Allowing deduction of amount paid towards “privilege fee”, the division bench of the Karnataka High Court held that any expense on obtaining a license under statutory obligation is allowable as “business expenditure” under the provisions of the Income Tax Act.
The bench comprising Justices Jayanth patel and Dinesh Kumar was hearing a writ appeal filed by the appeallnt-assessee.
The assessee had claimed deduction towards the payment of “privilege fee”under the Income Tax Act. the Ao found that the same is not allowable since the same is beyond surplus earned by the Company in the trade of liquor and the payment of which is agreed upon by contractual arrangement. Aggrieved by the order, the assessee approached the High Court for relief.
Allowing the petition, the bench observed that any expenses incurred by a business man in order to obtain a licence to do business by way of discharge of statutory obligation or to get a licence to undertake profession such expenditure can be termed as an expenditure on account of necessity of the business or profession. “Since in the present case, it is privilege fee and the liability to pay the said amount arises on account of the statutory obligation even if the payment of which is agreed upon by contractual arrangement, such expenditure would not fall into the arena of voluntariness or the ground of commercial expediency or facilitation in carrying on of the business. Even if the decision upon which the reliance has been placed by the learned ASG are considered, the assessing officer will have a power to examine the commercial expediency for the expenditure incurred but it cannot be said that he will have jurisdiction to disallow the expenditure incurred for necessity or with a view to have a direct benefit in the business of liquor.”
Concurring with the findings of the single Judge, it was said that “the assessing officer has no authority or competence to hold that the privilege fee is not having the character of statutory fee or that the State Legislature or the State Government in exercise of its power by way of a delegated legislation, cannot decide the quantum of fee or the percentage of the revenue on the income earned from the business. Be it recorded that the assessing officer was not exercising the power as that of a constitutional Court nor at any point of time the constitutional validity of the Karnataka Excise Act read with the Rules which include the grant of licence and payment of the privilege fees were under the challenge. It is not the case of the appellant that the assessing officer had any authority, competence or jurisdiction to examine the constitutional validity of the State Legislature or subordinate legislation in exercise of the delegated power.”
Read the full text of the Judgment below.
