Revisionary disallowance of liquor privilege fees remitted after later excise law amendments altered the tax character of payments.

A revision under section 263 directing disallowance of privilege fee, special privilege fee and sports privilege fee was held to require reconsideration because later amendments to the Andhra Pradesh Excise law and the Andhra Pradesh (Regulation of Trade in Indian Made Foreign Liquor, Foreign Liquor) Act, 1993, including sections 4A, 4B and 4C inserted on 16-04-2012, were material to the character and tax treatment of the payments. The earlier revisionary order had proceeded on the basis that the amounts were mere appropriation of profit, but that issue had to be examined in light of the amended legal position. The section 263 order was set aside and the matter remitted for fresh decision after hearing the assessee.

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Issues: Whether the order passed under section 263 of the Income-tax Act, 1961, directing disallowance of privilege fee, special privilege fee and sports privilege fee was sustainable in view of the later amendments to the Andhra Pradesh Excise law and the Andhra Pradesh (Regulation of Trade in Indian Made Foreign Liquor, Foreign Liquor) Act, 1993.

Analysis: The revisionary order had proceeded on the footing that the impugned payments were merely appropriation of profit and not allowable business expenditure. During the hearing, reliance was placed on the amendments introduced by the Andhra Pradesh Legislature on 16-04-2012, including the insertion of sections 4A, 4B and 4C, which had not been before the Commissioner when the section 263 order was passed. The amended provisions were considered material to the character, computation and treatment of the disputed payments, and their effect had to be examined before a final view could be taken on the correctness of the revisionary order.

Conclusion: The order under section 263 was set aside and the matter was restored to the Commissioner for fresh in accordance with law after considering the subsequent amendments and after giving the assessee a reasonable opportunity of hearing.

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