High Court Of Rajasthan
CIT vs. Popular Minerals
Section 43B
N.N. Mathur & D.N. Joshi, JJ.
IT Ref. No. 55 of 1995
10th May, 2002
Counsel Appeared : Sandeep Bhandawat, for the Revenue : Vineet Kothari, for the Assessee
JUDGMENT
BY THE COURT :
The Tribunal, Jaipur, has made a reference under s. 256(1) of the IT Act, 1961, seeking opinion of this Court on the following question : “Whether, on the facts and in the circumstances of the case, the 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 s. 43B of the IT 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 AO, the outstanding liability which had not been paid during the mining year was not deductible and allowable, in view of the provisions of s. 43B of the IT Act. The order of the AO was confirmed by the CIT(A). However, the Tribunal held that the tax or duty or cess or fee in the context of s. 43B is a compulsory extraction 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 service supplied. The Tribunal accordingly allowed the appeal and directed the AO 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 s. 43B is applicable to unpaid liability towards payment of royalty. The reference may made to the decision of the apex Court in India Cement Ltd. vs. State of Tamil Nadu (1991) 188 ITR 690 (SC). The apex Court after considering the issue of royalty in depth and detail held as under : “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 s. 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.”
3. The said decision has been followed by the Madhya Pradesh High Court in CIT vs. Gorelal Dubey (1997) 143 CTR (MP) 130 : (1998) 232 ITR 246 (MP). It has been further followed by the apex Court in State of M.P. vs. Mahalaxmi Fabric Mills Ltd. & Ors. 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 Revnue and against the assessee.
[Citation : 258 ITR 593]
