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TMI Blog2016 (5) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... use, could not be added to the value of closing stock. We have taken into consideration the judgments of the Apex Court in the case of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (1979 (9) TMI 70 - SUPREME Court ) and CIT Vs. Dynavision Ltd. [2012 (9) TMI 265 - SUPREME COURT] to come to the aforesaid opinion. In fact, even the Revenue has relied upon the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) but in our view, taking into consideration the view of the Apex Court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under Rule 9A of the said Rules and admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) supports the contention of the assessee rather than of the Revenue. - Decided in favour of the assessee Addition on account of depositing the PF/ESI payment beyond the prescribed time - Held that:- The issue is squarely covered by the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an State Ganganagar Sugar Mills Ltd.) are concerned, the first substantial question framed by this Court in those appeals is similar and identical while in two of such appeals the second/additional substantial question was also framed which read ad-infra:- First Substantial Question: Whether in the facts and circumstances of the case, the Tribunal was justified in law in holding that the excise duty is not leviable as the goods are not transferred and as such the same cannot be added in closing stock contrary to provisions of section 145A of the Act ? Second/additional Substantial Question: Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the additions made by the Assessing Officer by way of disallowing Privilege Fee paid by the assessee to Excise Commissioner, Government of Rajasthan despite the fact that it was application of income ? 4. As regards the appeals filed by the appellant-Revenue against the respondent-assessee (Rajasthan State Beverages Corporation Ltd. are concerned, the substantial questions framed by this Court in these appeals read ad-infra:- DB Income Tax Appeal No.98/2011: Whether in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany i.e. Government of Rajasthan and the assessee being part of the tripartite agreement, the said amount was not allowable and thus disallowed the same by holding that it is appropriation of profits. The another claim was that the AO noticed under valuation of the closing stock to the tune of ₹ 45,84,000/- on the premise that it was excise duty component which was not included in the value of closing stock of finished goods and in view of the provisions of Section 145A, the said amount was required to be added. However, the claim of the assessee was that the excise duty was neither actually paid nor accrued on the value of closing stock and it became payable only when the goods are taken out of the warehouse and sold and admittedly in the instant case, the said stock was available in the bonded warehouse and since the excise duty was not payable nor accrued, it was not includable. However, the AO included the said amount. 7. The matter was assailed before the Commissioner of Income Tax (Appeals) [for short, 'CIT(A)']. However, the CIT(A) in so far as the claim regarding the privilege fees is concerned, upheld finding of the AO but in so far as the claim relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature was that it was not allowable under Sec.37 of the Act as it was in the nature of capital expenditure. He further contended that none has a fundamental right to carry on the trade in vending of liquor and it is only the State which can run the same and once the right/license was given to two of the State Government undertakings, the said amount paid by the assessee to the Government was in the nature of capital expenditure. The expenditure incurred in a way was to bring into existence long-term benefits of obtaining to vend the liquor or sale and thus was in the nature of capital expenditure. 14. In so far as excise duty is concerned, counsel for the Revenue contended that once manufacturing takes place, excise duty is leviable and even if the said stock is kept in the bonded warehouse, still the levy of excise duty remains and admittedly, the stock was lying of the liquor already manufactured/produced and in view of the provisions of Section 145A being mandatory, the AO was correct in including the said excise duty component. He further contended that taxable event is the manufacture but the liability to pay the duty may be postponed till the time of removal but in so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge fees was paid as per statutory provisions of Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950. He also contended that the expenditure is a plain simple revenue expenditure and it being a business expenditure is allowable under Section 37(1) of the Act. 16. In so far as the question No.2 is concerned, learned counsel for the respondent- assessee contended that admittedly, the goods were lying in the bonded warehouse and the liability to excise duty arises when the goods are removed from the bonded warehouse/factory and admittedly, even by the Revenue the goods had not come out of the bonded warehouse/factory and therefore, there was no question of adding the excise duty component in the value of the closing stock. In support of his submissions, he relied upon the judgments rendered in the case of Jallo Subsidiary Industries Co. (India) Pvt. Ltd. Vs. CIT: (2002) 256 ITR 452 (Del.); Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise: (1990) 186 ITR 440 (SC); CIT Vs. Dynavision Ltd.: (2012) 348 ITR 380 (SC) ACIT Vs. D H Secheron Electrodes (P) Ltd. : (2008) 5 DTR 279(MP); DCIT Vs. Marudhar Hotels (P) Ltd. : (2000) 245 ITR 138 (Raj.). 17. Mr. Sanjay Jhanwar, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that is not so, then it is certainly in the nature of capital expenditure as the assessee had exclusive license and monopoly right or sole selling agency rights which is to the exclusion of all others. 19. We have considered the rival submissions, have perused the impugned orders in both sets of appeals and have scanned the material and judgments cited at the Bar. 20. It would be appropriate to quote Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950 which provide ad-infra:- 24. Grant of exclusive privilege of manufacture, etc- Subject to the provisions of section 31, the Excise Commissioner may order the grant to any person of a licence for the exclusive privilege- (1) of manufacturing or of supplying by wholesale, or of both, or (2) of selling by wholesale or by retail, or (3) of manufacturing or of supplying by wholesale, or of both, and selling by retail, any country liquor, Foreign liquor or intoxicating drugs within any local area of those parts of the State of Rajasthan to which this Act extends. 30- Payment for exclusive privilege- Instead of or in addition to any duty leviable under this chapter, the Excise Commissioner may accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises on special occasions; (vi) the specification of the nature of the premises in which any excisable article may be sold and the notice to be exposed at such premises; (vii) the form of accounts, to be maintained and the returns to be submitted by licence-holders, and (viii) the regulation of the transfer of licences; (f) (i) declaring substance and the process by which spirit manufactured in India shall be denatured; (ii) for causing such spirit to be denatured through the agency or under the supervision of Excise Officer; (iii) for ascertaining whether such spirit has been denatured; (g) providing for the destruction or other disposal of any excisable article deemed to be unfit for use. (h) regulating the disposal of confiscated articles. 21. It would also be appropriate to quote Section 37 of the Income Tax Act, 1961 which provides ad-infra:- 37(1) Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expanded wholly and exclusively for the purposes of the business or profession shall be allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Government of Rajasthan decides from time to time the excise policy to regulate production, distribution and supply of liquor in the State of Rajasthan for a particular year. 24. We have already reproduced the relevant Sections of the Rajasthan Excise Act, 1950 and in exercise of the powers granted to the Excise Commissioner by the State, a policy has been made which is required to be followed by the assessee. We have already observed earlier that in the assessment year 2006-07, initially the privilege fee was determined at ₹ 20 crore, however, it was contested by the assessee-company before the Government of Rajasthan which was redetermined at ₹ 12.5 crore and as per directives and guidelines issued by the Government of Rajasthan through Excise Department, the Company had no option but to comply with the orders of the Excise Department with regard to payment of privilege fee and has paid ₹ 12.5 crore to the Excise Department and similarly varying amounts in different years and so also the Rajasthan State Beverages Corporation Ltd also paid privilege fee in accordance with the State policy from time to time. 25. In our view, the amount of privilege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of business, in our view, the privilege fee was rightly allowed as a deduction by the Tribunal. 28. The Apex Court in the case of CIT Vs. Walchand Co. P. Ltd.(1967) 65 ITR 381 (SC); J.K. Woolen Manufacturers Vs. CIT: (1969) 72 ITR 612 (SC); Aluminium Corporation Vs. CIT: (1972) 86 ITR 11 (SC) and S.A. Builders Ltd. Vs. CIT(A): (2007) 288 ITR 1 (SC) has held that any expenditure incurred out of commercial expediency, the same is an allowable deduction. The commercial expediency is to be considered from the angle of businessman and not from the angle of Revenue. The Revenue cannot sit in the arm chair of businessman and dictate the terms to the assessee as to how one is required to conduct its business or incur an expenditure and how it is to be allowed. 29. The privilege fee was paid for granting right to manufacture and vend the liquor/sale of country liquor/ Indian made foreign liquor and Beer and determination of privilege fee was within the jurisdiction of the State authorities and levy of such fee cannot be termed as application of income or dividend as well. The AO has made an observation that privilege fee was not paid as per agreement entered between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e classification of the legal rights, if any, secured, employed or exhausted in the process. and the question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure, is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. It also observed that the same text was formulated by Lord Clyde in the words: Is it part of the company's working expenses, is it a capital outlay, is it expenditure necessary for the acquisition of property or of rights of permanent character, the possession of which is a condition of carrying on its trade at all ? and after taking into consideration, it was held by the Apex Court in the above case that the payment by the assessee for purchase of loom hours was expenditure laid but as part of the process of profit earning. It was, to use an outlay of a business in order to carry it on and to earn profit out of this expense, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred once and for all with a view to bring into existence the asset or the addition of obtaining the privilege of one year and the entire business itself was of one year duration and the Karnataka High Court, taking into consideration this fact, held that it was capital expenditure because the very business asset had a life of one year only. The facts in the instant case are distinguishable to that of the case of Karnataka High Court. 36. The judgment of this Court in the case of Manoj Textiles Vs. CIT (supra) relates to the development charges paid to RIICO and this Court, taking into consideration that it related to an expenditure incurred on a plot of land which was a capital asset, the expenditure being in the nature of fixed capital/asset and not a circulating capital, the development charges paid makes the land in workable position and therefore, it held that it as an expenditure of capital nature whereas the facts of the instant case are distinguishable to the said judgment. 37. We have also considered the judgment rendered by Karnataka High Court in the case of Karnataka State Beverages Corpn. Ltd. Vs. CIT (supra). Though the same supports the view of the Revenue, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue has relied upon the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) but in our view, taking into consideration the view of the Apex Court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under Rule 9A of the said Rules and admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) supports the contention of the assessee rather than of the Revenue. 41. As regards the substantial question framed in DB Income Tax Appeal No.120/2012, referred to supra, in regard to deleting addition of ₹ 7,61,777/- made on account of depositing the PF/ESI payment beyond the prescribed time, counsel for the appellant-revenue contended that the said amount was required to be disallowed as once it was paid beyond the prescribed time under the relevant statutes of Provident Fund/ESI, the amount could not have been allowed. He thus contended that the mandate of the statute has to be stric ..... X X X X Extracts X X X X X X X X Extracts X X X X
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