2020 (4) TMI 98 - AT - Income Tax

Disallowance u/s 43B - Amount been paid to the landlord towards reimbursement of property tax to be paid by the landlord / licensor on the property taken on lease by the assessee - HELD THAT - On a perusal of the lease and license agreement it is seen that burden of paying the property tax is on the licensor. As per the mutual agreement between the parties, the licensee agreed to reimburse the property tax to the licensor save and except any late fee / charge for any statutory dues. Thus, as could be seen from the aforesaid terms of the agreement, the reimbursement of property tax by the assessee to the licensor is purely contractual and not a statutory liability. Even otherwise also, property tax levied by the Municipal Authority is a charge on the property. Undisputedly, the licensor is the owner of the property, hence, liable to pay the property tax. That being the case, the amount equivalent to the property tax reimbursed to the licensor cannot be treated as rate, tax, fee, cess, etc., as provided u/s 43B(a). Therefore, the disallowance made has to be deleted. - Decided in favour of assessee.

Summary

Issues:
Delay in filing the appeal, disallowance under section 43B of the Income Tax Act.

Delay in Filing the Appeal:
The appeal was filed with a delay of 124 days, and the assessee sought condonation for the delay. The tribunal, after considering the reasons provided, found the delay to be due to bonafide reasons and thus condoned the delay, admitting the appeal for adjudication.

Disallowance under Section 43B:
The main issue for consideration was the disallowance of ?19,37,936 under section 43B of the Income Tax Act. The Assessing Officer disallowed this amount as it represented property tax claimed by the assessee but not actually paid during the year. The DRP upheld this addition. However, the assessee argued that the amount reimbursed to the landlord for property tax was part of the rent paid and hence allowable as expenditure. The tribunal examined the lease agreement terms and found that the reimbursement was contractual and not a statutory liability. As property tax is the owner's responsibility, the reimbursement by the assessee to the licensor could not be treated as tax, fee, cess, etc., under section 43B(a). Consequently, the disallowance was deleted, and the appeal was partly allowed.

This judgment highlights the importance of contractual obligations in determining the allowability of expenses under tax laws. It clarifies that certain reimbursements, even if related to statutory payments, may not fall under the disallowance provisions if they are contractual in nature.