TMI Blog2016 (12) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... becomes infructuous in view of our finding above. Group Leave Encashment claim addition as per provisions of section 43B(f) - Held that:- We find that the assessee’s contention is that the assessee pays the premium after the interest credited by the LIC is reduced from the premium to be paid. We are of the opinion that this contention needs verification. If the interest credited by LIC is taken as income of the assessee, the entire premium payable by the assessee for the next A.Y should be considered as expenditure of the assessee. Therefore, this issue is remitted to the file of the AO for verification of the assessee’s contention and allowing the same in accordance with the law. The net result would, however, be “nil” if the assessee’s contentions are proven to be correct. Addition made u/s 43B(f) - AO has disallowed the same on the ground that the remittance to LIC towards Group Leave Encashment Scheme is a remittance to an unrecognized fund and only recognized PF/Gratuity/Pension are exempt from the operation of section 40A(9) - Held that:- This issue is covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. M/s. Textool Co. Ltd [2009 (9) TMI 66 - SUP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to the Corporation w.e.f. 01.01.1994 and sections 23A and 23B were inserted in the Excise Act to ensure proper collection of Revenues from the APBCL which has exclusive rights over wholesale trade in liquor in the State of A.P. He observed that for the previous year relevant to the A.Y. 2010-2011, the assessee has declared a turnover of ₹ 11,862.84 crores and a profit of ₹ 7,06,770 as per the provisions of the Companies Act. He also observed that on account of adjustments on account of depreciation, allowances on account of section 43B and deduction under section 80G, the income was shown at Rs.NIL for Income Tax purposes. From the P L A/c of the assessee, he observed that the expenditure claimed included privilege fee at ₹ 2391,89,30,220 paid to the Government of A.P. Vide notice under section 142(1) of the I.T. Act, the assessee was asked to furnish the basis for remittance of the fee to the Government of A.P. and was also asked to file the working sheet showing the computation, supported by the copies of relevant G.Os or correspondence. 4. The assessee vide letter dated 24.01.2013 filed the copies of the order sheets containing notings relating to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Income Tax Act and therefore, it cannot be disallowed. It was submitted that Income Tax is to be ascertained only after the profit is ascertained after payment of the privilege fees. The assessee also submitted that the provisions of the Act which conferred the privilege on the assessee underwent an amendment by insertion of sections 4A, 4B and 4C by Act 5 of 2012 w.r.e.f 21.7.1993, by virtue of which, it is the Govt, which from time to time, specifies the Trade Margin, Privilege fee or any other levy by whatever income called to be collected by the Assessee and the amount so realized u/s 4A, being the income of the Govt, is to be remitted by APBCL to the Govt. in the manner specified by the Govt. and that, all amounts paid by the Corporation from 21.7.1993 to the Govt. as privilege fee or special privilege fee or any other fees or cess by whatever name called, in consideration of the privilege conferred on the corporation as per the provisions of section 23(1), 23A 23B of the A.P. Excise Act, 1968, shall be deemed to be and always deemed to have been, the income of the Govt and due payment for the relevant years in terms of section 4B and section 23A and 23B shall be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the assessee for the next year after adjusting the payments made during the year to the employees after carrying out actuarial valuation and interest earned during the previous year. It was submitted that on receipt of such advice, the Corporation would pay the amount as contribution for the year. Thus, according to the assessee, interest earned on the fund has neither accrued nor paid to the Corporation unless the fund is terminated and hence, is not liable to tax in the hands of the assessee. The A.O. however, disallowed the contribution to LIC, on the ground that the same is not allowable under section 43B(f) of the Act and also brought to tax the interest on the said fund. 9. Aggrieved by the above disallowances and the additions, assessee preferred an appeal before the CIT(A), who granted partial relief to the assessee. Against the relief granted by the CIT(A), the Revenue is in appeal before us, while the Assessee is in appeal against the disallowances and the consequent additions confirmed by the CIT(A). 10. In the assessee s appeal, the assessee has raised the grounds of appeal against the disallowance of privilege fee, special privilege fee and special privileg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts are to be transferred to the Government of A.P. towards privilege fee, special privilege fee etc. Thus, according to him, the receipts are not the income of the assessee but are the income of the Government of A.P. and the assessee is entitled to keep only the amount incurred by it towards the expenditure. According to the Ld. Counsel for the assessee, this fact has not been properly appreciated by the Coordinate Bench of this Tribunal in the assessee s own case for the earlier A.Ys. Further, he submitted that the assessee has been following the same method of making payment of privilege fee to the Government since inception and it was only in the years 2006-2007 and 2009-2010 that the revenue authorities have disallowed the same. Further, he submitted that though the doctrine of res-judicata is not applicable to the income tax proceedings, the Hon ble Supreme Court in its decision in the case of Radhasoami Satsang vs. CIT reported in 193 ITR 321 (S.C) has held that the doctrine of consistency requires that the revenue authorities follow and maintain uniformity and consistency in the case of an assessee over a period of time unless there are distinguishing factors. He has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2009-10 has held the issue against the assessee vide orders dated 22.01.2014. We have perused the order and we find that in the said orders, the Tribunal has considered as to whether the Privilege fee, Special Privilege fee etc., paid by the assessee to the Govt. was diversion of income by overriding title . The Tribunal has held that as per the amended provision of Excise Act, the payment of margins in the form of privilege fee etc, is not the income of the Government nor is it diversion of income by overriding title . Further, at Para 21 of its order, the Tribunal has also considered as to whether the special privilege fee paid to the Govt. can be allowed as expenditure. The Tribunal, after considering the AS-22 has observed that it would be logical to consider that the assessee should have remitted its margin, privilege fee etc., after deducting expenses which also included income tax and furthermore, when no mechanism has been provided for computing the privilege fee, special privilege fee etc., and admittedly the assessee having not collected privilege fee, special privilege fee etc., separately in the bills, the quantification of such fee is also not possible and in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of CIT vs. Brij Lal Lohia and Mahabir Prasad Khemka (cited Supra) was dealing with the case of an assessee who gifted some of the money to his brother and his nephew who are stated to have started a new firm dealing in jute while the assessee has stopped his business of dealing in Jute. The question for consideration was whether the gifts stated to have been given by the assessee were genuine. This question had come up for consideration before the authorities while dealing with the assessment of the assessee for the A.Ys 1945-46 and 1946-47 and on the basis of the material before them, the Tribunal held that the gifts, in question, are not genuine gifts. The Hon'ble High Court did not interfere with the findings of the Tribunal on the ground that it was a finding of fact. The matter travelled up to the Hon'ble Supreme Court also and the Apex Court refused to interfere with the finding of the Tribunal observing that the question whether the gifts were real was the matter within the jurisdiction of the Tribunal as the final fact finding authority. The question whether those very gifts were genuine or not came up again before the authorities while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion of any of the High Court should be followed unless there are overriding reasons for taking divergent view. (i) CIT vs. T.Maneklal Mfg.Co. Ltd (115 ITR 725 (Bom.) (ii) CIT vs. Jayantilal Ramanlal Co. (137 ITR 257 (Bom.) (iii) Arvind Boards Paper Products Ltd vs. CIT (137 ITR 635 (Guj.) (iv) CIT vs.Highway Constructions Co. (217 ITR 234) 22. Having gone through these decisions, we find that the common finding of all the Hon'ble High Courts is that there is a need for uniform decisions and the decision of one High Court on identical provisions should be followed by another High Court unless there are overriding reasons for taking a divergent view. 23. Hon'ble Supreme Court in the case of Radhasoami Satsang v. Commissioner of Income-tax [1992] 193 ITR 321 (SC) has also held that where two interpretations are possible, one favourable to the assessee should be accepted. 24. The Hon'ble Gujarat High Court while observing as above, has also held that the Income Tax Act being an all India statute, decision of one High Court interpreting a taxing provisions should generally be followed when there is no other view in the field. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such restrictions and on such conditions as he may prescribe. In such a scheme, it is not of the essence whether the amount charged to the licensees is predetermined as in the appeals of Northern India Caterers and of Green Hotel or whether it is left to be determined by bids offered in auctions held for granting those rights to licensee,,. The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determine either the true nature of the charge levied by the Government or its right to levy the same. The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and the characteristic of these two as also of 'excise duty' are well-known. A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not a payment for services rendered .(1) A fee is a. charge for special services rendered to individuals by some government that agency and such a charge has an element in it of a quid pro quo. (2). Excise duty is primarily a duty on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his judgment. f) Income tax is an enactment of All India Application. The law cannot be different in one State and altogether different in another State. Therefore, if there is one judgment of any High Court which has taken a particular view and there is no contrary judgment it is necessary for all the Benches of the Hon'ble Tribunal to follow the above High Court judgment. g) Whether the payment privilege fees constitute an allowable expenditure u/s 37(1) of the I.T. Act has not been gone into and discussed by the Hon'ble Tribunal in its previous order. In the present appeal it is the case of the appellant corporation that the payment of privilege fees constitutes an allowable expenditure u/s 37(1) of the I.T. Act. 29. We find that, in the case of CIT vs. McDowell Co. Ltd reported in 314 ITR 167 (SC), the Hon'ble Supreme Court has considered the decision in the case of Har Shankar others (cited Supra) and has held that there is no fundamental right to do trade or business in intoxicants and the State under its regulatory powers has the right to prohibit absolutely every form of activity in relation to intoxicants, their manufacture, storage, export, import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under the name of privilege fee . x) Provisions of Section 40(a)(ii) would be applicable. xi) The privilege fee does not satisfy the definition of fee , as all the elements of tax levied are missing. xii) The payment of privilege fee is not an expenditure incurred towards earning of income. xiii) Section 40(a)(iib) is held as clarificatory in nature. Page No.88 of the order for the Assessment Year 2012-2013. xiv) Amendment made in Section 24 of the Karnataka Excise Act, 1965 is illegal . . 5. On a consideration of the above contentions and the facts and circumstances, it is not in dispute that the privilege fee which was paid by the petitioner to the State Government for the years 2004-05, 2005-06, 2006-07 was allowed as business expenditure. The respondents 1 and 2 have drawn inspiration from the 2013 amendment, whereby Clause (iib) of sub-clause (a) of Section 40 of the IT Act was inserted by the Finance Act, 2013 with effect from 1.4.2014. This apparently has been held by the Assessing Authority as being clarificatory in nature and has sought to apply it with retrospective effect. In that, the Assessing Officer has passed the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est available price for its valuable rights. Section 27 of the Act recognises the right of the Government to grant a lease of its right to 'manufacture, supply or sell intoxicants. Section 34 of the Act read with Section 59(d) empowers the Financial Commissioner to direct that a licence, permit or pass be granted under the Act on payment of such fees and subject to such restrictions and on such conditions as he may prescribe. In such a scheme, it is not of the essence whether the amount charged to the licensees is predetermined as in the appeals of Northern India Caterers and of Green Hotel or whether it is left to be determined by bids offered in auctions held for granting those rights to licensees. The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determine either the true nature of the charge levied by the Government or its right to levy the same. 56. The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and the characteristic of these two as also of 'e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e licensees. The amount charged to the licensees is not a fee properly so- called nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading or business transaction. In any event, with the insertion of sub-clause (iib) in the Act, it would no longer be possible for the petitioner to claim that the said privilege fee is not taxable. The question as to whether the said provision can be applied with retrospective effect, is the only question that would remain for consideration. As rightly pointed out by Shri Shankar, a plain reading of the provision would not indicate that it is to be applied with retrospective effect. There are other provisions which were also amended, and wherever the Legislature intended that certain provisions would have retrospective effect, it is expressly indicated therein and therefore, there being no such express indication insofar as the present provision with which we are concerned, it cannot be said to be applicable with retrospective effect. This is also evident from the CBDT circular No.3/2014 dated 24.01.2014 issued by the Department, which would be binding on the Assessing Authority, the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government. 12.3 Applicability.- This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014- 15 and subsequent assessment years. Further, Clause 7 which is appended to the Finance Bill, 2013, reads as follows: Clause 7 of the Bill seeks to amend Section 40 of the Income-tax Act relating to amounts not deductible. The provisions of Section 40 specify the amounts which shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession . It is proposed to insert a new sub-clause (iib) in clause (a) of the aforesaid section so as to provide that any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, the matter is remanded to the Assessing Officer to re-examine the same after affording an opportunity of hearing to the petitioner in respect of the several assessment years . 31. Thus, it can be seen that the Hon'ble Karnataka High Court has considered all the aspects of the issue and has held that the payment of privilege fee/special privilege fee etc., by whatever name called is an allowable expenditure. As there is no contrary decision of either the jurisdictional High Court or any other High Court on the issue, we respectfully following the said judgment, direct the AO to allow the privilege fee, special privilege fee and the special privilege force as expenditure of the assessee u/s 37 of the Act. 32. As regards assessee s contention that there is diversion of income by overriding title, we are of the opinion that this issue was not considered by the Hon'ble High Court and the decision of the Tribunal in the earlier A.Ys would cover the issue against the assessee. 33. In the result, assessee s grounds of appeal Nos. 1 to 1.5 are rejected and the ground No.1.6 is allowed. 34. As regards Ground No.2, we find that the assessee s contention is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee being the undertaking of the Govt. of A.P is bound by the direction of the Govt. and therefore, the contribution to the CM s Relief Fund is to be allowed u/s 80G of the Act. 39. Having regard to the rival contentions and the material on record, we find that the CM s Relief Fund is an approved fund u/s 80G of the Act but the assessee is required to pay the privilege fee, special privilege fee etc, after setting off its expenditure only from the receipts and we have already held that privilege fee is an allowable expenditure. In these circumstances, the assessee would not be left with any fund to make a donation to C.M s Relief Fund. Even otherwise, the contribution is an allowable deduction. Therefore, we are of the opinion that this ground of the Revenue becomes infructuous in view of our finding above. 40. As regards Ground No.2 against the deletion of ₹ 3,19,05,158 out of ₹ 3,40,00,804 made by the AO u/s 43B(f) of the Act, we find that the AO has disallowed the same on the ground that the remittance to LIC towards Group Leave Encashment Scheme is a remittance to an unrecognized fund and only recognized PF/Gratuity/Pension are exempt from the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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