In M.M. Aqua Technologies Ltd. Vs. CIT [CIVIL APPEAL NOS.4742-4743 OF 2021 dated August 11, 2021
The question raised in the appeal is with particular reference to Section 43B Explanation 3C of the Income Tax Act, 1961(herein referred to as “Act”). A claim of deduction of interest was claimed by M.M. Aqua Technologies Limited (Appellant), however the same was denied under Section 43B of the Act due to non-payment of such interest in actual.
The Appellant went into appeal and the Commissioner of Income Tax (Appeals) allowed the claim of afore mentioned deduction. In further appeal by the Revenue Authorities, the Income Tax Appellate Tribunal also upheld in favor of the Appellant by holding that the purport intension for the introduction of Section 43B under the provisions of the Act was for those taxpayers who were not discharging their liability towards interest, yet claiming the same liability as a deduction while computing profits for the purposes of tax. In this case, the rehabilitation plan between the lender and borrower was accepted where in the interest was discharged by way of debentures issued against it and such debentures were shown as business income (interest) by the lender. Thus, basis the present facts, since, it was a bona fide transaction, therefore, no disallowance was applicable here.
On further appeal by the Revenue Authorities to the High Court, it was contended that in presence of Explanation 3C to the provisions of Section 43B vide Finance Act, 2006, w.e.f from 1st April, 1989, it is the actual payment of interest which is liable for deduction and not otherwise. This contention of the Revenue Authorities was accepted by the High Court and the decision was held against the Appellant.
Now, the Appellant went before the Supreme Court, while deciding the case in the favor of the Appellant, it held that the insertion of Explanation 3C to Section 43B of the Act, the intention of the legislature was to plug loopholes in the existing Section 43B for non-genuine parties. However, in the instant case, the herein it was a bona fide transaction of actual payments and this was not meant to be affected. Further, on the issue of applicability of Explanation 3C retrospectively, the Supreme Court relied upon the judgement while relying upon the judgement of Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717, held that where a provision alters or changes the implications under the law as it was earlier stood, the retrospectivity cannot be presumed.
Source: [2021] 129 taxmann.com 145 (SC)
