2010 (1) TMI 724 - HC - Income Tax

Licence fee - whether licence fee payable by the respondent under the Abkari Laws for obtaining the right to carry on business in toddy falls within the description of tax duty cess or fee referred to in section 43B(a) of the Income-tax Act 1961 (for short the Act ) which entitles the assessee for deduction of the expenditure only if payment is made in the previous year - licence fee granted consideration payable to the Government for granting privilege or right to sell liquor - Held that - rental payable for the grant of privilege to sell is not a fee - provisions of section 43B are not applicable - decided in favor of assessee.

Summary

Issues:
1. Whether licence fee for toddy shops falls within the description of tax, duty, cess, or fee under section 43B(a) of the Income-tax Act, 1961.

Analysis:
The High Court of Kerala addressed the issue raised by the revenue regarding the deduction of licence fee payable under the Abkari Laws for toddy shops as per section 43B(a) of the Income-tax Act, 1961. The respondent had participated in an auction for toddy sale, paying the full fee for one range but withholding part of the fee for another range. The revenue contended that the Karnataka High Court decision, which allowed a similar case, did not apply post the 1988 amendment to section 43B. The revenue argued that the fee falls under section 43B(a) after the amendment, while the respondent argued that the fee was a consideration for the exclusive right to sell toddy, not a statutory fee. The High Court noted that post-amendment, section 43B covered tax, duty, cess, and fee, and all statutory levies of such nature were included. The court emphasized that when a levy is under the name of tax, duty, cess, or fee, there is no need to determine its substance. The court referred to Supreme Court decisions to support the view that the licence fee was a consideration for the privilege to sell toddy, not a fee under section 43B(a). Despite the revenue's reliance on the Karnataka decision, the High Court dismissed the appeal, upholding the Tribunal's order.

In conclusion, the High Court dismissed the Income-tax Appeal, affirming that the licence fee for toddy shops did not fall within the scope of section 43B(a) of the Income-tax Act, 1961. The court held that the fee was a consideration for the exclusive right to sell toddy, not a statutory fee as contended by the revenue. The court relied on Supreme Court decisions to support its finding that the fee was not covered under section 43B(a) post the 1988 amendment. The High Court rejected the revenue's arguments based on the Karnataka High Court decision and upheld the Tribunal's order in favor of the respondent.