Vend fee as consideration for exclusive liquor privilege fell outside section 43B disallowance.

Vend fee and additional vend fee under the Tamil Nadu Prohibition Act, 1937 were characterised as the price paid for obtaining an exclusive wholesale liquor privilege, not as tax or fee in the strict sense. Because the levy operated as consideration in a commercial arrangement and not as a statutory tax liability, section 43B of the Income-tax Act, 1961 did not apply on the facts then governing the case. The assessee was therefore entitled to deduction of the amount claimed, and the disallowance made by the lower authorities was not sustainable.

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Issues: Whether vend fee and additional vend fee collected under the Tamil Nadu Prohibition Act, 1937 were in the nature of tax, fee, or price for the grant of exclusive privilege, and whether section 43B of the Income-tax Act, 1961 applied to disallow the assessee's claim for deduction.

Analysis: The levy arose under the statutory scheme governing intoxicating liquors, where the State's power to regulate and deal in such liquor flowed from the constitutional distribution of legislative powers and from its executive power to carry on trade. The relevant provisions of the Tamil Nadu Prohibition Act, 1937 distinguished between excise or countervailing duty on the one hand and the levy of sums or fees for the grant of exclusive or other privileges on the other. The court treated the impugned amounts as the price or consideration paid by the assessee for obtaining the exclusive wholesale privilege in intoxicating liquor, rather than as a tax or a fee in the strict sense. Once the levy was characterised as consideration in a commercial arrangement, it fell outside the ambit of section 43B as it then stood, and the question of treating the 1988 amendment as governing the case did not arise.

Conclusion: The levy was not tax or fee within the meaning relevant to section 43B, and the assessee was entitled to deduction of the amount claimed; the disallowance made by the lower authorities was not sustainable.

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