Deductibility follows crystallised liability and payment: foreign legal fees, depository charges and turnover fees were allowed in the relevant year.

Foreign legal fees became deductible in the year RBI approval was obtained, because the payment obligation arose and crystallised only then, not when the services were originally rendered. Depository charges were likewise allowable in the year the liability was determined and crystallised, even though they related to an earlier transaction. Turnover fees payable to SEBI were deductible on payment under section 43B. The note states the appeal succeeded on both substantive disallowances, while the reassessment challenge remained academic.

---

---

Issues: (i) whether foreign legal fees became deductible in the year in which Reserve Bank of India approval was received and the liability crystallised; (ii) whether depository charges and turnover fees were allowable in the year in which the liability was crystallised and paid, including treatment under section 43B of the Income-tax Act, 1961.

Issue (i): Whether foreign legal fees became deductible in the year in which Reserve Bank of India approval was received and the liability crystallised.

Analysis: The payment to overseas lawyers could be made only after approval under the Foreign Exchange Regulation Act, 1973, and the approval was received during the relevant year. The liability therefore accrued and crystallised only in that year. Expenditure becomes deductible when the liability to pay it arises, not merely when the underlying services were rendered in an earlier year.

Conclusion: The foreign legal fees were allowable in the relevant assessment year, and the disallowance was incorrect.

Issue (ii): Whether depository charges and turnover fees were allowable in the year in which the liability was crystallised and paid, including treatment under section 43B of the Income-tax Act, 1961.

Analysis: The liability for depository charges was disputed and was determined only during the year, so the expenditure, though related to an earlier transaction, became allowable when it crystallised. The turnover fees payable to SEBI were also covered by section 43B, under which deduction is allowable on payment. On that basis, the expenditure was deductible in the relevant year.

Conclusion: The depository charges and turnover fees were allowable in the relevant assessment year, and the disallowance was incorrect.

Final Conclusion: The appeal succeeded on the merits of both substantive disallowances, and the reassessment challenge was left undecided as academic.

Ratio Decidendi: Expenditure is deductible in the year in which the liability to pay it accrues or crystallises, and statutory dues governed by section 43B are allowable on payment.

---