August 2019

Sections 37 and 43B(g) of ITA, 1961 – Business expenditure – Deduction only on actual payment – Assessee paying licence fee to Railways for use of land – Railways enhancing licence fee and damages with retrospective effect and disputes arising – Assessee making provision for sum payable to Railways – Nature of fee not within description of ‘duty’, ‘cess’, or ‘fee’ payable under law at relevant time – Sum payable under contract – Deduction allowable

K. B. BHUJLE
Advocate

32.  CIT vs. Jagdish Prasad Gupta; 414 ITR 396 (Del.)

Date of order: 25th March, 2019

A.Y.: 2007-08

 

Sections 37 and 43B(g) of ITA, 1961 – Business expenditure – Deduction only on actual payment – Assessee paying licence fee to Railways for use of land – Railways enhancing licence fee and damages with retrospective effect and disputes arising – Assessee making provision for sum payable to Railways – Nature of fee not within description of ‘duty’, ‘cess’, or ‘fee’ payable under law at relevant time – Sum payable under contract – Deduction allowable

 

The assessee was allotted lands by the Railways and the licence fee was collected for the use of the land. The Railways revised the licence fee periodically and also claimed damages, unilaterally, on retrospective basis applicable from anterior dates. These led to disputes. Therefore, the assessee made provision for the amounts which were deemed payable to the Railways but which were disputed by it and ultimately became the subject matter of arbitration proceedings. For the A.Y. 2007-08, the AO disallowed the claim for deduction of the amounts on the ground that it fell within the purview of section 43B of the Income-tax Act, 1961 and that by virtue of the conditions laid down in section 43B, especially (a) and (b), the licence fee payable periodically and the damages as well could not have been allowed as deduction since they were

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