Interest Payable on Loan Taken From State Govt. or World Bank Not Covered Within the Provision of Section 43B

Case Details: Jaipur Vidyut Vitran Nigam Ltd vs. Deputy Commissioner of Income-tax - [2024] 164 taxmann.com 282 (Jaipur-Trib.)

Judiciary and Counsel Details

• Dr S. Seethalakshmi, Judicial Member & Rathod Kamlesh Jayantbhai, Accountant Member
• P.C. Parwal, CA for the Appellant.
• Arvind Kumar, CIT-DR & A.S. Mehra, Addl. CIT-DR for the Respondent.

Facts of the Case

The assessee was a public sector undertaking (PSU) engaged in electricity distribution. During the assessment proceedings, the Assessing Officer observed that the assessee paid interest to the World Bank on an instalment basis through an e-challan to the Government Treasury of Rajasthan.

He held that Section 43B was enacted to enable certain transactions to take place expeditiously; hence, payment made to the World Bank was also to be regarded as payment to a public financial institution for the purpose of Section 43B. Accordingly, he disallowed the outstanding interest amount.

On appeal, the Commissioner (Appeals) observed that the State Government advanced the loan, and interest was also paid to the State Government. In fact, even the State Government did not receive funds directly from World Bank but funds were received through the Central Government. Hence payment of interest was made to the State Government treasury which was covered under section 43B. Therefore the status of World Bank being a public financial institution or otherwise was irrelevant.

Aggrieved by the order of the Commissioner (Appeals), the assessee had filed the instant appeal before the Tribunal, challenging the disallowance of unpaid interest on a loan taken from the World Bank. The assessee contended that it was erroneously presumed that the loan was provided by the State Government and that the interest was paid to the State Government. It was argued that neither the World Bank nor the State Government falls under any of the categories specified in clauses (d), (da), or (e) of Section 43B.

ITAT Held

The Tribunal held that Clause (d), (da) or (e) of Section 43B do not cover interest payable on any loan or borrowing taken from the World Bank / Government. In these clauses, interest payable to specific financial institutions / NBFC / Schedule Banks / Co-operative Banks are only covered. The interest payable to the State Government/World Bank is not covered under these clauses. Explanation 4 to section 43B specifies the institutions covered under this section, as elaborately discussed in the written submission filed by the assessee. Therefore, from the plain reading of the definitions, it is clear that neither the State Government nor the World Bank falls under the definition of Public Financial Institution, State Financial Corporation, State Industrial Investment Corporation, Deposit-taking NBFC, Scheduled Bank and Co-operative Bank. Therefore, it is viewed that interest payable on a loan taken from the State Government / World Bank is not covered within the provision of section 43B. Hence, disallowance confirmed by the Commissioner (Appeals) under section 43B was not as per the provision of law and therefore, the same was directed to be deleted.

List of Cases Referred to

• Kerala State Electricity Board v. Dy. CIT [2010] 8 taxmann.com 118/[2011] 196 Taxman 1/[2010] 329 ITR 91 (Kerala) (para 4.5).