2020 (11) TMI 771 - AT - Income Tax

Disallowance u/s 40(a)(iib) - License fees paid to the Govt, of Odisha - HELD THAT - In the present year under consideration, the assessee has shown license fee payment of ₹ 151,90,00,000/- in its profits and loss account paid to the State Government of Odisha and view of the amended provisions of section 40(a)(iib) of the Act, the license fees paid to State Government is taxable in the hands of the assessee. Admittedly, the assessee is the only wholesale liquor distributor in the State as authorized by Government of Odisha by charging impugned license fee. Therefore, there is no person in similar line of business with whom license fees charged by Govt. of Odisha and paid by the assessee cannot be compared for determination of reasonable license fee. On careful perusal of the order of the Tribunal and first appellate orders for assessment years 2014- 15 and 2015-16, we have no hesitation to hold that above contentions have not been raised by the assessee neither during assessment proceedings and first appellate proceedings for both the assessment years and nor before the Tribunal during arguments of assessment year 2014-15. In view of above, the assessee cannot be allowed to make a new case and to argue the contentions which were not pressed into service before the authorities below and before the Tribunal during the hearing of the case of A.Y. 2014- 15 at this belated stage. Therefore, these contentions of the assessee are dismissed.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Disallowance of ?151,90,00,000/- under section 40(a)(iib) of the Income Tax Act.
3. Applicability of section 40(a)(iib) to the license fees paid by the assessee.
4. Interpretation of section 40(a)(iib) concerning license fees under the Bihar & Orissa Excise Act, 1915.
5. Misinterpretation of section 40(a)(iib) by CIT(A).

Issue-wise Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A), Bhubaneswar, dated 19.12.2018, for the assessment year 2015-16, claiming it was bad in law and on facts. The Tribunal reviewed the submissions and upheld the CIT(A)'s order, finding no merit in the assessee's contentions.

2. Disallowance of ?151,90,00,000/- under Section 40(a)(iib):
The core issue was the disallowance of ?151,90,00,000/- made by the AO under section 40(a)(iib) of the Income Tax Act, 1961, on account of license fees paid to the Government of Odisha. The Tribunal noted that the license fee was shown in the profit and loss account, and the AO disallowed it based on section 40(a)(iib), which disallows any amount paid by way of royalty, license fee, service fee, privilege fee, service charge, or any other fee or charge levied exclusively on a State Government undertaking by a State Government.

3. Applicability of Section 40(a)(iib) to the License Fees Paid by the Assessee:
The assessee argued that the license fee was not exclusively levied on them and thus should not attract the provisions of section 40(a)(iib). The Tribunal, however, referred to the guidelines issued by the Excise Department of Odisha, which indicated that the wholesale distribution of liquor was exclusively assigned to the assessee, making the license fee an exclusive levy. Consequently, the Tribunal upheld the disallowance.

4. Interpretation of Section 40(a)(iib) Concerning License Fees Under the Bihar & Orissa Excise Act, 1915:
The assessee contended that the license fee paid under the Bihar & Orissa Excise Act, 1915, was an allowable expenditure and not an exclusive levy. The Tribunal, however, found that the license fee was indeed an exclusive levy on the assessee, as they were the only entity authorized to distribute liquor wholesale in Odisha. The Tribunal also noted that the provisions of section 40(a)(iib) were applicable from the assessment year 2014-15 onwards, as clarified by the Finance Act, 2013.

5. Misinterpretation of Section 40(a)(iib) by CIT(A):
The assessee argued that the CIT(A) misinterpreted section 40(a)(iib). The Tribunal reviewed the CIT(A)'s interpretation and found it consistent with the statutory provisions and the legislative intent to curb tax avoidance practices. The Tribunal emphasized that the license fee was a compulsory payment for conducting business, and its disallowance under section 40(a)(iib) was justified.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order and the disallowance made by the AO under section 40(a)(iib). The Tribunal found that the license fee was an exclusive levy on the assessee, and the provisions of section 40(a)(iib) were rightly applied. The appeal was dismissed in its entirety, and the order was pronounced on 23/11/2020.