- (1.) ON the application of the CIT, West Bengal-III, Calcutta, the following question has been referred by the Tribunal for decision by this Court : "Whether on the facts and in the circumstances of the case and on a proper interpretation of the provisions of s. 43B, the Tribunal was right in law in holding that the assessee was entitled to the deduction of the interest payable on the outstanding municipal taxes ?" However, before the Tribunal the following questions were referred : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to the deduction of the interest payable on the outstanding municipal taxes thereby cancelling the order of the CIT passed under s. 263 of the IT Act ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was justified in holding that the assessee was justified to the deduction of the interest payable on the outstanding municipal taxes thereby reversing the order of the CIT(A)?"
(2.) THE reference arises out of the assessment of M/s Orient Beverages Ltd. for the asst. yrs. 1984- 85 and 1988-89. THE company (hereinafter referred to as the assessee), is engaged in the business of purchasing land or taking the same on lease putting up construction thereon and letting out the building for rent. THE two main properties held by the assessee at the material time were at No. 50, Chowringhee Road, Calcutta, and the building was known as Tiveli Park Building, 225C, A.J.C. Bose Road, Calcutta. In the assessment order for the asst. yr. 1984-85, the AO allowed a deduction of Rs. 5,61,042 being payable to Calcutta Municipal Corporation on the amount of municipal taxes outstanding. THE rent received in respect of the Tiveli Park building was considered as "Property income" whereas, the rent received from the building at Chowringhee Road was assessed as "business income". THE CIT initiated a proceeding under s. 263 of the IT Act and held that the AO was wrong in allowing deduction in respect of interest payable to the Calcutta Municipal Corporation since the interest was part of the municipal tax itself, and was liable to be disallowed under s. 43B of the IT Act, (hereinafter referred to as the Act) as the same had not been actually paid. In respect of the asst. yrs. 1988-89, the ITO himself disallowed the interest of Rs. 8,83,503 under s. 43B of the Act. THE disallowance was upheld by the CIT(A). The assessee filed appeals to the Tribunal against the order of the CIT for the asst. yr. 1984-85 and the order of the CIT(A) for the asst. yr. 1988-89. The appeals were heard and disposed of together. The Tribunal after considering the relevant provisions held that the interest payable in respect of the outstanding municipal tax, was not to be treated as an adjunct or part of the municipal taxes and, therefore, the provisions of s. 43B of the Act could not be invoked for disallowing the outstanding interest. In coming to that conclusion, the Tribunal applied the principles laid down by the Supreme Court in Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429 (SC) : TC 17R.877 for the purpose of finding out whether the interest formed part of the tax or not. After considering the aforesaid Supreme Court decision and also a decision of the Calcutta High Court in Russels Properties (P) Ltd. vs. CIT (1982) 26 CTR (Cal) 330 : (1982) 137 ITR 5 (Cal) : TC 17R.871, it was found by the Tribunal that the interest cannot be disallowed under s. 43B of the Act. After considering the orders of the AO and the CIT(A), the Tribunal framed the aforesaid question for decision by this Court.
(3.) MR. Agarwal, learned Advocate appearing for the Department however, submits that although the aforesaid question was only framed by the Tribunal, even then the Department would be entitled to argue before this Court relating to the other two questions which were heard by the Tribunal. To give an answer to this submission, we examined the entire materials on record, and also the judgments and orders passed by the AO, CIT(A) and also the Tribunal. After a perusal of the aforesaid judgments and orders and considering the fact the said questions were already decided by the Tribunal and excepting the question as referred to hereinabove, nothing was urged before the Tribunal, we are not inclined to permit MR. Agarwal, to raise the questions which were already decided by the Tribunal, Let us now come back to the question already framed by the Tribunal which has been referred for our decision. Before we proceed to consider the decisions cited by the learned counsel for the parties, it would not be out of place to reproduce s. 43B of the IT Act which is as follows: "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 (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in cl. (ii) of sub-s. (1) of s. 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a state financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loans or borrowing, or (e) any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by him." We have carefully examined the scope and ambit of s. 43B of the Act. In our view, this section has two parts. The first part is that whether the interest paid in addition will at all be deductible under this section and if so, then the question would arise whether the assessee would be entitled to the deduction until and unless the said amount is actually paid. So far as this case is concerned, we are not concerned with the second part. Therefore, let us concentrate ourselves on the first part of the s. 43B of the Act. The question that is to be decided is, whether the interest paid under s. 43B(a) of the Act would be deductible under the said section. No dispute has been raised by Mr. Agarwal, learned Advocate, appearing for the Department that in this particular case s. 43B(a) would be applicable. The s. 43B(a), as noted earlier, provides, 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. In our view, this question has been set as rest by the decision of the Supreme Court as well as by another decision of this Court.;