Writ jurisdiction over ultra vires tax disallowance and prospective application of section 40(a)(iib) in privilege fee claims

Alternative statutory remedy did not bar writ jurisdiction because the assessing officer acted beyond statutory competence by disallowing privilege fee while also questioning the validity of the State levy, a matter outside his authority. The Karnataka HC held that the writ petitions were maintainable. On deduction, privilege fee paid under the statutory framework governing the liquor trade was an expenditure incurred to discharge a legal obligation, and the amendment inserting section 40(a)(iib) operated prospectively from 1.4.2014. It could not be applied to earlier assessment years, so the disallowance for those years was unlawful and the appeals failed.

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Issues: (i) Whether the writ petitions were maintainable despite the availability of the statutory appellate remedy, where the assessing officer's disallowance of privilege fee was alleged to be without jurisdiction and ultra vires; (ii) Whether the privilege fee paid to the State Government for the relevant assessment years prior to 1.4.2014 was deductible and whether the amendment inserting clause (iib) in section 40(a) was prospective.

Issue (i): Whether the writ petitions were maintainable despite the availability of the statutory appellate remedy, where the assessing officer's disallowance of privilege fee was alleged to be without jurisdiction and ultra vires.

Analysis: The availability of an alternative remedy does not bar writ jurisdiction where the impugned action is wholly without jurisdiction or beyond power. The assessing officer had disallowed the privilege fee while also questioning the character and validity of the State levy, although he had no authority to test the constitutional validity of the State enactment or delegated legislation creating the liability. Such action was held to be outside the statutory competence of the assessing officer and therefore fell within the exceptional category justifying writ interference.

Conclusion: The writ petitions were maintainable and the challenge to the assessment orders was not barred by the alternative statutory remedy.

Issue (ii): Whether the privilege fee paid to the State Government for the relevant assessment years prior to 1.4.2014 was deductible and whether the amendment inserting clause (iib) in section 40(a) was prospective.

Analysis: Expenditure incurred to discharge a statutory obligation for carrying on business was treated as expenditure incurred by necessity and not as a voluntary outlay for commercial expediency. The privilege fee arose from the statutory framework governing the liquor trade and the assessee's licence conditions. The amendment inserting section 40(a)(iib) was held to take effect only from 1.4.2014 and could not be applied retrospectively to the assessment years in question. For the years prior to that date, the disallowance of privilege fee was therefore beyond jurisdiction.

Conclusion: The privilege fee for the assessment years prior to 1.4.2014 could not be disallowed on the basis of the later amendment, and the assessing officer's disallowance was unlawful.

Final Conclusion: The appeals failed, and the orders setting aside the disallowance of privilege fee and remanding the surviving issues were left undisturbed.

Ratio Decidendi: Where an assessing authority acts beyond statutory power by disallowing a levy paid in discharge of a statutory obligation and also ventures into questions beyond its competence, writ jurisdiction is available notwithstanding an alternative remedy, and a subsequent taxing amendment operates prospectively unless expressly made retrospective.

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