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Commissioner of Income Tax II v. M/s Modipon Ltd. (and four connected appeals)

Civil Appeal · 2017 INSC 1140Decided 24 Nov 2017
Civil Appeal No. 19763 of 2017
Justice Ranjan Gogoi · Justice Navin Sinha

Background

The case concerned whether a company could claim a tax deduction under Section 43B of the Income Tax Act for excise duty it had deposited in advance into its Personal Ledger Account (PLA), even though the duty was only actually adjusted against goods as they were later removed from the factory. The assessee, M/s Modipon Ltd. (and a connected assessee, Paharpur Cooling Towers Ltd.), had followed this practice of claiming the deduction for years, and the tax department had accepted it for every year except the four assessment years under dispute. The Revenue argued that only duty actually debited on removal of goods, not the advance deposit itself, qualified as "actual payment" eligible for deduction.

Decision Breakdown

The Supreme Court dismissed the Revenue's appeals and held that depositing money into the PLA is itself a form of actual payment of excise duty, not merely a notional or refundable advance, because once deposited the assessee loses control over the funds and withdrawal is tightly restricted and requires the Commissioner's approval. The Court relied on earlier precedent treating similarly restricted statutory deposits (such as the Molasses Storage Fund) as not remaining the depositor's own income, and endorsed the Delhi and Punjab & Haryana High Courts' reasoning that Section 43B was designed to ensure tax is actually paid to the government rather than merely accrued on paper. Since the deposit into the PLA irrevocably passed the money to government control, it satisfied the "actual payment" requirement of Section 43B regardless of when the amount was later adjusted against specific removals.

Lesson Learnt

For tax-deduction purposes, "actual payment" can include money that has been irrevocably and statutorily deposited with the government even before it is formally adjusted against a specific liability: control and recoverability of the funds matter more than the precise bookkeeping timeline.

Official source (sci.gov.in)View Judgment (PDF)

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