Income Tax Deduction Not Allowed On Deposit In No-Lien/Escrow Account: Orissa HC

[14 March 2022] The Orissa High Court bench consisting of Chief Justice S Muralidhar and Justice R.K. Pattanaik held that the income tax deduction is not allowable on deposit in a no-lien or escrow account.
The court relied on the decision of the Supreme Court in the case of Somaiya Organics (India) Ltd. v. State of Uttar Pradesh [2001] 123 STC 623 (SC), which held that a bank guarantee was only a promise by the bank to pay the beneficiary the amount under certain circumstances as indicated in the bank guarantee. It was held that furnishing a bank guarantee will not tantamount to making payment as it was to avoid making payment of the excise duty that the bank guarantee was issued.
The court observed that while the assessee may not have furnished a bank guarantee, its deposit of the disputed electricity duty amount in a no-lien/escrow account was only to ensure that during the pendency of the litigation, the disputed amount was not in fact paid directly to the State Government. Therefore, the net result was no different from the kind of payment made by the assessee by furnishing bank guarantees in lieu of such disputed payment of duty. Therefore, the requirement of Section 43 B of the Income Tax Act was not satisfied.