Deposit Of Amount In No-Lien/Escrow Account Will Not Constitute 'Actual Payment' U/S 43B Of Income Tax Act: Orissa High Court

The Orissa High Court has ruled that deposit of amount in 'no-lien/escrow account' will not constitute 'actual payment' under Section 43-B of the Income Tax Act, 1961 ("the Act"). The Section provides a list of expenses allowed as deduction under the head 'income from business and profession'. It states some expenses that can be claimed as deduction from the business income only in the year of actual payment. While denying relief to the appellant, a Division Bench of Chief Justice Dr. S. Muralidhar and Justice R.K. Pattanaik observed, "A payment envisages a payer and a payee. If only one part is fulfilled viz., the payer has made the payment, but the payee has not received it, then it cannot be said that the sum has been 'actually' paid. While the Assessee as payer may have parted with the amount, it has not totally lost control over it. The payment has been made conditional and it has been ensured that if the Assessee ultimately succeeds in the litigation, the amount will not be actually paid to the State Government." Factual Background: The Assessee paid electricity duty to the Government of Odisha at the rate of 6 paise per unit. This was enhanced to 20 paise per unit by the Government and a demand was raised on that basis. The Assessee challenged the hike in the rate of the electricity duty and the consequent demand. By an interim order passed in the said writ petition, the High Court directed the Assessee to continue to pay electricity duty at the rate of 6 paise per unit to the Government and to deposit the differential duty of 14 paise per unit in a separate 'no-lien' account till the disposal of the case. Subsequently, the writ petition was dismissed by the Court. The Assessee then filed a Special Leave Petition in the Supreme Court against the said judgment. By an interim order, the Supreme Court directed the Assessee to continue paying the admitted amount of demand and as regards the disputed amount, it was directed to be deposited in an escrow account till further orders. The said SLP is stated to be pending in the Supreme Court. The Assessee conveyed that it has been complying with the aforementioned interim order till date. During the Assessment Year 2009-10, the Assessee debited Rs.11,42,61,000/- in the profit and loss (P&L) account as electricity duty. Of this, a sum of Rs.6,29,11,949/- was shown to have been deposited in a designated escrow/ 'no-lien' account with the State Bank of India in terms of the directions issued by the Supreme Court. Thus, the Assessee claimed the entire amount of electricity duty as deduction from its income for the purposes of calculating profit and gains of the business. However, the Assessing Officer ("AO") disallowed the payment of electricity duty in the sum of Rs. 6,29,11,949/- by holding that in terms of Section 43-B of the Act, deposit of a sum in a no-lien account cannot be regarded as actual payment of electricity duty. Aggrieved by the decision of the AO, the Assessee appealed to the Commissioner of Income Tax (Appeals) [(CIT(A)] who confirmed the order of the AO. The Assessee then went in further appeal to the Income Tax Appellate Tribunal, which concurred with the AO as well as the CIT(A). Contentions of the Appellant: Appearing for the Appellant-Assessee, Advocate Sachit Jolly contended that the requirement of Section 43B(1) of the Act was only that the Assessee should have "actually paid" the electricity duty amount and not that the amount should have been received by the Government. He accordingly submitted that the AO was in error in disallowing deduction in respect of Rs. 6,29,11,949/- which had been deposited by the Assessee in a no-lien/escrow account in compliance with the interim direction of the High Court and then the Supreme Court. He stressed that as far as the Assessee is concerned, it had no control over the said sum after it had parted with it. If in the future the Assessee succeeded in the appeal before the Supreme Court of India, then in the event of the amount being returned to it with interest, the sum would be offered for tax under Section 41(1) of the Act. Therefore, there was no loss to the Revenue. He submitted that the AO, CIT (A) and the ITAT had erred in reading into Section 43-B of the Act a requirement was not specified therein viz., that not only the amount would have to be actually paid but the payee had to also receive the amount. Contentions of the Respondent: Mr. T.K. Satapathy, Senior Standing Counsel for the Department, defended the impugned order of the ITAT. He argued that the expression "actually paid" connotes that the Assessee should have nothing to do with the amount after it is paid. In the present case, however, the depositing of the amount by the Assessee in a no-lien/escrow account did not mean that the Assessee did not have chance of receiving it back. It was not an 'actual' payment in the...

Deposit Of Amount In No-Lien/Escrow Account Will Not Constitute 'Actual Payment' U/S 43B Of Income Tax Act: Orissa High Court

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