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TMI Blog2016 (5) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... 02/2014, 28/11/2014, 20/08/2010 & 21/10/2011 respectively passed by the Income Tax Appellate Tribunal, Jaipur Bench (for short, 'Tribunal'). These appeals relate to the assessment year 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 respectively. 2. The respondents-assessee's in the aforesaid appeals are two different State Government Undertakings namely; Rajasthan State Ganganagar Sugar Mills Ltd. (RSGSML) and Rajasthan State Beverages Corporation Ltd. (RSBCL) and the questions of law raised and admitted being almost identical in all the appeals, the same are being decided by this common order for the sake of convenience and after taking consent of the parties. 3. As regards the appeals filed by the appellant-Revenue against the respondent-assessee (Rajasthan State Ganganagar Sugar Mills Ltd.) are concerned, the first substantial question framed by this Court in those appeals is similar and identical while in two of such appeals the second/additional substantial question was also framed which read ad-infra:- First Substantial Question: "Whether in the facts and circumstances of the case, the Tribunal was justified in law in holding that the excise duty is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than as per orders of the Excise Commissioner and Government of Rajasthan (Finance Division) (Excise). It was claimed by the respondent-assessee that as per the Government Policy to levy privilege fees as per the statutory provisions of Section 24, 30 and 42 of the Rajasthan Excise Act, 1950, it being a business expenditure was claimed, as such. However, the Assessing Officer (for short, 'AO') was of the view that on the one hand the assessee being a State Government undertaking, privilege fee was determined by the Excise Commissionerate, which also being part of the State Government, the amount levied in the name of privilege fee was nothing-else but was transfer of share in the garb of profits transferred to the owner of the Company i.e. Government of Rajasthan and the assessee being part of the tripartite agreement, the said amount was not allowable and thus disallowed the same by holding that it is appropriation of profits. The another claim was that the AO noticed under valuation of the closing stock to the tune of Rs. 45,84,000/- on the premise that it was excise duty component which was not included in the value of closing stock of finished goods and in view of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee and it is a revenue expenditure. 12. On a further appeal before the Tribunal by the Revenue, the same resulted into dismissal of appeal and order of CIT(A) was upheld. 13. Mr. RB Mathur, learned counsel for the appellant-Revenue contended that huge expenditure has been incurred in both the cases and the AO had arrived to a correct conclusion that on the one hand the privilege fee was nothing-else except appropriation of the profits and was paying from one hand to another i.e. from the hands of the assessee being one wing of the Government and 100% subsidiary to the Government of Rajasthan resulting into reduction of the book profits. It was nothing-else except appropriation of profits or the nature was that it was not allowable under Sec.37 of the Act as it was in the nature of capital expenditure. He further contended that none has a fundamental right to carry on the trade in vending of liquor and it is only the State which can run the same and once the right/license was given to two of the State Government undertakings, the said amount paid by the assessee to the Government was in the nature of capital expenditure. The expenditure incurred in a way was to br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the claim of the assessee was rightly made and according to him it does not make any difference if the assessee is a State Government undertaking and may be having a share holding of 98% but the company has its own separate and distinct corporate entity having been incorporated as a Public Limited Company and registered with the Registrar of Companies. He contended that appropriation of profit/share can be only by mutual agreement of the parties but in the instant case, levy of privilege fees was as per excise policy of the State Government which regulates production, distribution and supply of country liquor in the State of Rajasthan and there was no question of any sharing of profits. The privilege fees was paid as per statutory provisions of Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950. He also contended that the expenditure is a plain simple revenue expenditure and it being a business expenditure is allowable under Section 37(1) of the Act. 16. In so far as the question No.2 is concerned, learned counsel for the respondent- assessee contended that admittedly, the goods were lying in the bonded warehouse and the liability to excise duty arises when the goods ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing and distributing supply of country made liquor whereas in the case of Rajasthan State Beverages Corporation Ltd., it was regulating and trading in Indian made foreign liquor and beer. In both the cases, the assessee paid privilege fees as was levied by the Excise Commissioner, State Government and the assessee enjoyed exclusive privilege of wholesale trading in Indian Made Foreign Liquor (IMFL) and Beer in the State of Rajasthan, while in the case of RSGSML, the AO has gone on a theory that it is appropriation of profit/income but in the case of RSBCL, the AO has gone on the same theory that the payment of privilege fee is in effect appropriation of profits and also alternatively held that if that is not so, then it is certainly in the nature of capital expenditure as the assessee had exclusive license and monopoly right or sole selling agency rights which is to the exclusion of all others. 19. We have considered the rival submissions, have perused the impugned orders in both sets of appeals and have scanned the material and judgments cited at the Bar. 20. It would be appropriate to quote Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950 which provide ad-infra:- "2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us or objectionable, (ii) the regulation or prohibition of the reduction of liquor by a licensed manufacturer or licensed, vendor from a higher to a lower strength, (iii) the fixing of the strength, price or quantity in excess of or below which any excisable article shall not be sold or supplied or possessed and the quantity in excess of which denatured spirit shall not be possessed and the prescription of a standard of quality for any excisable article, (iv) the prohibition of sale except for cash, (v) the fixing of the days and hours during which any licensed premises may or may not be kept open, and the closure of such premises on special occasions; (vi) the specification of the nature of the premises in which any excisable article may be sold and the notice to be exposed at such premises; (vii) the form of accounts, to be maintained and the returns to be submitted by licence-holders, and (viii) the regulation of the transfer of licences; (f) (i) declaring substance and the process by which spirit manufactured in India shall be denatured; (ii) for causing such spirit to be denatured through the agency or under the supervision of Excise Officer; (iii) for asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that does not mean that it becomes appropriation of profits or expenditure in the nature of capital in so far as the assessee is concerned. 23. Rajasthan State Ganganagar Sugar Mills Ltd as also Rajasthan State Beverages Corporation Ltd. are engaged mainly in the business of production and sale of liquor as also production/distribution and supply of country liquor or Indian made foreign liquor and beer in the State of Rajasthan. The production and supply of liquor is regulated by Excise Department of the State Government and in pursuance of the Rajasthan Excise Act, 1950, the Excise Department of the Government of Rajasthan decides from time to time the excise policy to regulate production, distribution and supply of liquor in the State of Rajasthan for a particular year. 24. We have already reproduced the relevant Sections of the Rajasthan Excise Act, 1950 and in exercise of the powers granted to the Excise Commissioner by the State, a policy has been made which is required to be followed by the assessee. We have already observed earlier that in the assessment year 2006-07, initially the privilege fee was determined at Rs. 20 crore, however, it was contested by the assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s determined before close of the year and paid in the month of April itself. 27. Taking into consideration the provisions of Section 37 which we have reproduced herein before, it allows deduction of any expenditure not being in the nature of capital expenditure or personal expenditure of the assessee laid out or expanded wholly or exclusively for the purpose of business. Since the privilege fee was paid by way of statutory levy and it was not in the nature of personal expenditure or in the nature of capital expenditure but for earning income and was wholly and exclusively for the purposes of business, in our view, the privilege fee was rightly allowed as a deduction by the Tribunal. 28. The Apex Court in the case of CIT Vs. Walchand & Co. P. Ltd.(1967) 65 ITR 381 (SC); J.K. Woolen Manufacturers Vs. CIT: (1969) 72 ITR 612 (SC); Aluminium Corporation Vs. CIT: (1972) 86 ITR 11 (SC) and S.A. Builders Ltd. Vs. CIT(A): (2007) 288 ITR 1 (SC) has held that any expenditure incurred out of commercial expediency, the same is an allowable deduction. The commercial expediency is to be considered from the angle of businessman and not from the angle of Revenue. The Revenue cannot sit in the arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular aspect which has not been regarded as crucial and no general principle can be deduced from any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present. This may give a different hue to the case. The Apex Court, however, taking into consideration various factors held that "What is an outgoing of capital and what is an outgoing on account of revenue, depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the justice classification of the legal rights, if any, secured, employed or exhausted in the process." and "the question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure, is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure." It also observed that the same text was formulated by Lord Clyde in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for obtaining non-exclusion rights and licence for manufacturing licensed products are revenue in nature. 33. Taking into consideration the facts, referred to herein before and the judgments, in our opinion, the question posed for our consideration about the privilege fee is in the nature of revenue expenditure and deductible expenditure under Section 37(1) of the Act. 34. We may also deal with the judgments cited by counsel for the appellant-Revenue. 35. In the case of CIT Vs. Bangalore Attrack Co. (supra), the facts were that the expenditure was incurred once and for all with a view to bring into existence the asset or the addition of obtaining the privilege of one year and the entire business itself was of one year duration and the Karnataka High Court, taking into consideration this fact, held that it was capital expenditure because the very business asset had a life of one year only. The facts in the instant case are distinguishable to that of the case of Karnataka High Court. 36. The judgment of this Court in the case of Manoj Textiles Vs. CIT (supra) relates to the development charges paid to RIICO and this Court, taking into consideration that it related to an expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, under Section 145A only the tax duty, cess or fees actually paid or incurred by the assessee to bring the goods to its place of location forms part value of stock. Unpaid excise duty on goods in stock that have not left the premises/factory/bonded warehouse, could not be added to the value of closing stock. We have taken into consideration the judgments of the Apex Court in the case of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) and CIT Vs. Dynavision Ltd. to come to the aforesaid opinion. In fact, even the Revenue has relied upon the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) but in our view, taking into consideration the view of the Apex Court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under Rule 9A of the said Rules and admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) supports the contention of the assessee rather than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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