2010 (1) TMI 732 - HC - Income Tax

Tribunal Decision Upheld on Royalty Deduction for Assessment Year 1995-96: Revenue's Appeal Dismissed

The Court upheld the Tribunal's decision that the liability relating to royalty and extension fee had crystalized during the relevant year, allowing the ... Royalty and extension fee - royalty, sales-tax, extension fees, etc. amount was not initially payable by the assessee but by the Forest Department. After the department had paid the amount to the State it claimed reimbursement under the contract from the assessee - Held that:- The question whether payment of Rs.3,62,51,690/- was on account of tax or other business expenditure was not considered by any of the authorities below. No plea was raised by the revenue before the authorities below that this amount was a tax and therefore, unless it was actually paid no deduction could be claimed under Section 43 B. The only plea taken was that the payment of the amount had not crystalised. The Tribunal held that the payment had crystalised in the particular year. This is a pure question of fact and not of law and we have to uphold this finding of the Tribunal that the payment had in fact crystalised in the year. - Decided in favor of assessee. Issues:1. Whether the liability relating to royalty and extension fee crystalized during the year and was an admissible expenditure for the A.Y. 1995-96Rs.2. Whether the ITAT was correct in deleting the addition of Rs.3,62,51,690/- by ignoring the provision of Section 43 B of the Income-tax Act, 1961Rs.Analysis:1. The dispute in this case pertains to the assessment year 1995-96 involving the H.P. Forest Corporation engaged in timber business. The assessee claimed deduction for various expenses, which the Assessing Officer disallowed. The Tribunal, however, held that the liability had crystalized during the year in question based on the mercantile system followed by the assessee. The Tribunal referred to previous judgments and allowed the deduction. The main contention of the revenue was that the liability had not crystalized, and the Tribunal erred in deleting the addition. The revenue also raised the argument that the amount was a tax payable under Section 43B(a). The Tribunal's decision was upheld, emphasizing that the liability had indeed crystalized during the relevant year.2. Section 43B(a) of the Income-tax Act was crucial in this case. The department argued that the payments made by the assessee were akin to tax, duty, or fee under this section. However, it was noted that the revenue had not raised this argument before the lower authorities. The Assessing Officer and the Commissioner decided based on the non-crystalization of liability rather than invoking Section 43B. The Tribunal's decision was based on the fact that the liability had crystalized, not on the nature of the expense. The Tribunal's finding was upheld, emphasizing that the revenue could not introduce a new argument at the appeal stage. The judgment cited various precedents to support the decision.3. The Court also addressed the plea raised by the revenue regarding the nature of the payment as tax or business expenditure. It was argued that this plea was not raised before the lower authorities and could not be introduced at the appeal stage. The Court held that the revenue could not raise a mixed question of fact and law for the first time in the appeal under Section 260 of the Act. The lack of evidence regarding the exact nature of the payment further supported the decision. Consequently, the Court dismissed the appeal, upholding the Tribunal's decision on the crystalization of liability and rejecting the revenue's attempt to introduce new arguments at the appeal stage.