2003 (9) TMI 23 - HC - Income Tax

Disallowance of claim of the assessee for deduction of landscaping expenses as research and development expenses allowable under section 35 The order of the Tribunal relating to allowance of deduction of Rs. 53,862 on account of landscaping expenses is set aside as the same are held to be capital in nature and not allowable as deduction in computing taxable income. Allowance of transportation charges amounting to Rs.7,550 as deduction is upheld - IN respect of claim of the assessee for deduction of amount of bottling fee payable under the Rajasthan Excise Act, 1950, held that it does not attract the provisions of section 43B and, therefore, liability was h allowable as deduction for the assessment year in question, accounts being maintained on mercantile basis. Held that fee paid is not a fee in its technical sense as an impost and is allowable as revenue expenditure as price paid to the State

Summary

Issues Involved:
1. Deduction of unpaid bottling fee under section 43B of the Income-tax Act, 1961.
2. Deduction of landscaping expenses under section 35(1)(iv) of the Income-tax Act, 1961.
3. Classification of bottling fees as tax, duty, cess, or fee under section 43B of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction of unpaid bottling fee under section 43B of the Income-tax Act, 1961:
The Tribunal had allowed the deduction of Rs. 5,61,462 for unpaid bottling fees, treating the furnishing of a bank guarantee as equivalent to actual payment. However, the court held that section 43B requires actual payment, not deemed payment. The court referenced the case of CIT v. Rajasthan Patrika Ltd., stating that furnishing a bank guarantee cannot be equated with actual payment. The court emphasized that money must flow from the assessee to the public exchequer to meet the requirements of section 43B. Thus, the Tribunal's decision was overturned, and the deduction was disallowed.

2. Deduction of landscaping expenses under section 35(1)(iv) of the Income-tax Act, 1961:
The Tribunal allowed the deduction of Rs. 61,412, which included Rs. 53,862 for landscaping expenses and Rs. 7,550 for transportation expenses, by relying on a previous decision. The court, however, found that the landscaping expenses were capital in nature, as they were incurred to make uneven land fit for cultivation, which is a permanent improvement. The court stated that such expenses do not relate to research and development and cannot be allowed as revenue expenses. The court also clarified that transportation expenses are revenue in nature and allowable as business expenses. Therefore, the deduction for landscaping expenses was disallowed, while the deduction for transportation expenses was upheld.

3. Classification of bottling fees as tax, duty, cess, or fee under section 43B of the Income-tax Act, 1961:
The court examined whether bottling fees under the Rajasthan Excise Act, 1950, and the Rajasthan Excise Rules, 1952, qualify as tax, duty, cess, or fee under section 43B. The court referred to various Supreme Court decisions, including Har Shankar v. Deputy Excise and Taxation Commissioner and State of U.P. v. Sheopat Rai, which held that fees under state excise laws are consideration for parting with the state's exclusive privilege and not a tax or fee in the technical sense. The court concluded that bottling fees are consideration for parting with the state's exclusive privilege and do not fall under section 43B. The court also noted that for the assessment year 1988-89, section 43B applied only to tax and duty, not to cess or fees. Thus, the bottling fee was allowable as a revenue expenditure.

Conclusion:
The appeal was partly allowed. The court set aside the Tribunal's order allowing the deduction of landscaping expenses, upheld the deduction for transportation expenses, and confirmed the allowance of the bottling fee as a revenue expenditure. No order as to costs was made.