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

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

Date of order: 25^th
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 not paid within that year in accordance
with the provision.

The Tribunal allowed the assessee’s
claim.

On appeal by the Revenue, the Delhi
High Court upheld the decision of the Tribunal and held as under:

“(i)   The reference to ‘fee’ in section 43B(a) had to be always read
along with the expression ‘law in force’. According to the documents placed on
record, the transaction between the parties was a commercial one, while the
land was allotted for a licence fee.

(ii)   The Notes on Clauses to the Bill which inserted section 43B(g)
stated that the amendment would take effect from 1st April, 2017 and would
accordingly apply only to the A.Y. 2017-18 and subsequent years. Thus, the
notion of clarificatory amendment would not be applicable. The contentions of
the Department with respect to applicability of section 43B were untenable.