RTA Registration Fee collected from Vehicle Buyers Taxable only If Dealer does not discharge Statutory Liabilities: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the provisions of section 43B of the Income Tax Act, 1961 will not apply to RTA Registration Fee collected by vehicle dealers from the customers. The Tribunal also clarified that such sum is taxable only if the dealer does not discharge their statutory obligations under the relevant Acts.

The assessee is a company engaged in the business of trading of Honda Two-wheelers. The Assessing Officer made addition applying section 43B on the registration fees collected from the customers on the sale of the vehicles.

The claim of the assessee before the Tribunal was that when the vehicles are sold the assessee collects the registration fees from the buyer for registering the vehicles on behalf of the buyer with Road Transport Authority. They claimed that as soon as the RTO registration fees are paid on behalf of the buyer, the account is squared up. Thus, according to them, it is neither a tax, duty, or another sum payable by the assessee. It merely facilitates the registration of vehicles in the buyers’ names. Therefore, on this sum the provision of section 43B does not apply, the assessee argued.

According to section 43B of the Income Tax Act,  certain statutory expenses can only be claimed in the year of payment. Section 43B provisions disallow the sum not paid in the financial year or before the due date of filing tax returns under the head “Profits and Gains of Business or Profession”.

After analyzing the relevant provisions of the Income Tax Act and the judicial precedents, the Tribunal observed that the above sums are not covered under any of the provisions of clause(a) to (g) of section 43B.

“Neither the Ld AO or the Ld CIT(A) could show how these outstanding liabilities are covered u/s 43B of the Act. Both are trading liabilities if those are not discharged by the assessee completely, they can be taxed as income of the assessee. In view of the above facts we direct the Ld AO to delete the addition of Rs. 670742/- on reserve and surplus of the employees account outstanding since 2009-10 and also of Rs. 68580/- is a registration fee collected from the customers,” the Tribunal said.