Bombay HC Rules Basis for Infrastructure Fee Deduction Must Be Actual Receipts, Not Gross Advertising Bills [Read Order]

In a recent ruling, the Bombay High Court ruled that infrastructure fee deductions under the Income Tax Act must be calculated based on actual advertising receipts and not on gross advertising bills.

The Star Time Communication (I) Pvt. Ltd, the appellant company had entered into an agreement with Prime Time Media Services Pvt. Ltd. to pay 5% of its advertising income as an infrastructure fee. While filing its income tax return, the company claimed this 5% fee based on its gross advertising bills, which totaled over Rs. 4.47 crores.

The tax authorities limited the deduction to 5% of the actual receipts, which amounted to approximately Rs. 58.77 lakhs, citing the specific terms of the agreement and the company’s profit and loss account.

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The Commissioner of Income Tax (Appeals) partially allowed the claim by treating 15% of actual receipts as a reasonable expenditure but did not accept the company's claim based on gross billing. The company then appealed to the Income Tax Appellate Tribunal, which upheld the findings of the lower authorities.

Before the High Court, the appellant’s counsel argued that the assessing officer had wrongly interfered in its business prerogative and failed to show any industry benchmark for such expenses. The company claimed the tribunal misinterpreted the agreement and unjustly restricted the allowable expense.

The revenue counsel countered that the company’s own financial statements clearly disclosed only Rs. 63.43 lakhs as advertising income, and hence there was no basis for a claim exceeding that amount. They explained that all findings were factual and not perverse, so warranting no interference under Section 260A of the Income Tax Act.

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A single-judge bench led by the Chief Justice Ramesh Devkinandan Dhanuka held that the lower authorities had correctly interpreted Clause 3 of the agreement, which explicitly referred to “receipts” rather than billed amounts. The court also repeated settled legal principles from prior Supreme Court rulings, stating that commercial expediency must be judged from a businessman's perspective, so courts cannot re-write contracts or override factual findings unless proven perverse.

Finding no such perversity in the tax authorities’ decisions, the High Court upheld the Tribunal’s conclusion and dismissed the appeal.

To Read the full text of the Order CLICK HERE

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