2019 (4) TMI 685 - HC - Income Tax

Addition u/s 43B - enhanced licence fee for land payable to railway - duty, cess or fee payable under law for the time being in force or any payments made by virtue of Section 43B(1)(b) - crystallization of liability - additional ground - applicability of insertion of clause (g) in Section 43B(1) w.e.f. 01.04.2017 - HELD THAT - This Court is of the opinion that even otherwise, having regard to the facts of this case, the arguments with respect to the applicability of Section 43B is untenable Assessee follows a mercantile system of accounting where such entries are made on contingent basis. This consistent practice was recognized and the only question was whether the existence of a dispute in any manner implicated the accountancy practices adopted by the asseessees in treating an unascertained liability to unquantified liability. Furthermore, Section 43B, either in Clauses (a) and (b) of sub-section (1), do not in the opinion of this court, cover the kind of licence fee that is under consideration. The reference to fee has to be always read along with the expression law in force . The documents placed on record even along with the additional grounds, make it clear that the transactions between the parties was plain and simple, a commercial one, while the land was allotted for a certain licence fee. The central issue in dispute was a retrospective increase in licence fee and claim for damages. The assessee has relied on notes of clauses to the bill which interprets Section 43B(1)(g). It states that this amendment takes effect from 01.04.2017 and would accordingly apply to the assessment year 2017-18 and the subsequent assessment years. Thus, it is clear beyond any shade of doubt that notions of clarificatory amendment, etc. would not be applicable herein. - Decided against revenue.

Summary

Issues:
1. Applicability of Section 43B of the Income Tax Act to the deduction claimed by the assessee as enhanced license fee.
2. Interpretation of the liability to pay enhanced license fee and damages by the Northern Railways.
3. Claim for deduction by the assessee based on the mercantile system of accounting and the existence of a dispute regarding the liability.

Analysis:

1. The Revenue challenged the decision of the ITAT regarding the deduction claimed by the assessee as enhanced license fee, contending that it was impermissible under Section 43B(a) of the Income Tax Act. The court noted that the facts were similar to previous appeals and emphasized that the liability to pay the enhanced license fee arose in the year of demand, irrespective of actual payment. The court held that the liability was not crystallized when claimed, pending the final decision of arbitration proceedings on the proper fee or damages.

2. The assessee was allotted lands by the Northern Railways, with revisions in license fee and damages leading to disputes. The Revenue argued that the deductions claimed did not fall within the purview of Section 43B, as the amounts were not paid within the year. However, the court found that the liability was contractual and not under law, and the enhanced fee could be claimed as a deduction in the year it accrued, even if not paid that year. The court emphasized that the liability persisted until a final decision in arbitration proceedings.

3. The court rejected the Revenue's argument that Section 43B applied to the case, stating that the assessee followed a mercantile system of accounting, making entries on a contingent basis. The court found that the license fee in question did not fall under Section 43B(a) or (b), as it was a commercial transaction and not a statutory fee. The court dismissed the appeal, highlighting that the additional grounds raised by the Revenue were not permissible due to the strict timelines under the Act, and the arguments regarding the applicability of Section 43B were untenable based on the facts of the case.