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TMI Blog2017 (3) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory obligation for doing of business, the same by no stretch of imagination can be termed as not for the purpose of business or profession. Since in the present case, it is privilege fee and the liability to pay the said amount arises on account of the statutory obligation even if the payment of which is agreed upon by contractual arrangement, such expenditure would not fall into the arena of voluntariness or the ground of commercial expediency or facilitation in carrying on of the business. Even if the decision upon which the reliance has been placed by the learned ASG are considered, the assessing officer will have a power to examine the commercial expediency for the expenditure incurred but it cannot be said that he will have jurisdiction to disallow the expenditure incurred for necessity or with a view to have a direct benefit in the business of liquor. On the contrary, the assessing officer being a statutory authority under the Act is bound to respect all the laws may be made by the Parliament or may be made by the State Legislature. He has no jurisdiction to examine the constitutional validity of any Act or the statute or a subordinate legislation which creates st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, has passed the order disallowing of privilege fee of the respective amount paid by the respondent-Company to the Government of Karnataka. The other disallowance was also made in the assessment year in respect of certain other expenses. 4. We may, for ready reference, reproduce the details of the original writ petitions, writ appeals, assessment year and the privilege fees which are disallowed by the impugned assessment orders in the respective original writ petitions as under: Writ Appeal Nos. Writ Petition Number Assessment Year Privilege Fee 853/2016 12872/2013 2010-2011 Rs.570,14,37,000/- 854/2016 14687/2014 2011-2012 Rs.695,14,70,000/- 855/2016 15910/2015 2012-2013 Rs.829,41,58,944/- 856/2016 17514/2015 2009-2010 Rs.479,36,60,000/- 5. The assessing officer has disallowed the privilege fee on the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also other prayers made and the ultimate prayer was to quash the assessment orders passed by the assessing officer under the Act for the respective assessment year and consequential prayer to quash the demand notice pursuant to the assessment orders passed for the respective years. 8. The learned Single Judge found that the unreasonableness of the privilege fee payable is not a ground to hold that it is a device by which the petitioner and the State Government are avoiding payment of tax. He also held that the privilege fee payable by the original petitioner to the State Government would be taxable with effect from 1.4.2014 in view of the amendment which is prospective in nature and not prior thereto as the amendment came into force from 1.4.2014. 9. The learned Single Judge found that there is no illegality committed by the original petitioner in paying such privilege fee to the State Government and it was not open to the assessing officer to hold that the privilege fee appears to be relatable to the profit earned or that large chunk of it is transferred to the State Government in the name of privilege fee. The learned Single Judge therefore, found that the same could not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 226 of the Constitution in a case where statute provides alternative remedy, is by now well settled. If the action is wholly without jurisdiction or is ultravires to the power, the existence of alternative remedy is no bar to the entertainment of the petition under Article 226 of the Constitution. To put it in other words, unless an exceptional case is made out warranting interference to invoke extra-ordinary jurisdiction under Article 226, this Court would, by self imposed restriction, may decline to entertain a petition. 15. In our view, if the action is wholly without jurisdiction or is ultravires to his power, such order would fall in the category of exceptional case to make a departure from the normal principles of non-entertainment of the petition under Article 226 of the Constitution when alternative statutory remedy is available. 16. In order to find out as to whether the case falls in the exceptional category or as to whether the action by the assessing officer in the assessment proceedings disallowing the expenditure incurred for payment of privilege fee can be said to be wholly without jurisdiction or ultravires to the power, we need to further examine the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) reported in 2007 (1) SCC 781 and more particularly the observations made at paragraphs No.24 to 27 in the said Judgment and contended that it was within the powers of an assessing officer to decide that whether there was any commercial expediency for incurring a particular expenditure and therefore, the action could not be said to be wholly without jurisdiction or ultravires to his power if the assessing officer has disallowed the fee. 21. In order to appreciate the contention, we may reproduce paragraphs No.24 to 27 of the aforesaid decision which reads as under: 24. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1) (iii) because in Section 37 also the expression used is for the purpose of business . It has been consistently held in decision relating to Section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 25. Thus, in Atherton v.British Insulated Helsby Cables Ltd. it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred for necessity, it would certainly include the statutory liability for running of the business. On the contrary, if the statute is not obeyed and resultantly the person is unable to do business, such expenditure incurred for compliance of the statute would in any case fall under the expenditure for necessity. As we are not required to examine the other expenditure which may fall as necessity, we would not be required to further discuss in detail. 24. Even if it is to be considered under the head of direct and immediate benefit for the purpose of considering the nature of expenditure, then, also the same has no applicability for testing the commercial expediency. For example, if one is to make the payment of the raw material for producing the finished product, there is a direct and immediate benefit. Same way, if one is to pay fees for getting licence to do a particular business, it has a direct and immediate benefit. There can be various categories of expenditure which may fall under the heading of expenditure for direct and immediate benefit but we do not propose to categorize in detail. But, suffice it to state that the decisions upon which reliance has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into agreement with the Government of Karnataka and as per such agreement, the fee is agreed to be paid for grant of lease by the State Government to the respondent-Company. The State Government, in exercise of its delegated statutory power has to notify the privilege fee for the respective financial year which the respondent-Company has agreed to pay. The character of liability to pay privilege fee is not only by virtue of the contract but is by way of a statutory obligation once lease is granted in favour of the respondent-Company by the State. It is on account of the lease so granted, the respondent-Company is in a position to undertake the business of the liquor as per the terms and conditions of the licence. Hence, in any case, payment of privilege fee can be termed as by way of necessity. If any assessee has incurred expenses to discharge its statutory obligation for doing of business, the same by no stretch of imagination can be termed as not for the purpose of business or profession. 28. In our view, the aspects of expenditure for necessity and the expenditure having direct benefit are specifically excluded when the House of Lords in the above referred decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcising the power as that of a constitutional Court nor at any point of time the constitutional validity of the Karnataka Excise Act read with the Rules which include the grant of licence and payment of the privilege fees were under the challenge. It is not the case of the appellant that the assessing officer had any authority, competence or jurisdiction to examine the constitutional validity of the State Legislature or subordinate legislation in exercise of the delegated power. 33. Under the circumstances, the observations made by the assessing officer in the impugned order so far as privilege fee is concerned can be said to be ultravires to his power under the Act. 34. In view of the above, if an action of disallowance of the deduction of privilege fee, the expenditure of privilege fee is wholly without jurisdiction and ultravires to his power, it would be the case falling under exceptional category for entertainment of writ power under Article 226 of the Constitution of India. 35. In view of the above, the disallowance of the deduction of privilege fees as expenditure is wholly without jurisdiction and the observations made by the assessing Officer so far as constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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