Madras High Court
Kalpana Lamps And Components Ltd. vs Deputy Commissioner Of Income-Tax on 4 September, 2001
Equivalent citations: [2002]255ITR491(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. A mere postponement of liability to pay interest does not amount to discharge whether actual or constructive. The Tribunal has rightly rejected the claim that the consent of the lender--a public financial institution--to convert the outstanding interest into a term loan liability, which is to be paid in instalments in future years, would amount to constructive discharge of the interest liability.
2. Section 43B of the Income-tax Act provides that deduction such as the one in Clause (d), viz., the amount payable by the assessee as interest on borrowings from public financial institutions, are to be allowed as a deduction only in the year in which the amount was actually paid. Mere postponement of the liability does not amount to payment. In the year in which the payment is effected, the deduction can be claimed.
3. Learned counsel referred us to a circular issued by the Central Board of Direct Taxes on December 29, 1993, in Circular No. 674 regarding the applicability of Section 43B to amounts covered under the sales tax deferral schemes of State Government. That circular records the decision of the Board that the amount of sales tax liability converted into loans by the State Governments under their deferral schemes may be allowed as a deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders. Counsel contended that the principle embodied therein would apply to the case of interest payable to public financial institutions as well.
4. The circular relied on is one which is issued having regard to what has been provided in Section 43B(a) and Explanation 2 therein. Section 43B(a) deals with sums payable by the assessee by way of tax, duty, cess or fees under any law for the time being in force. Explanation 2 sets out that for the purposes of that clause, "any sum payable" means a sum for which the assessee has incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. The year in which the liability was incurred is taken as the year in which the sum was paid. That provision is meant to aid the assessees who have received the deferral benefit under the schemes framed by the State Governments with regard to sales tax. That Explanation 2 does not have any application to Section 43B(d) of the Act.
5. The view taken by the Tribunal is the correct view. The appeal is dismissed.