2016 (12) TMI 1418 - AT - Income Tax

Disallowance of privilege fee etc. - Held that - The payment of privilege fee/special privilege fee etc., by whatever name called is an allowable expenditure. We 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. See case of Karnataka State Beverages Corporation Ltd 2016 (3) TMI 461 - KARNATAKA HIGH COURT - Decided in favour of assessee Deduction under section 80G - contribution to the CM s Relief Fund - Held that - 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. 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 - SUPREME COURT held that true that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. As from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied.

Issues Involved:
1. Disallowance of privilege fee, special privilege fee, and special privilege fee (sports).
2. Addition of interest credited by LIC on leave encashment fund.
3. Deduction under section 80G for contributions to the Chief Minister’s Relief Fund.
4. Disallowance under section 40A(9) related to Group Leave Encashment Scheme.

Issue-wise Detailed Analysis:

1. Disallowance of Privilege Fee, Special Privilege Fee, and Special Privilege Fee (Sports):
The assessee, engaged in the business of trading in alcoholic products, paid a privilege fee to the Government of Andhra Pradesh. The Assessing Officer (AO) disallowed the privilege fee, considering it as an application of income rather than a diversion of income by overriding title. The AO relied on the judgment of the Apex Court in the case of APSRTC to hold that the assessee is not an arm of the Government and thus, its income cannot be considered as the income of the Government. The Tribunal noted that the issue had been decided against the assessee in earlier years by the Coordinate Bench. However, the assessee argued that the privilege fee should be allowed as it is a consideration for the privilege conferred by the Government and cited the judgment of the Karnataka High Court in the case of Karnataka State Beverages Corporation Ltd., which allowed such fees as an expenditure. The Tribunal, after considering the judgment of the Karnataka High Court and the relevant statutory provisions, directed the AO to allow the privilege fee, special privilege fee, and special privilege fee (sports) as expenditure under section 37 of the Act.

2. Addition of Interest Credited by LIC on Leave Encashment Fund:
The AO added the interest accrued on the Group Leave Encashment Scheme with LIC to the assessee’s income, arguing that the interest was not offered to tax. The assessee contended that the interest credited by LIC is adjusted against the premium payable in the next year and should not be taxed separately. The Tribunal remitted the issue to the AO for verification, directing that if the interest credited by LIC is taken as income, the entire premium payable by the assessee for the next assessment year should be considered as expenditure.

3. Deduction under Section 80G for Contributions to the Chief Minister’s Relief Fund:
The AO disallowed the deduction under section 80G for contributions made to the Chief Minister’s Relief Fund, stating that the contribution was not voluntary. The CIT(A) allowed the deduction, noting that the contribution was made as per the direction of the Government and should be considered voluntary. The Tribunal upheld the CIT(A)’s decision, stating that the contribution to the CM’s Relief Fund is an allowable deduction.

4. Disallowance under Section 40A(9) Related to Group Leave Encashment Scheme:
The AO disallowed the contribution to the LIC Group Leave Encashment Scheme under section 40A(9), arguing that it was not an approved gratuity fund. The CIT(A) allowed the deduction, citing the decision of the Hon'ble Supreme Court in Bharat Earth Movers vs. CIT, which held that contributions to such schemes are allowable. The Tribunal upheld the CIT(A)’s decision, noting that the payment to the LIC Group Leave Encashment Scheme is an allowable expenditure.

Conclusion:
The Tribunal partly allowed the assessee’s appeal, directing the AO to allow the privilege fees as expenditure and remitting the issue of interest credited by LIC for verification. The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s allowance of the deduction under section 80G and the contribution to the LIC Group Leave Encashment Scheme.

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