2010 (3) TMI 907 - HC - Income Tax

Disallowance u/s 43B - held that - According to the perception of the Income-tax Department as contained in Circular No. 528, dated December 16, 1988, the disallowance was to cover any amount payable to any statutory authority including local authority and could be allowed only in the year in which such an amount is paid. In that view, therefore, the amendment was made and it was clarified that such an amount would also be allowable only on actual payment irrespective of the previous year in which liability to pay such sum was incurred. In view thereof, the amendment was made and it was clarified that such an amount would also be allowable only on actual payment irrespective of the previous year in which liability to pay such sum was incurred.

Summary

Issues Involved:
1. Deduction of SEBI registration fee under section 43B of the Income-tax Act.
2. Applicability of section 43B to SEBI registration fee.
3. Nature of SEBI registration fee as statutory liability.
4. Timing of deduction for SEBI registration fee.
5. Perversity of the Income-tax Appellate Tribunal's order.

Detailed Analysis:

1. Deduction of SEBI Registration Fee under Section 43B:
The Revenue challenged the ITAT's decision allowing a deduction of Rs. 3,84,01,630 as SEBI registration fee under section 43B of the Income-tax Act. The assessee claimed this fee as a deduction in the profits and loss account, arguing it was a statutory fee payable under the SEBI (Interest Liability Regularisation) Scheme, 2004. The ITAT upheld this view, concluding that the SEBI turnover fee qualifies as a statutory liability deductible under section 43B.

2. Applicability of Section 43B to SEBI Registration Fee:
Section 43B mandates that certain expenses, including statutory fees, are deductible only upon actual payment. The ITAT relied on previous judgments, including ITO v. Sureshchand Jain and Kay Holding Co. P. Ltd. v. Deputy CIT, to affirm that SEBI registration fee is a statutory liability under section 43B. The ITAT's decision was based on the fact that the fee was paid during the year under consideration, making it deductible.

3. Nature of SEBI Registration Fee as Statutory Liability:
The Revenue argued that the SEBI registration fee was not a statutory liability but a contractual one, as it was required for membership in the stock exchange. However, the ITAT and the Commissioner of Income-tax (Appeals) held that the fee was indeed a statutory liability under regulation 10 of the SEBI (Stock Brokers and Sub-Brokers) Regulations Act, 1992. The ITAT noted that the SEBI Act empowers SEBI to levy such fees, making them statutory in nature.

4. Timing of Deduction for SEBI Registration Fee:
The Assessing Officer initially disallowed the deduction, arguing the liability crystallized in 2001 when the Supreme Court upheld the SEBI regulations, making it a prior period expense. However, the ITAT and the Commissioner of Income-tax (Appeals) determined that the expense was allowable in the year of actual payment (2004) under section 43B. The ITAT emphasized that section 43B allows deductions based on actual payment, regardless of when the liability was incurred.

5. Perversity of the Income-tax Appellate Tribunal's Order:
The Revenue contended that the ITAT's order was perverse in law and on facts, arguing that the SEBI registration fee should not have been allowed as a deduction in the year under consideration. The ITAT, however, found that the payment was made under a notified scheme and was thus deductible under section 43B. The court concluded that no question of law arose from the ITAT's decision, dismissing the Revenue's appeal.

Conclusion:
The High Court upheld the ITAT's decision, confirming that the SEBI registration fee qualifies as a statutory liability deductible under section 43B of the Income-tax Act. The court found no perversity in the ITAT's order and dismissed the Revenue's appeal, affirming the deduction of the SEBI registration fee in the year of actual payment.