Deposit in a “non-lien/escrow account” will not constitute an “actual payment”, no income tax deduction is allowed: Orissa High Court

Deposit - Actual Payment - Income Tax Deduction - Orissa High Court - taxscan

A Divisional Bench of the High Court of Orissa has ruled that the deposit of any amount into a “non-lien/escrow account” will not constitute “actual payment” under Section 43-B of the Law of 1961 income tax.

The bench consisting of Chief Justice Dr. S. Muralidhar and Justice RK Pattanaik was considering an appeal by M/s. Indian Metal and Ferro Alloys Ltd, in which the assessed company challenged the department’s decision.

The assessee has paid electricity tax to Odisha government at the rate of 6 paise per unit. This amount was increased to 20 paise per unit by the government and the demand was increased on this basis. The Assessée challenged the increase in the electricity tax rate and the resulting demand. By an Interim Order adopted in the said Petition in Brief, the High Court ordered the Assessée to continue to pay Electricity Tax at the rate of 6 paise per unit to the Government and to deposit the differential tax of 14 paise per unit in a separate “no”. -link’ account up to the disposition of the deal.

The Valuation Officer refused payment of Electricity Duty in the amount of Rs. 6,29,11,949/- finding that under Section 43-B of the Act, the filing a sum in an unprivileged account cannot be considered as the actual payment of an electricity charge. Affected by AO’s decision, assessee appealed to Commissioner of Income Tax (appeals) [(CIT(A)] who confirmed the AO’s order. The assessee then appealed to the Income Tax Appeal Tribunal, which agreed with the AO as well as the CIT(A).

While denying relief to the appellant, a divisional bench of Chief Justice Dr. S. Muralidhar and Justice RK Pattanaik observed, “A payment contemplates a payor and a recipient. If only one part is completed, ie the payer has made the payment, but the payee has not received it, it cannot be said that the amount has been “actually” paid. Although Assesee as payer may have parted with the amount, it has not totally lost control of it. The payment was made conditional and it was guaranteed that if the assessee ultimately wins the case, the amount will not actually be paid to the state government.

The Court observed that the purpose of Section 43B of the Act was to ensure that liability could only be claimed as a deduction if the assessee had actually parted with the sum without any subsequent remedy. In this case, the interim stay granted in favor of the Assessée was intended solely to ensure that the disputed amount of electricity tax did not go to the state government. Thus, the Court held that in the absence of such an “actual” payment, the Assessée was authorized, first by the High Court, then by the Supreme Court, to deposit the disputed amount of duty on a “non-privileged”/escrow account. The very nature of the hold was to prevent the state government from having access to the amount placed in this non-lien/escrow account. Therefore, while it may be correct to say that the Assessée “paid” the disputed amount, it only paid it into an account from which the state government could not withdraw the amount.

M/s Indian Metal and Ferro Alloys Ltd v Commissioner of Income Tax, Bhubaneshwar


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