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2017 (3) TMI 736 - HC - Income TaxDisallowance of the payment of the privilege fee - allowable business expenditure - Held that:- It is an undisputed position that, the respondent-original petitioner has entered into agreement with the Government of Karnataka and as per such agreement, the fee is agreed to be paid for grant of lease by the State Government to the respondent-Company. The State Government, in exercise of its delegated statutory power has to notify the privilege fee for the respective financial year which the respondent-Company has agreed to pay. The character of liability to pay privilege fee is not only by virtue of the contract but is by way of a statutory obligation once lease is granted in favour of the respondent-Company by the State. It is on account of the lease so granted, the respondent-Company is in a position to undertake the business of the liquor as per the terms and conditions of the licence. Hence, in any case, payment of privilege fee can be termed as by way of necessity. If any assessee has incurred expenses to discharge its statutory obligation for doing of business, the same by no stretch of imagination can be termed as not for the purpose of business or profession. Since in the present case, it is privilege fee and the liability to pay the said amount arises on account of the statutory obligation even if the payment of which is agreed upon by contractual arrangement, such expenditure would not fall into the arena of voluntariness or the ground of commercial expediency or facilitation in carrying on of the business. Even if the decision upon which the reliance has been placed by the learned ASG are considered, the assessing officer will have a power to examine the commercial expediency for the expenditure incurred but it cannot be said that he will have jurisdiction to disallow the expenditure incurred for necessity or with a view to have a direct benefit in the business of liquor. On the contrary, the assessing officer being a statutory authority under the Act is bound to respect all the laws may be made by the Parliament or may be made by the State Legislature. He has no jurisdiction to examine the constitutional validity of any Act or the statute or a subordinate legislation which creates statutory liability upon the assessee to make the payment by way of an expenditure incurred. Under the circumstances, we find that the action of disallowance of the payment of the privilege fee by the assessing officer for the respective period of assessment years which is prior to 1.4.2014 is per se without jurisdiction and also ultravires to his power under the Act. The disallowance of the deduction of privilege fees as expenditure is wholly without jurisdiction and the observations made by the assessing Officer so far as constitutional validity of the relevant Act and the Rules and the power exercised by the State for delegated legislation for fixation of the quantum of fees can also be said as ultravires to his power because he has no power or authority to test the validity of any statutory provision, may be made by the State Legislature or the Parliament. - Decided in favour of assessee
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