Section 43B and TDS provisions on provisions and accounting method governed tax treatment of FSI premium and liaison receipts

FSI premium payable to a municipal authority was held outside section 43B because it was not, in substance, a tax, duty, cess or fee; the disallowance was deleted. Provisioned expenses could not be disallowed under section 40(a)(ia) unless the deductee was identifiable and the payable amount ascertainable, so the matter was remanded for fresh verification on those facts. A liaison-services receipt was taxable in the year it was credited or received under the accounting method consistently followed for that activity, and the addition for the impugned year was deleted.

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Issues: (i) Whether the balance FSI premium payable to the municipal authority fell within section 43B and was disallowable for non-payment; (ii) whether disallowance under section 40(a)(ia) could be made on provisioned expenses where the payee was not identifiable and the amount payable was not ascertainable; (iii) whether a receipt from liaison services was taxable in the assessment year of credit under the method of accounting followed for that activity.

Issue (i): Whether the balance FSI premium payable to the municipal authority fell within section 43B and was disallowable for non-payment.

Analysis: Section 43B applies to sums payable by way of tax, duty, cess or fee. The balance amount represented FSI premium for obtaining additional floor space and was not a fee for services, nor was it in the nature of tax, duty or cess. It was a present liability arising from an earlier obligation and was capable of reasonable estimation.

Conclusion: The disallowance under section 43B was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether disallowance under section 40(a)(ia) could be made on provisioned expenses where the payee was not identifiable and the amount payable was not ascertainable.

Analysis: The applicability of the TDS mechanism under Chapter XVII-B depends on the existence of an identifiable deductee and an ascertainable amount payable to that deductee. Where the provision is ad hoc and the payee is not identified as on the balance-sheet date, the machinery provisions for deduction at source do not operate in that year. The matter therefore required verification of whether the payee and liability were identifiable.

Conclusion: The issue was restored to the Assessing Officer for fresh examination, and the revenue's ground was allowed for statistical purposes.

Issue (iii): Whether a receipt from liaison services was taxable in the assessment year of credit under the method of accounting followed for that activity.

Analysis: Income is assessable in the year in which it is credited or received according to the regular method of accounting applicable to that stream of activity. On the facts, the liaison receipt had been accounted for in the subsequent year in accordance with the cash system consistently followed for that activity, and credit of TDS follows the year in which the related income is assessed.

Conclusion: The addition in the impugned year was not justified and was deleted in favour of the assessee.

Final Conclusion: The assessee succeeded on the section 43B disallowance and on the liaison receipt addition, while the revenue obtained only a limited remand on the TDS/provision issue.

Ratio Decidendi: A sum is outside section 43B if it is not a tax, duty, cess or fee in substance, and the TDS machinery under Chapter XVII-B applies to provisioned expenditure only when the deductee and the amount payable are identifiable and ascertainable.

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