AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2003 (9) TMI 23
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....e by the Assessing Officer on account of disallowance of landscaping expenses not covered under section 35(1)(iv) of the Income-tax Act by wrongly relying on the decision in I. T. A. No. 1546/Jp of 1995 dated March 30, 2001?" By order dated August 26, 2003, while hearing of the appeal was going on, we have framed the following question No.3 also as substantial question of law involved in the present appeal: "(3) Whether, on the facts and circumstances of the case, bottling fees chargeable from the assessee under the Rules framed under the Rajasthan Excise Act, 1950, and interest chargeable on late payment of bottling fees, amounts to tax, duty, cess or fees within the meaning of section 43B of the Income-tax Act, 1961, so as to attract the said provisions while considering allowability of deduction of such expenses?" Question No.3 dwells on the claim of the assessee-respondent for deduction of amount of bottling fee payable under the Rajasthan Excise Act, 1950 (hereinafter referred to as "the Act of 1950") and the relevant Rules framed thereunder. Question No.2 is independent of questions Nos.1 and 3. In the circumstances, we first take up question No.2. As the question....
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....laim to depreciation. We are concerned here with the assessment year 1988-89 and the claim for deductions of certain expenses incurred for landscaping and transportation of business of the assessee. There is no dispute about the fact also that during the assessment year 1988-89, the fast food business of the assessee was continuing business. In fact the relevant order would have been the order passed in case of the assessment year 1987-88 immediately preceding the assessment year in question in which proceedings the assessing authority as well as the Commissioner of Income-tax (Appeals) have relied upon. In view thereof, we required learned counsel for the respondents to place on record the order relating to the assessment year 1987-88 in respect of landscaping expenses which have been disallowed for earlier year by the Tribunal also. Our attention was invited to the judgment of the Tribunal in I. T. A. No.461/P of 1990 decided on September 10,1998, as reported in 21 Tax World 805 - Udaipur Distillery Co. Ltd v. Deputy C1T. As clearly stated in the aforesaid order for the year 1987-88, the Tribunal held that, "landscaping expenses incurred on uneven piece of land and making it f....
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.... better quality of fruits and vegetables which are integrally related to the business of the assessee. About the nature of one of the assessee's business as fast food, there is no dispute. Alternatively, he contends that even if for any reason the landscaping expenses for levelling and making fit the land cultivable for growth of fruits and vegetables is held to be capital expenses, still it is allowable under section 35(1)(iv) of the Act. An error has crept in considering the landscape expenses as relating to land development for construction. In the context of the assessee's business, expenses incurred in making land cultivable cannot be considered unrelated to the business of the assessee. It was also contended that transportation expenses in no way can be considered as capital expenditure. It is a revenue expense for the purpose of the assessee's business. It is allowable both under sections 37(1) and 35(1) for the same reason as are urged in support of the claim to deduction of landscaping business as revenue expenditure. The position in regard to landscaping during the relevant year also remains the same. There is no alteration in that position. Landscape in its ordi....
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....artly from business. If, on the other hand, fruits and vegetables grown on the land are sold in the market, income being agriculture and exempted from tax under section 10(1), no expenses relating thereto either revenue or capital become allowable as deduction from the income from the business. We have referred to these alternatives only because necessary facts about these are not on record. Viewed from any angle, the amount spent on landscaping, in our opinion, was rightly disallowed by the assessing authority and the Tribunal has erred by allowing the said expenses as deduction on wholly non-existing premises. The second part of the expenses amounting to Rs. 7,550 refers to transportation expenses. Apparently, transportation expenses if they have been incurred in connection with the business of the assessee amount to revenue expenditure unless it can be shown that the transportation charges were incurred for procuring an asset of enduring nature. There being no such material to show that transportation expenses amounting to Rs. 7,550, even if they are not related to research and development why the same may not be treated as revenue expenditure, when it is not the case of t....
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....ax or duty in cash. A bank guarantee is only a guarantee for payment on some happening and that cannot be actual payment as required under section 43B of the Income-tax Act, 1961, for allowance as a deduction in the computation of profits. We are in agreement with the aforesaid ratio laid down in Rajasthan Patrika's case [2002] 258 ITR 300 (Raj). The statute does not confer power on the authority or the Tribunal constituted under the Act to legislate a legal fiction by deeming something to exist while such thing really does not exist. We may notice here that Rajasthan Patrika's case [2002] 258 ITR 300 (Raj) related to the deduction allowed in respect of customs duty paid by it. The question about it being not a tax or duty was not raised and perhaps there could not have been any such contention in respect of customs duty which undoubtedly falls within one of the species of the broad purview of the word "tax". This brings us to examine question No.3. Learned counsel for the assessee submitted that the expression used in section 43B(a) after its amendment with effect from April 1, 1989, refers to any sum payable by the assessee by way of tax, duty, cess or fee by whatever na....
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....rnment. On the other hand it was contended by learned counsel for the Revenue that in the context of section 43B wherein any sum becomes payable as fee under any provision of the statute, it is not for the Assessing Officer as to what is the nature of such levy. He alleged that in the assessee's own case the Division Bench of this court held that there exists a quid pro quo to characterize bottling fee as a fee which is leviable in exercise of legislative power of the State under entry 8 of the State List and entry 33 of the Concurrent List. In view of the decision in the assessee's own case it cannot be alleged that bottling fee payable by it is not fee, but consideration for parting with the exclusive privilege of State. In this connection, he has placed reliance on the assessee's own case in Udaipur Distillery Co. Ltd. v. State of Rajasthan [1996] 2 WLC 413. c. At this juncture it is apposite to notice the provision itself as it stood on April 1, 1989: "43B. Certain deductions to be only on actual payment.-Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the ass....
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....the exercise of the State's power of taxation where levy and collection is duly authorised by law as distinct from an amount chargeable on principle as consideration payable under a contract. The principle of statutory interpretation is well known and well settled that when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule is known as the rule of ejusdem generis. It applies when, (1) the statute contains an enumeration of specific words ; (2) the subjects of the enumeration constitute a class or category ; (3) that class or category is not exhausted by the enumeration ; (4) the general term follows the enumeration ; and (5) there is no indication of a different legislative intent. Reference in this connection may be made to-Amur Chandra Chakraborty v. Collector of Central Excise, AIR 1972 SC 1863 and Housing Board of Haryana v. Haryana Housing Board Employees' Union [1996] 89 FJR 283 ; AIR 1996 SC 434. The "tax", "duty", "cess" or "fee" constituting a class, denotes various kinds of imposts by the State in its sovereign p....
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....elopment and Regulation) Act, 1951, has been enacted by Parliament and by the Amendment Act No.71 of 1956, "fermentation industries" were included in item No.26 in the Schedule appended to that Act and the control of which has been vested exclusively in the Union. On that premise, it was contended that the State Legislature has no power to control such industry. Fermentation industry will necessarily include the entire industry in regard to potable alcohol also including establishment of distilleries, manufacture of potable alcohol, etc. Therefore, the State Legislature does not have any power to make laws for levy of fees in respect of manufacture of potable alcohol or bottling thereof, after the said amendment of 1956. For this contention reliance was placed on entry 7 of the Union List and entry 24 of the State List which exclude from the purview of the State Legislature, the industries which were governing entries 7 and 52 of List I. The petition was filed somewhere in the year 1984. It was also contended that such fee is also not sustainable as there is no quid pro quo to sustain bottling fee as fee for regulating business. Against the aforesaid contention of the assessee, ....
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....s fee in its technical sense does not shut the enquiry into the real nature of the fee chargeable under State excise laws. Right from the decision of the hon'ble Supreme Court in the case of State of Bombay v. F. N. Balsara AIR 1951 SC 318 a number of Constitution Benches of the apex court had occasion to consider this aspect of the matter as and when the question about the validity of levy of licence fee under different State Excise Acts has been raised. The consistent answer which the hon'ble Supreme Court has given is that the expression "fee" is not used in the State excise laws or the Rules in the technical sense of the expression. By "licence fee" or "fixed fee" under the State excise laws relating to potable liquors/intoxicants is meant the price or consideration which the Government charges to licensees for parting with its exclusive privileges and granting them to the licensees. It has also been held that there is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers has the right to prohibit absolutely every form of activity in relation to intoxicants; their manufacture, storage, export, import, sale and possession, in all ....
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....venue, it was outside the ambit of item 66 of List II of the Seventh Schedule to the Constitution. The amounts realised in the auctions in the guise of licence fees were so exorbitant that they could not possibly be justified as fee under item 66. It may be noticed that the two questions were the same as had been raised by the challenger before this court in Udaipur Distillery's case [1996] 2 WLC 413 viz., that as a tax, levy of fee was beyond the legislative competence of the State Legislature and as a fee, it lacked quid pro quo. The apex court negatived both and held to be part of executive power of the State to trade. The court's conclusion were as under: (i) The State under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants ; their manufacture, storage, export, import, sale and possession, in all their manifestations, these rights are vested in the State. (ii) Since rights in regard to intoxicants belong to the State, it is open to the Government to part with those rights for a consideration. By article 298 of the Constitution, the executive power of the State extends to the carrying on of any trade or busi....
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....220 in which Mahajan C.J., speaking for the court said that the fee imposed on the licensee was move in the nature of tax than a licence fee. Referring to this judgment, the court in Har Shankar's case AIR 1975 SC 1121, said that in Cooverjee's case, AIR 1954 SC 220. the impugned power having been exercised in respect of a centrally administered area, the power was not fettered by the legislative lists, loses its relevance in the view we are taking. It is true that in that case, it was permissible to the court to find, as in fact it did, that the fee imposed on the licences was merely in the nature of a tax than a licence fee. As the authority which levied the fee had the power to H exact a tax, the levy could be upheld as a tax even if it could not be justified as a "fee", in the constitutional sense of that term. But the "licence fee" or "fixed fee" in the instant case does not have to conform to the requirement that it must bear a reasonable relationship with the services rendered to the licensees. The amount charged to the licensees is not a fee properly so called nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading....
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....o permit dealings in intoxicants on such terms of general application as the State deems expedient. From the aforesaid judgment it is clear that licence fee under the State excise statutes are charged for parting with the exclusive privilege of the State to deal in liquor which includes manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and are related to exercise of right to charge consideration as part of its exclusive right to deal with and trade in potable liquor. Merely because such charges made as part of contract can also be sustained as tax or fee, it cannot be termed as tax or fee in its technical sense. The Synthetics and Chemicals Ltd. v. State of U. P. [1991] 80 STC 270; [1990] 1 SCC 109 case arose as a result of licence fee levied on industrial alcohol under different names under the U. P. Excise Act and the court drew distinction between potable liquor and non-potable liquor. The conclusion of the court in Synthetics and Chemicals Ltd. [1991] 80 STC 270, 314 (SC); [1990] 1 SCC 109 has been summarized as under: "The position with regard to the control of alcohol industry has undergone ma....
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....at Rat, AIR 1994 SC 813. The case of Sheopat Rai, AIR 1994 SC 813 arose as a result of dispute having arisen under the U.P. Excise Act, 1910. After referring to the various provisions of the U. P. Excise Act, the court said that the term "licence fee" or the term "fixed fee" in the context of the U.P. Excise Act, the Ordinance with its preamble and the Excise (Amendment) Rules connotes the idea of payment of a sum by a person to the grantor of a licence as consideration for conferring upon such person by the grant of shop licence, the exclusive privilege or right to carry on certain activities in respect of country liquor or foreign liquor or intoxicating liquor, within any local area of the U.P. State, the carrying of which would have been otherwise the exclusive privilege or right of the grantor. The term "licence fee" or "fixed fee" used in the context of the U.P. Excise Act, the Ordinance read with the preamble and the Excise (Amendment) Rules is the amount of consideration receivable by the State Government for parting with its exclusive privilege or right in dealing with liquor or drugs including the exclusive privilege of vending foreign liquor in favour of a private part....
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....vilege of vending foreign liquor in favour of a private party under a licence (contract), the next question is-whether such amount of consideration receivable by the Government could form the subject-'fee' or 'tax' or 'duty' or 'cess' referred to as such, in one or the other entry of List II of the Seventh Schedule to the Constitution, on which a State gets competence to legislate. Our answer to this question, ought to be in the negative." This judgment is in line with the view expressed in this regard by the hon'ble Supreme Court in Har Shankar's case, AIR 1975 SC 1121, which has taken into consideration a number of Constitution Bench decisions of the hon'ble Supreme Court. It was also clearly held by the Constitution Bench of the hon'ble Supreme Court in Har Shankar's case, AIR 1975 SC 1121, that the right to deal in every form of activity in relation to potable intoxicants, their manufacture, storage, export, import, sale and possession, are vested in the State and that the power of the State Government to charge a price for parting with its right is the essence of the matter and not the mode in which the price for parting with its exclusive privilege is fixed, which deter....
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....liquor or intoxicants meant for human consumption including the manufacture, storage, export, import or possession or sale as an essential part of its exclusive right to carry on trade or business in intoxicating liquors meant for human consumption. On this premise, the irresistible conclusion is that bottling fee chargeable under the Rajasthan Excise Act, 1950, read with rule 69 of the Rajasthan Excise Rules, 1956, cannot but be the consideration for parting with the State's right to exclusive privilege, whether bottling is considered as a part of manufacturing process or a process to facilitate sale of liquor, and cannot be considered as "fee" as one of the species of tax or impost by the State. Apparently if bottling fee could be charged by the State for permitting a person to use exclusive privilege of the State to bottle the potable liquor, as part of its exclusive privilege to deal in such commodity it did not require specific legislation but could have been charged by the State in exercise of its exclusive authority to enter into contracts. Merely because for regulating its own exclusive right to trade in potable liquor, the State has legislated on the subject it cannot a....
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....n whatever name the same may be called, is paid in fact during the concerned year the assessee shall not be entitled to the deduction in the matter of computation of his income. If the amount payable is neither tax nor duty nor fee nor cess, the question of applying the provisions of the said section does not and cannot arise." It was further observed that the Legislature in section 43B of the Income-tax Act has used the expression "by way of". Therefore, it is the obligation of the Assessing Officer to ascertain whether the deduction sought to be tested on the touchstone of section 43B(a) is the amount payable by way of tax or duty or fee or cess. We are in respectful agreement and are fortified in the conclusion to which we have reached that the label of a charge as tax or fee is not conclusive of its character. It is only if any amount becomes payable by way of tax, duty, cess, or fee, it falls within the purview of section 43B. In the aforesaid context, if the provisions of the Rajasthan Excise Act are seen it is to be noticed that sub-section IV of section 3 defines "excisable article" which includes amongst other spirit, fermented liquor or any alcoholic liquor for h....
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....ewery established or licensed under this Act. Section 29 provides for mode of levying duty chargeable under section 28 of the Act. Section 30 of the Rajasthan Excise Act, 1950, provides that instead of or in addition to any duty leviable under the Chapter, the Excise Commissioner may accept payment of a sum in consideration of the grant of the licence for exclusive privilege under section 24. Section 34 of the Rajasthan Excise Act states that the State Government reserves its right to cancel and suspend licences. It was held long back while considering the provisions of the Rajasthan Excise Act and the Rules framed thereunder in Panna Lal v. State of Rajasthan, AIR 1975 SC 2008, that the licence fee stipulated to be paid by the licensee was the price or consideration or rental which the State Government charged them for parting with its privilege and that it was a normal incident of trading or business transaction. These provisions further indicate that while taxation power of the State in respect of potable liquor as indicated in Chapter V has included only excise duty or countervailing duty as part of impost in exercise of its sovereign authority but licence fee ha....
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....xpenses incurred by him by way of bottling fee for the accounting period when it becomes payable to the State Government as consideration. Such liability is allowable deduction as an expenditure in the year in which it is incurred even if actual payment is deferred. Section 43B is not attracted in such case. Lastly, it was contended that so far as the assessment year 1988-89, in this case, is concerned, the provisions of section 43B were extended only to the tax and duty. Cess and fees had not been included in the inhibition against allowance of liability incurred on account of cess and fee as a deduction unless it is actually paid. It is contended that for the assessment year in question even if bottling fee is considered to be "fee" in its technical sense of the term, the same cannot be disallowed by invoking section 43B of the Income-tax Act. Prior to clause (a) of section 43B was substituted by the Finance Act, 1988 with effect from April 1,1989, it read "any sum payable by the assessee by way of tax or duty under any law for the time being in force." For the assessment year 1988-89, with which this appeal is concerned, the unamended provisions governs the computation of ....
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....different form of levies become relevant for the purpose of applicability of section 43B. Since "fee" as distinct from tax or duty has not been subjected to the provisions of section 43B prior to April 1, 1989, the liability incurred on account of bottling fee during the accounting period relevant to the assessment year in question would not be subjected to section 43B of the Act even if it be assumes to be "fee" in its technical sense as specie of taxation. In this conclusion we are fortified by the Division Bench decision of the Andhra Pradesh High Court in the case of Srikakollu Subba Rao and Co. v. Union of India [1988] 173 ITR 708. Before the Andhra Pradesh High Court the question arose about the applicability of section 43B to claim deduction of the liability incurred to tax under the Sales Tax Rules as well as liability incurred on account of market cess under the Agricultural Produce Marketing Act. The petitioner had also challenged the constitutional validity of section 43B. While considering and upholding the constitutional validity of section 43B, the Andhra Pradesh High Court drew distinction between tax or duty on the one hand and fee on the other hand and held t....
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....y stood at the relevant time did not include or encompass cess or fee. The short question that falls for our consideration, therefore, is whether the mandi tax or market fee is a tax or a fee as in case it is a fee, the provisions of section 43B, as it then stood, would not apply. The levy of tax is for the purpose of general revenue and there is no element of quid pro quo between a taxpayer and the public authority whereas a fee is generally levied for special services rendered. The Supreme Court in Kewal Krishan Puri v. State of Punjab, AIR 1980 SC 1008 has held that such amounts charged are 'fees' having the requisite element of quid pro quo. From the above decision, it is clear that notwithstanding the nomenclature applied, the amount for which the provision was made was 'fee' and not tax and, therefore, the provisions of section 43B, in the year in question, were not attracted." In view thereof for the additional reason also for the assessment year 1988-89, liability incurred by the assessee towards payment of bottling fee under the Rajasthan Excise Act, 1950, read with rule 69 of the Rajasthan Excise Rules does not attract the provisions of section 43B and, therefore, l....