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2017 (8) TMI 1351 - AT - Income TaxAllowable business expenditure - vend fee special privilege fee and the annual license fee - Held that - As the issue of fees levied by the government has already been held to be an allowable expenditure respectfully following the principles laid down in the decision in the case of Karnataka Beverages Corporation Ltd. 2016 (3) TMI 461 - KARNATAKA HIGH COURT the additions made by the AO and as confirmed by the Ld.CIT(A) in respect of the vend fee special privilege fee and the annual license fee stands deleted. - Decided in favour of assessee
Issues Involved:
1. Disallowance of special privilege fee/annual privilege fee (License Renewal fee)/vend fee/special fees. 2. Application of Section 37 and Section 43B of the Income Tax Act. 3. Retrospective applicability of Section 40(a)(iib). 4. Reasonableness and validity of fees levied under Tamil Nadu Prohibition Act, 1937. 5. Relevance of decisions from other jurisdictions and tribunals. Detailed Analysis: 1. Disallowance of Fees: The primary issue revolves around the disallowance of various fees paid by the assessee, including the special privilege fee, annual privilege fee, vend fee, and special fees. The Commissioner of Income Tax (Appeals) [CIT(A)] had confirmed the disallowance, which the assessee contested, arguing that these fees were paid in compliance with the Tamil Nadu Prohibition Act, 1937, and the Tamil Nadu Liquor (Supply by Wholesale) Rules, 1983. The assessee pointed out that similar payments had been allowed in earlier years by the ITAT and the Hon'ble High Court of Madras. 2. Application of Section 37 and Section 43B: The CIT(A) held that the fees were not allowable under Section 37 of the Income Tax Act. However, the assessee argued that the fees should be allowable under Section 37, and the Apex Court's decision in CIT, Kerala vs. M/s. Travancore Sugars & Chemicals Ltd., which held that fees by "whatever name called" are allowable deductions when actually paid under Section 43B, supported their stance. The assessee had paid all relevant fees before filing the return, making them allowable under Section 43B. 3. Retrospective Applicability of Section 40(a)(iib): The CIT(A) held that clause (iib) to Section 40(a) introduced with effect from 01.04.2014 would be applicable retrospectively. The assessee contested this, citing the Hon'ble Karnataka High Court's decision in M/s. Karnataka Beverages Corporation v. CIT, which held that the clause is not retrospective. 4. Reasonableness and Validity of Fees: The CIT(A) held that the fees under the Tamil Nadu Prohibition Act, 1937, were not reasonable and conflicted with the Income Tax Act, labeling them as a tax avoidance measure. The assessee argued that the fees were in compliance with statutory provisions and could not be considered a tax avoidance measure. They cited the Hon'ble Karnataka High Court's decision, which followed the Apex Court's ruling in Har Shankar v. DTC, affirming that fees levied by the state in respect of the grant of license or privilege fee cannot be disallowed on the grounds of unreasonableness. 5. Relevance of Decisions from Other Jurisdictions and Tribunals: The CIT(A) relied on the decision of the Hyderabad Tribunal in the case of Andhra Pradesh Beverages Corporation Limited, which the assessee argued was factually distinguishable from their case. The ITAT Chennai Bench had previously ruled in favor of the assessee on similar issues, and the decisions of the Hyderabad Tribunal were not applicable to the facts of the present case. Conclusion: The ITAT Chennai concluded that the fees were statutory levies under the Tamil Nadu Prohibition Act, 1937, and the Tamil Nadu IMFS (Supply by Wholesale) Rules, 1983. The Tribunal found no evidence of a colorable device or tax avoidance measure. The fees were allowable as business expenditures, and the disallowance by the AO and CIT(A) was not justified. The appeals filed by the assessee were allowed, and the additions made by the AO were deleted. The Tribunal also emphasized that if the Revenue wished to challenge the levies, it should do so through a writ before the Hon'ble Jurisdictional High Court. Order: The appeals filed by the assessee were allowed, and the order was pronounced in the Open Court on August 21, 2017, at Chennai.
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