Section 43B fee disallowance fails where toddy licence payment is treated as consideration for privilege, not a fee.

A payment made as consideration for the exclusive privilege to vend toddy is not a fee within section 43B(a) of the Income-tax Act merely because it is described as a licence fee in the auction rules. The provision covers sums payable by way of tax, duty, cess or fee, but the true character of the levy controls, and Supreme Court authority treats such payment as consideration for the privilege rather than a fee for section 43B purposes. The disallowance could not therefore be sustained on the footing that the amount was unpaid fee.

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Issues: Whether the licence fee payable under the Abkari laws for the right to vend toddy falls within tax, duty, cess or fee under section 43B(a) of the Income-tax Act, 1961 so as to attract disallowance unless actually paid in the previous year.

Analysis: Section 43B(a), as amended, extends to any sum payable by way of tax, duty, cess or fee, including levies described by those names. The Karnataka decision relied on by the lower authorities dealt with the pre-amendment provision and therefore did not govern the present assessment year. However, the Supreme Court authorities cited by the assessee establish that the amount paid for the grant of the exclusive privilege to vend liquor is, in substance, consideration for that privilege and not a fee in the sense relevant to section 43B. The description of the amount as licence fee in the auction rules did not alter its real character.

Conclusion: The licence fee payable for the privilege to sell toddy does not fall within section 43B(a) for the purpose of disallowance on the footing that it is a fee within that provision, and the assessee succeeds on the issue.

Final Conclusion: The appeal was not accepted and the disallowance made by the Assessing Officer did not survive.

Ratio Decidendi: A payment made as consideration for the grant of an exclusive privilege to vend liquor or toddy is not a fee for the purpose of section 43B(a) merely because it is described as licence fee in the auction rules.

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