Whether vend fee collected by State Govt from manufacturer for giving special benefit to repair or replace old machinery can be claimed u/s 43B even if same is actually not paid - NO: SC

THE issue before the Bench is - Whether the 'vend fee' levied by the State Government on a manufacturer for the purpose of conferring a special benefit of repair/replacement of its old machinery, can be claimed as an allowable deduction u/s 43B, if the same is not actually paid before the expiry of relevent previous year. NO is the answer.

Facts of the case

The assessee company is engaged in the manufacture and sale of foreign liquor and sugar. It had filed the return for A.Y 1990-1991 declaring an income of Rs. 15,84,398/-. The assessee while filing return had itself shown that a vend fee of Rs. 22,87,512/- was disallowable u/s 43B, since it was not actually paid before the expiry of the relevant previous year. The AO thereafter completed the assessment and confirmed disallowance of the vend fee. On appeal, the CIT(A) deleted the disallowance u/s 43B.

On further appeal, the Tribunal confirmed the order of CIT(A). Resultantly, the Revenue preferred Reference Application before the Tribunal u/s 256(1) of the Act, which referred questions of law to the High Court namely, deletion of disallowance u/s 43B in respect of the vend fee of Rs. 22,87,512/- outstanding as a liability payable to the Government of Kerala as on the last day of the accounting year. The High Court therein, had upheld the order of the Tribunal.

Having heard the parties, the Supreme Court held that,

++ a reading of Section 43B after it was substituted by Finance Act, 1988 w.e.f 1st Apr, 1989 shows that sub clause (a) in Section 43B has been considerably widened by the amendment by the addition of the words "by whatever name called". It is clear, therefore, that to attract this section, any sum that is payable whether it is called tax, duty, cess or fee or called by some other name, becomes a deduction allowable under the said Section provided that in the previous year, relevant to the A.Y, such sum should be actually paid by the assessee;

++ on a reading of the document on which the assessee's counsel has placed reliance, namely, a Government of Kerala order dated 28.04.1988, what becomes clear is that the Government has proposed to impose 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. 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. 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 assessee to the State does not directly fall within the expression 'fee' contained u/s 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 Court in the judgment under appeal. This being the case, it is found that the question which was answered in favour of the assessee and against the Revenue by the High Court was not answered correctly. This court therefore, set aside the aforesaid judgment and allow the present appeal in favour of the Revenue.