were applicable. The appeal of the assessee against the order of the Assessing Officer was dismissed by the Commissioner of Income-tax (Appeals). On further appeal before the Tribunal, the Tribunal held that only tax and duty was disallowable under the provisions of section 43B of the Income-tax Act. It was explained that a tax or duty was a compulsory extraction of money by public authority for public…

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