Calcutta High Court rules on deduction of unpaid electricity duty collected as an agent of Government

 

This Tax alert summarizes a recent ruling of the Calcutta High Court (HC) in the case of CESC Ltd. (Taxpayer) on the issue of whether deduction for unpaid electricity duty payable to the State Government by the Taxpayer, which is engaged in the business of generation and distribution of electricity, was covered by a specific provision in the Indian Tax Laws (ITL) which permits deduction for ”tax, duty, cess or fee, by whatever name called, under any law for the time being in force” on actual payment thereof.

 

The HC held that, under the applicable State Law, the primary and absolute liability for paying electricity duty was on the consumers of energy and not on the Taxpayer which merely acted as an agent of the State Government. The HC further held that the special provision of the ITL would apply only in a case when payment was to be made to the State Government in the capacity of the State as a sovereign and not when the taxpayer had collected money as an agent and the payment to the State Government was in its capacity as a principal. Since, in the facts of the case, the Taxpayer had merely acted as an agent of the State Government, the special provision of the ITL would not apply to the Taxpayer. The HC also held that electricity duty collected as an agent of the State Government would not constitute part of the trading receipt of the Taxpayer and, consequently, would not be income of the Taxpayer.

 

The present HC ruling lays down that in case of tax or duty payable by the taxpayer to the Government as a mere agent of the Government, where the primary liability to pay the duty is on customers, the special provision of the ITL would not apply so as to result in disallowance of expense in the hands of the agent. Besides, since the electricity duty is collected as a mere agent, the same cannot be considered as a part of the trading receipt and cannot be included in the computation of income of the taxpayer. Consistent with the present ruling, the special provision of the ITL may apply in the hands of the consumers in relation to the unpaid electricity duty component.

 

The HC also held that electricity duty collected as an agent of the State Government would not constitute part of the trading receipt of the Taxpayer and, consequently, would not be income of the Taxpayer.

 

The present ruling may apply in case of similar statutory dues.