- (1.) THE Income-tax Appellate Tribunal, Jaipur, has made a reference under Section 256(1) of the Income-tax Act, 1961, seeking opinion of this court on the following question : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in : (i) holding that the royalty does not partake the character of 'tax', 'duty', 'cess' or 'fee' for the purpose of applicability of the provisions of Section 43B of the Income-tax Act ?"
(2.) THE facts giving rise to the instant reference application are that the respondent assessee-firm, Popular Minerals, is a registered firm deriving income from sale of unburnt china clay. THE assessee claimed outstanding liability on account of royalty at Rs. 1,82,964. In the opinion of the Assessing Officer, the outstanding liability which had not been paid during the mining year was not deductible and allowable, in view of the provisions of Section 43B of the Income-tax Act. THE order of the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals). However, the Tribunal held that the tax or duty or cess or fee in the context of Section 43B is a compulsory exaction of money by public authority for public purposes enforceable by law and not for that reason, a payment for service or goods. THE Tribunal further held that the royalty is paid as consideration for goods or services supplied. THE Tribunal accordingly allowed the appeal and directed the Assessing Officer to allow the liability in question for the assessment year under consideration. It is now no more res integra that the royalty is a tax and as such Section 43B is applicable to unpaid liability towards payment of royalty. Reference may made to the decision of the apex court in India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690. THE apex court after considering the issue of royalty in depth and detail held as under (page 707) : "In the aforesaid view of the matter, we are of the opinion that royalty is a tax and as such a cess on royalty, being a tax on royalty, is beyond the competence of the State Legislature because Section 9 of the Central Act covers the field and the State Legislature is denuded of its competence under entry 23 of List II. In any event, we are of the opinion that cess on royalty cannot be sustained under entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land." The said decision has been followed by the Madhya Pradesh High Court in CIT v. Gorelal Dubey [1998] 232 ITR 246. It has been further followed by the apex court in State of M. P. v. Mahalaxmi Fabric Mills Ltd., AIR 1995 SC 2213. In our opinion, the view taken by the Tribunal is not correct being contrary to law settled by the apex court. In view of the aforesaid discussion, we answer the reference in favour of the Revenue and against the assessee.;