Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that ‘kist’ is neither ‘duty nor tax’ and therefore, will not come within the purview of the provisions of s. 43B of the IT Act, 1961 ?

Counsel Appeared

M.V. Seshachala, for the Revenue : Party appearing in person

JUDGMENT

T.N. VALLINAYAGAM, J. :

The Tribunal has referred the following question of law arising out of its order dt. 23rd Feb., 1998, in respect of the asst. yr. 1987-88 : “Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that ‘kist’ is neither ‘duty nor tax’ and therefore, will not come within the purview of the provisions of s.

43B of the IT Act, 1961 ?”

The facts of the case are that the assessee, a partnership firm, was carrying on the business of arrack contract for Perriyapatna Taluk. The AO considered the debit of Rs. 28,01,135 to the trading account representing kist payable for the year ended 30th June, 1986. He observed that the above amount included provision of Rs. 9,86,290 which was kist that was due for the year ended 30th June, 1986. The AO was of the view that w.e.f. 1st April, 1984, any sum that is payable by the assessee by way of tax or duty could be allowed only when it is actually paid. He observed that the said provision had been amended which was effective from 1st April, 1989, which was clarificatory in nature and that the clarification was that the term “tax or duty” will include any amount payable by whatever name called. He referred to the provisions of s. 24 of the Karnataka Excise Act, 1965, which states that the sum accepted in consideration of any grant or lease relating to any excisable article under s. 17 shall be excise duty. He further noted that the arrears of kist amount can be recovered as if it is arrears of land revenue. He accordingly concluded that the payment of rental arose on account of statutory obligation under the Karnataka Excise Act and did not involve any contractual obligation. He further observed that the shop rent arises on account of bid in accordance with the Karnataka Excise Act. He accordingly rejected the claim of the assessee that the rent payable could not be considered for disallowance under s. 43B of the IT Act, 1961. He also noted the contention of the assessee on placing reliance on the Tribunal, Cochin Bench decision, on an identical issue that rent payable in respect of liquor business is not a statutory liability and that the said decision has not been accepted by the Department and is being agitated in higher Courts.

The Commissioner of Income-tax (Appeals) [the “CIT(A)”], considered the issue in para 3 of his order and noted the submission of the assessee that kist is not excise duty so as to attract the provisions of s. 43B of the Act. The CIT(A) noted that the issue had been considered in detail by the Tribunal, Cochin Bench, as well as the Tribunal, Bangalore Bench, and more recently in the case of M.B. Devegowda, Excise Contractor, wherein it was held that the kist or shop rent cannot be treated as duty as it is a payment for obtaining exclusive selling rights of toddy and arrack by bidding at excise auctions in pursuance of the Government notifications. He accordingly deleted the addition.

The Tribunal noted that the CIT(A) had considered the notification issued by the State Government wherein it was stated that kist is not excise duty. The Tribunal noted that the CIT(A) had deleted the disallowance after considering the notification and found that the action of the CIT (A) was justified and accordingly upheld his order and rejected the plea of the Department.

5. The controversy is now covered by the decision of this Court in ITRC No. 5 of 1996 [reported as CIT vs. Sri Balaji & Co./D. Dasappa (2000) 163 CTR (Kar) 410], disposed of on 5th Jan., 2000. Following the same, we are of the view that the Tribunal was right in law in holding that “kist” is neither “duty nor tax” and, therefore, will not come within the purview of the provisions of s. 43B of the IT Act 1961.

The reference is accordingly answered in favour of the assessee and against the Revenue.

[Citation : 250 ITR 767]