Section 43 B provides that all statutory taxes, duties, cess etc. can be claimed as deductible expenditure only in the year of actual payment. Now what if the assessee is also charged interest on such outstanding taxes by the relevant tax collecting agencies.
In the case of CIT v. Orient Beverages Ltd. (2001) 117TAX106 the assessee claimed deduction of interest payable to Calcutta Municipal Corporation on outstanding Municipal Taxes. The assessing officer disallowed interest u/s 43B by treating such sum as an adjunct or part of Municipal Taxes. In upholding the order of the Tribunal the Calcutta High Court held that interest payable for arrears of Municipal taxes was really compensatory in nature and not a penalty or tax and hence a legitimate deduction admissible under the Act.
Further the Bengalore Bench of the Tribunal in interpreting the words “sum payable” M.V. Textiles vs. Third Income-tax Officer (23ITD523) held that the moment a demand is raised the provisions of section 43 B would come into force irrespective of the fact that the same is stayed or disputed by the assessee.