J.K Ranka, J.:— These Income Tax Appeals under Section 260A of the Income Tax Act, 1961 (for short, ‘Act’) raising identical questions of law and which have been admitted by this Court are directed against the order dt.20/06/2008, 30/04/2008, 27/03/2009, 20/08/2010, 03/06/2011, 20/04/2012, 26/02/2014, 28/11/2014, 20/08/2010 & 21/10/2011 respectively passed by the Income Tax Appellate Tribunal, Jaipur Bench (for short, ‘Tribunal’). These appeals relate to the assessment year 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 respectively.
2. The respondents-assessee's in the aforesaid appeals are two different State Government Undertakings namely; Rajasthan State Ganganagar Sugar Mills Ltd. (RSGSML) and Rajasthan State Beverages Corporation Ltd. (RSBCL) and the questions of law raised and admitted being almost identical in all the appeals, the same are being decided by this common order for the sake of convenience and after taking consent of the parties.
3. As regards the appeals filed by the appellant-Revenue against the respondent-assessee (Rajasthan State Ganganagar Sugar Mills Ltd.) are concerned, the first substantial question framed by this Court in those appeals is similar and identical while in two of such appeals the second/additional substantial question was also framed which read ad-infra:-
First Substantial Question:
“Whether in the facts and circumstances of the case, the Tribunal was justified in law in holding that the excise duty is not leviable as the goods are not transferred and as such the same cannot be added in closing stock contrary to provisions of section 145A of the Act?”
Second/additional Substantial Question:
“Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the additions made by the Assessing Officer by way of disallowing Privilege Fee paid by the assessee to Excise Commissioner, Government of Rajasthan despite the fact that it was application of income?”
4. As regards the appeals filed by the appellant-Revenue against the respondent-assessee (Rajasthan State Beverages Corporation Ltd. are concerned, the substantial questions framed by this Court in these appeals read ad-infra:-
DB Income Tax Appeal No. 98/2011:
“Whether in the facts and circumstances of the case, the Tribunal was justified in confirming the order of CIT(A) in deleting the addition made by the Assessing Officer by disallowing the payment of privilege fees without appreciating the fact that the said expenses are of capital in nature?”
DB Income Tax Appeal No. 120/2012:
(i) Whether in the facts and circumstances of the case, the Tribunal was justified in confirming the order of CIT(A) in deleting the addition of Rs. 15,00 crore made by the Assessing Officer by disallowing the payment of privilege fees without appreciating the fact that the said expenses are of capital in nature.
(ii) Whether in the facts and circumstances of the case, the Tribunal was justified in confirming the order of CIT(A) in deleting addition of Rs. 7,61,777/- made on account of depositing the PF/ESI payment beyond the prescribed time despite the fact that as per section 36(1)(Va) employees contribution should have been deposited in time as prescribed in the relevant law. Section 43B permits delayed payment if paid before filing of ROI as per section 139(1) in case of employer's contribution not in the case of employee's contribution.”
5. For the sake of brevity, we are taking the facts of DB Income Tax Appeal No. 95/2011 (CIT v. Rajasthan State Ganganagar Sugar Mills Ltd.) Rajasthan for the assessment year 2006-07 as a leading case.
6. In this appeal, the respondent-assessee had made a payment of Rs. 12.50 crore as privilege fees for regulating production, distribution and supply of country liquor in the State of Rajasthan to the Excise Commissioner, Government of Rajasthan as per orders of the Excise Commissioner and Government of Rajasthan (Finance Division) (Excise). It was claimed by the respondent-assessee that as per the Government Policy to levy privilege fees as per the statutory provisions of Section 24, 30 and 42 of the Rajasthan Excise Act, 1950, it being a business expenditure was claimed, as such. However, the Assessing Officer (for short, ‘AO’) was of the view that on the one hand the assessee being a State Government undertaking, privilege fee was determined by the Excise Commissionerate, which also being part of the State Government, the amount levied in the name of privilege fee was nothing-else but was transfer of share in the garb of profits transferred to the owner of the Company i.e Government of Rajasthan and the assessee being part of the tripartite agreement, the said amount was not allowable and thus disallowed the same by holding that it is appropriation of profits. The another claim was that the AO noticed under valuation of the closing stock to the tune of Rs. 45,84,000/- on the premise that it was excise duty component which was not included in the value of closing stock of finished goods and in view of the provisions of Section 145A, the said amount was required to be added. However, the claim of the assessee was that the excise duty was neither actually paid nor accrued on the value of closing stock and it became payable only when the goods are taken out of the warehouse and sold and admittedly in the instant case, the said stock was available in the bonded warehouse and since the excise duty was not payable nor accrued, it was not includable. However, the AO included the said amount.
7. The matter was assailed before the Commissioner of Income Tax (Appeals) [for short, ‘CIT(A)’]. However, the CIT(A) in so far as the claim regarding the privilege fees is concerned, upheld finding of the AO but in so far as the claim relating to inclusion of excise duty is concerned, the same was directed to be deleted.
8. On a further appeal, both by the Revenue as well as the assessee before the Tribunal, while claim of the privilege fees was allowed and so also deletion of the excise duty component under Section 145(A), the order of the CIT(A) was upheld. Thus, both the issues aforesaid were decided by the Tribunal in favour of the assessee.
9. As regards the respondent-assessee (Rajasthan State Beverages Corporation Ltd.), for the sake of brevity, we are taking the facts of DB Income Tax Appeal No. 98/2011 (CIT v. Rajasthan State Beverage Corporation Ltd.) Rajasthan for the assessment year 2006-07 as a leading case.
10. The respondent-assessee Rajasthan State Beverage Corporation Ltd. is a State Government undertaking and the business of the assessee was to have exclusive privilege for wholesale trade in Indian made foreign liquor and Beer and to distribute liquor and in this case also, the assessee paid privilege fees amounting to Rs. 12.50 crore for sale of Indian made foreign liquor (IMFL) and beer in the State of Rajasthan. While claim of the assessee was that it is a revenue expenditure and the same is allowable under Section 37 as it was expanded wholly and exclusively for the purposes of business, however, the AO was of the view that it is in the nature of appropriation of profits paying out of the receipts or in the alternative it is in the nature of capital expenditure and thus not allowable.
11. On an appeal by the assessee before the CIT(A), the claim of privilege fees was allowed and it was held that no benefit of enduring nature has been obtained by the assessee and it is a revenue expenditure.
12. On a further appeal before the Tribunal by the Revenue, the same resulted into dismissal of appeal and order of CIT(A) was upheld.
13. Mr. RB Mathur, learned counsel for the appellant-Revenue contended that huge expenditure has been incurred in both the cases and the AO had arrived to a correct conclusion that on the one hand the privilege fee was nothing-else except appropriation of the profits and was paying from one hand to another i.e from the hands of the assessee being one wing of the Government and 100% subsidiary to the Government of Rajasthan resulting into reduction of the book profits. It was nothing-else except appropriation of profits or the nature was that it was not allowable under Sec.37 of the Act as it was in the nature of capital expenditure. He further contended that none has a fundamental right to carry on the trade in vending of liquor and it is only the State which can run the same and once the right/license was given to two of the State Government undertakings, the said amount paid by the assessee to the Government was in the nature of capital expenditure. The expenditure incurred in a way was to bring into existence long-term benefits of obtaining to vend the liquor or sale and thus was in the nature of capital expenditure.
14. In so far as excise duty is concerned, counsel for the Revenue contended that once manufacturing takes place, excise duty is leviable and even if the said stock is kept in the bonded warehouse, still the levy of excise duty remains and admittedly, the stock was lying of the liquor already manufactured/produced and in view of the provisions of Section 145A being mandatory, the AO was correct in including the said excise duty component. He further contended that taxable event is the manufacture but the liability to pay the duty may be postponed till the time of removal but in so far as the valuation is concerned, the assessee ought to have included the same. In support of his submission, he relied upon the judgments rendered in the case of CIT v. Bangalore Attrack Co.: (1993) 201 ITR 25 (Karnataka); Manoj Textiles v. CIT: (1995) 214 ITR 441 (Raj.); Manoj Dyeing Co. v. CIT: (1995) 212 ITR 299 (Raj.); M.K Brothers (P) Ltd. v. CIT: (1972) 86 ITR 38 (SC); CIT v. Coal Shipment (P) Ltd.: (1971) 82 ITR 902 (SC); The Mewar Sugar Mills Ltd. v. CIT: (1973) 87 ITR 400 (SC); Neel Kamal Talkies v. CIT: (1973) 87 ITR 691 (Allahabad); Wallace Flour Mills Co. Ltd. v. Collector of Central Excise: (1990) 186 ITR 440 (SC); CIT v. Shri Sitaldas Tirathdas: (1961) 41 ITR 367 (SC); CIT v. Salora International Ltd. (ITA No. 12/2003), decided by Delhi High Court vide judgment dt.13/05/2016; Convergys India Services Private Limited v. Commissioner Of Income Tax.: (2015) 12 SCC 804; CIT v. Mastek Ltd.: (2014) 15 SCC 403; CIT v. Kharawalla Ltd.: (1968) AIR SC 197 (SC); Karnataka State Beverages Corpn. Ltd. v. CIT: Writ Petition No. 12872 of 2013 and other connected petitions, decided by Karnataka High Court on 18/02/2016.
15. Per-contra, Mr. TC Jain, learned counsel for the respondent-assessee (Rajasthan State Ganganagar Sugar Mills Ltd.) contended that the privilege fee admittedly was paid in the month of April itself i.e at the opening of the financial year and it could not have been said that it was appropriation of profits rather appropriation takes place if at all around the close of the financial year. He further contended that initially, the privilege fee was Rs. 20 crore. However, on a representation by the assessee, it was reduced to Rs. 12.5 crore and the claim of the assessee was rightly made and according to him it does not make any difference if the assessee is a State Government undertaking and may be having a share holding of 98% but the company has its own separate and distinct corporate entity having been incorporated as a Public Limited Company and registered with the Registrar of Companies. He contended that appropriation of profit/share can be only by mutual agreement of the parties but in the instant case, levy of privilege fees was as per excise policy of the State Government which regulates production, distribution and supply of country liquor in the State of Rajasthan and there was no question of any sharing of profits. The privilege fees was paid as per statutory provisions of Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950. He also contended that the expenditure is a plain simple revenue expenditure and it being a business expenditure is allowable under Section 37(1) of the Act.
16. In so far as the question No. 2 is concerned, learned counsel for the respondent-assessee contended that admittedly, the goods were lying in the bonded warehouse and the liability to excise duty arises when the goods are removed from the bonded warehouse/factory and admittedly, even by the Revenue the goods had not come out of the bonded warehouse/factory and therefore, there was no question of adding the excise duty component in the value of the closing stock. In support of his submissions, he relied upon the judgments rendered in the case of Jallo Subsidiary Industries Co. (India) Pvt. Ltd. v. CIT: (2002) 256 ITR 452 (Del.); Wallace Flour Mills Co. Ltd. v. Collector of Central Excise: (1990) 186 ITR 440 (SC); Commissioner Of Income Tax, Tamil Nadu v. Dynavision Limited.: (2012) 348 ITR 380 (SC) ACIT v. D&H Secheron Electrodes (P) Ltd.: (2008) 5 DTR 279 (MP); DCIT v. Marudhar Hotels (P) Ltd.: (2000) 245 ITR 138 (Raj.).
17. Mr. Sanjay Jhanwar, learned counsel for the respondent-assessee (Rajasthan State Beverages Corporation Ltd.) supported the contentions of Mr. TC Jain, counsel appearing on behalf of the respondent-assessee Rajasthan State Ganganagar Sugar Mills Ltd. and further contended that the said amount cannot be treated either as appropriation of profits or a capital expenditure as the said amount has been paid on year to year basis. He contended that capital expenditure amounts to an asset acquired which has permanency and which is capable of being a source of income and capital expenditure must therefore generally mean an acquisition of asset and the asset must be intended to be of lasting value. Admittedly, in the case of the assessee, the privilege fees is being paid at the beginning of the year and on year to year basis thus the nature remains that of a business expenditure. He relied upon the judgments rendered in the case of The Jagat Bus Service v. CIT: (1950) 18 ITR (All); Commissioner Of Income-Tax v. National Engineering Industries Ltd.: (1990) 85 CTR 98 (Cal.); CIT v. Coal Shipment (P) Ltd.: (1971) 82 ITR 902 (SC); CIT v. Piggot Chapman and Co.: (1949) 17 ITR 317 (Cal); CIT v. Lumax Industries Ltd.: (2008) 5 DTR 338 (Del); Cit v. Indian Oxygen Ltd.: (1996) 218 ITR 337 (SC) Empire Jute Co. Ltd. v. CIT: (1980) 17 CTR 113 (SC).
18. We have noticed the facts in the case of Rajasthan State Gangangar Sugar Mills and Rajasthan State Beverages Corporation Ltd. and though both are undertakings of the State of Rajasthan but they have their own distinct legal identity and are incorporated as Public Limited Companies. While in the case of Rajasthan State Ganganagar Sugar Mills Litd, it was regulating, producing and distributing supply of country made liquor whereas in the case of Rajasthan State Beverages Corporation Ltd., it was regulating and trading in Indian made foreign liquor and beer. In both the cases, the assessee paid privilege fees as was levied by the Excise Commissioner, State Government and the assessee enjoyed exclusive privilege of wholesale trading in Indian Made Foreign Liquor (IMFL) and Beer in the State of Rajasthan, while in the case of RSGSML, the AO has gone on a theory that it is appropriation of profit/income but in the case of RSBCL, the AO has gone on the same theory that the payment of privilege fee is in effect appropriation of profits and also alternatively held that if that is not so, then it is certainly in the nature of capital expenditure as the assessee had exclusive license and monopoly right or sole selling agency rights which is to the exclusion of all others.
19. We have considered the rival submissions, have perused the impugned orders in both sets of appeals and have scanned the material and judgments cited at the Bar.
20. It would be appropriate to quote Sections 24, 30 and 42 of the Rajasthan Excise Act, 1950 which provide ad-infra:-
“24. Grant of exclusive privilege of manufacture, etc-Subject to the provisions of section 31, the Excise Commissioner may order the grant to any person of a licence for the exclusive privilege-
(1) of manufacturing or of supplying by wholesale, or of both, or
(2) of selling by wholesale or by retail, or
(3) of manufacturing or of supplying by wholesale, or of both, and selling by retail, any country liquor, Foreign liquor or intoxicating drugs within any local area of those parts of the State of Rajasthan to which this Act extends.”
“30-Payment for exclusive privilege-Instead of or in addition to any duty leviable under this chapter, the Excise Commissioner may accept payment of a sum in consideration of the grant of the licence for exclusive privilege under section 24.”
“42-Power of Chief Excise Authority to make rules-The Excise Commissioner may, subject to the previous sanction of the State Government make rules-
(a) regulating the manufacture, supply, storage or sale of any excisable article including-
(i) the erection, alteration, repair, inspection, supervision, management and control of any place for the manufacture, supply, storage or sale of such article or drug and the fittings, implements and apparatus to be maintained therein.;
(ii) the cultivation of the hemp plant (Cannabis Sativa);
(iii) the collection of portions of the hemp plant (Cannabis Sativa) from which many intoxicating drugs can be manufactured and the manufacture of any intoxicating drug therefrom;
(iv) the bottling of liquor for purpose of sale,
(b) regulating the deposit of any excisable article in a ware house and the removal thereof from any such warehouse or from any distillery pot-still or brewery;
(c) prescribing the scale of fees or the manner of fixing the fees payable in respect of any licence, permit or pass or the storing of any excisable article:-
Explanation-Fees may be prescribed under this sub-clause at different rates for different classes of licence, permits, passes or storage, and for different areas.
(d) regulating the time, place and manner of payment of any duty or fee;
(e) prescribing the restrictions under and the conditions on which any licence, permit or pass may be granted including provisions for the following matters-
(i) the prohibition of the admixture with any excisable article of any substance deemed to be noxious or objectionable,
(ii) the regulation or prohibition of the reduction of liquor by a licensed manufacturer or licensed, vendor from a higher to a lower strength,
(iii) the fixing of the strength, price or quantity in excess of or below which any excisable article shall not be sold or supplied or possessed and the quantity in excess of which denatured spirit shall not be possessed and the prescription of a standard of quality for any excisable article,
(iv) the prohibition of sale except for cash,
(v) the fixing of the days and hours during which any licensed premises may or may not be kept open, and the closure of such premises on special occasions;
(vi) the specification of the nature of the premises in which any excisable article may be sold and the notice to be exposed at such premises;
(vii) the form of accounts, to be maintained and the returns to be submitted by licence-holders, and
(viii) the regulation of the transfer of licences;
(f)(i) declaring substance and the process by which spirit manufactured in India shall be denatured;
(ii) for causing such spirit to be denatured through the agency or under the supervision of Excise Officer;
(iii) for ascertaining whether such spirit has been denatured;
(g) providing for the destruction or other disposal of any excisable article deemed to be unfit for use.
(h) regulating the disposal of confiscated articles.”
21. It would also be appropriate to quote Section 37 of the Income Tax Act, 1961 which provides ad-infra:-
“37(1) Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expanded wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession.
Explanation-1-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
Explanation-2-For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed tobe an expenditure incurred by the assessee for the purposes of the business or profession.”
22. In our view, in so far as payment of privilege fees is concerned, granting of exclusive privilege right for manufacturing/producing/regulating wholesale trade of Indian made country liquor or/and whole sale trade of Indian made foreign liquor (IMFL) and beer is concerned, can be said to have been incurred as business expenditure. Admittedly, the privilege fee as has been pointed out by counsel for the assessee and not denied by counsel for the Revenue is that the assessee paid the so-called privilege fee at the beginning of the year i.e in the month of April itself in all the years and once the amount was paid at the beginning of the year, in our view, could not be treated or held as appropriation of profits. It may be that both are State Government undertakings and have exclusive license to manufacture country made liquor or/and is a wholesaler of Indian made foreign liquor and Beer and may be ultimately the State Government is a beneficiary but that does not mean that it becomes appropriation of profits or expenditure in the nature of capital in so far as the assessee is concerned.
23. Rajasthan State Ganganagar Sugar Mills Ltd as also Rajasthan State Beverages Corporation Ltd. are engaged mainly in the business of production and sale of liquor as also production/distribution and supply of country liquor or Indian made foreign liquor and beer in the State of Rajasthan. The production and supply of liquor is regulated by Excise Department of the State Government and in pursuance of the Rajasthan Excise Act, 1950, the Excise Department of the Government of Rajasthan decides from time to time the excise policy to regulate production, distribution and supply of liquor in the State of Rajasthan for a particular year.
24. We have already reproduced the relevant Sections of the Rajasthan Excise Act, 1950 and in exercise of the powers granted to the Excise Commissioner by the State, a policy has been made which is required to be followed by the assessee. We have already observed earlier that in the assessment year 2006-07, initially the privilege fee was determined at Rs. 20 crore, however, it was contested by the assessee-company before the Government of Rajasthan which was redetermined at Rs. 12.5 crore and as per directives and guidelines issued by the Government of Rajasthan through Excise Department, the Company had no option but to comply with the orders of the Excise Department with regard to payment of privilege fee and has paid Rs. 12.5 crore to the Excise Department and similarly varying amounts in different years and so also the Rajasthan State Beverages Corporation Ltd also paid privilege fee in accordance with the State policy from time to time.
25. In our view, the amount of privilege fee paid by both the assessees was for carrying on its business. It is an annual outgoing and which is certainly deductible from the profits of the business under Section 37 and since it was an annual outgoing, the assessee-company incurred the same as privilege fee which did not acquire or bring into existence any asset of enduring benefit or nature. In our view, the privilege fee or the so-called licence fee is a revenue expenditure and payments made to the State for licence or permit are nonetheless deductible, though both licence or permit may carry with it an exclusive right where monopoly or exclusive character of the right is incidental to the licence or permit.
26. In our view, the payment of privilege fee was for procuring the right to manufacture or/and sale of liquor and therefore, the amount paid could not be said to be in the nature of dividend or profit sharing with the State Government. The fees once charged was fixed by the State Government/Excise Commissioner on the basis of its policy under Section 24 and Section 30 of the Rajasthan Excise Act. In our view, the privilege fee had a direct nexus and connection to carry on and continue the business of the assessee-company. It was integral part of profit earning process and was in the nature of expenditure and fulfill the requirement allowing it as a business expenditure under Section 37(1). The commercial expediency for payment of that price were the market conditions and need to procure right/licence to manufacture liquor and therefore, the amount paid could not be said to be dividend to the State or shareholders or payment in the form of profit sharing as it could be paid only after determination of profits i.e at the end of the accounting year in the annual general meeting whereas admittedly, the privilege fee was determined before close of the year and paid in the month of April itself.
27. Taking into consideration the provisions of Section 37 which we have reproduced herein before, it allows deduction of any expenditure not being in the nature of capital expenditure or personal expenditure of the assessee laid out or expanded wholly or exclusively for the purpose of business. Since the privilege fee was paid by way of statutory levy and it was not in the nature of personal expenditure or in the nature of capital expenditure but for earning income and was wholly and exclusively for the purposes of business, in our view, the privilege fee was rightly allowed as a deduction by the Tribunal.
28. The Apex Court in the case of CIT v. Walchand & Co. P. Ltd. (1967) 65 ITR 381 (SC); J.K Woolen Manufacturers v. CIT: (1969) 72 ITR 612 (SC); Aluminium Corporation v. CIT: (1972) 86 ITR 11 (SC) and S.A Builders Ltd. v. CIT(A): (2007) 288 ITR 1 (SC) has held that any expenditure incurred out of commercial expediency, the same is an allowable deduction. The commercial expediency is to be considered from the angle of businessman and not from the angle of Revenue. The Revenue cannot sit in the arm chair of businessman and dictate the terms to the assessee as to how one is required to conduct its business or incur an expenditure and how it is to be allowed.
29. The privilege fee was paid for granting right to manufacture and vend the liquor/sale of country liquor/Indian made foreign liquor and Beer and determination of privilege fee was within the jurisdiction of the State authorities and levy of such fee cannot be termed as application of income or dividend as well. The AO has made an observation that privilege fee was not paid as per agreement entered between the assessee and the Government of Rajasthan. In our view, it is not necessary that any fees is to be paid under any MOU. The assessee-company is the main stake holder and the assessee-company was allowed to manufacture and vend liquor after fixing the privilege fee which was agreed by the assessee and which was paid accordingly. It is further seen that the privilege fee was to be paid compulsorily to start the business activity. In our considered opinion, the levy of privilege fee is like licence fee and to vend the liquor and admittedly even after payment of privilege fee in the instant assessment year, the assessee showed huge profit of about Rs. 4.9 crore.
30. In the case of Empire Jute Co. Ltd. v. CIT (supra), the Apex Court was considering a case where there was an agreement between owners of Jute Mill which provided for restriction on working hours of jute mills and such agreement provided that the company is not utilizing permitted working hour and transferred the same to other companies and whether expenses incurred by the assessee in that case to purchase such working hour can be treated as expenses of Revenue or it is in the nature of capital expenditure. The Apex Court, taking into consideration various judgments, was of the opinion that whether a particular expenditure incurred by the assessee is of capital or revenue nature, has always presented a difficult problem and continuously baffled the courts, because it was not possible despite occasional judicial valour to formulate a test to distinguish between capital and revenue expenditure which will provide an infallible answer in all situations. There have been numerous decisions where this question has been debated but it is not possible to reconcile the reasons given in all of them, since each decision has turned up some particular aspect which has not been regarded as crucial and no general principle can be deduced from any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present. This may give a different hue to the case. The Apex Court, however, taking into consideration various factors held that “What is an outgoing of capital and what is an outgoing on account of revenue, depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the justice classification of the legal rights, if any, secured, employed or exhausted in the process.” and “the question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure, is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure.” It also observed that the same text was formulated by Lord Clyde in the words: “Is it part of the company's working expenses, is it a capital outlay, is it expenditure necessary for the acquisition of property or of rights of permanent character, the possession of which is a condition of carrying on its trade at all?” and after taking into consideration, it was held by the Apex Court in the above case that the payment by the assessee for purchase of loom hours was expenditure laid but as part of the process of profit earning. It was, to use an outlay of a business in order to carry it on and to earn profit out of this expense, as an expense of carrying it on. It was part of the cost of operating the profit earning apparatus and was clearly in the nature of revenue expenditure.”
31. The Apex Court in the case of Cit v. Indian Oxygen Ltd. (supra), held noticing facts that the English Company did not sell any information, processes and inventions to the Indian Company. The Indian Company is not entitled to use them after the termination of the agreement. The Indian Company is prohibited from disclosing those informations, processes and inventions during the currency and also after the determination of this agreement and the agreement is for a period of ten years and it could be terminated earlier as provided in various clauses of the agreement and whether the Indian Company has incurred expenditure for the purposes of bringing into existence any asset or advantage of an enduring nature and it held that the said expenditure is not a capital expenditure but a revenue expenditure and it was incurred by the Indian Company for running its business on working for it with a view to produce profits.
32. In the case of CIT v. Lumax Industries Ltd. (supra), Delhi High Court, taking into consideration the fact that the assessee in that case paid royalty and licence fee to licensor for granting non-exclusive rights and licence to manufacture licensed products of licensor on a year to year basis, the assessee, being a manufacturer, with a view to increasing its efficiency and profitability entered into an agreement with average company for having non-exclusive rights and licence to manufacture the licensed products which were patented and also to receive technical information from the latter and in such a deal, assessee was required to pay royalty and licence fee on year to year basis and it was held that the payment by the assessee for obtaining non-exclusion rights and licence for manufacturing licensed products are revenue in nature.
33. Taking into consideration the facts, referred to herein before and the judgments, in our opinion, the question posed for our consideration about the privilege fee is in the nature of revenue expenditure and deductible expenditure under Section 37(1) of the Act.
34. We may also deal with the judgments cited by counsel for the appellant-Revenue.
35. In the case of CIT v. Bangalore Attrack Co. (supra), the facts were that the expenditure was incurred once and for all with a view to bring into existence the asset or the addition of obtaining the privilege of one year and the entire business itself was of one year duration and the Karnataka High Court, taking into consideration this fact, held that it was capital expenditure because the very business asset had a life of one year only. The facts in the instant case are distinguishable to that of the case of Karnataka High Court.
36. The judgment of this Court in the case of Manoj Textiles v. CIT (supra) relates to the development charges paid to RIICO and this Court, taking into consideration that it related to an expenditure incurred on a plot of land which was a capital asset, the expenditure being in the nature of fixed capital/asset and not a circulating capital, the development charges paid makes the land in workable position and therefore, it held that it as an expenditure of capital nature whereas the facts of the instant case are distinguishable to the said judgment.
37. We have also considered the judgment rendered by Karnataka High Court in the case of Karnataka State Beverages Corpn. Ltd. v. CIT (supra). Though the same supports the view of the Revenue, however, challenge in the said case was also of privilege fee in view of the amended provisions brought by the Finance Act, 2013 w.e.f the Assessment Year 2014-15, in Section 40(a)(iib), suffice it to say that the amendment was bought into by the Finance Act, 2014 w.e.f 01/04/2014 in Section 40(a)(iib) where any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called, which is levied exclusively by or on any amount which is appropriated directly or indirectly from the State Government Undertaking by the State Government, shall not be allowed as deduction in computing the income chargeable under the head business or profession and any privilege fee payable by a State Undertaking to the State Government would be taxable w.e.f 01/04/2014 and not prior thereto. We are considering the assessment years prior to 01/04/2014, therefore, the said judgment is also inapplicable as it is prospective in nature and the amendment cannot be held to be clarificatory in nature.
38. We have gone through the other judgments cited by learned counsel for the appellant-Revenue. However, the same are distinguishable on facts and are thus inapplicable.
39. Taking into consideration the above facts and in particular the provisions of the Excise Act, in our view, the Tribunal was correct in holding the said expenditure of privilege fee as allowable expenditure and thus the said question is answered in favour of the assessee and against the Revenue.
40. In so far as the second question about excise duty is concerned, in our opinion, the liability to excise arises when goods are removed from the factory/bonded warehouse. The taxable event is manufacture/production but the liability to pay the duty is postponed till the time of removal under Rule 9A. In our view, under Section 145A only the tax duty, cess or fees actually paid or incurred by the assessee to bring the goods to its place of location forms part value of stock. Unpaid excise duty on goods in stock that have not left the premises/factory/bonded warehouse, could not be added to the value of closing stock. We have taken into consideration the judgments of the Apex Court in the case of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise (supra) and Commissioner Of Income Tax, Tamil Nadu v. Dynavision Limited. to come to the aforesaid opinion. In fact, even the Revenue has relied upon the judgment of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise (supra) but in our view, taking into consideration the view of the Apex Court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under Rule 9A of the said Rules and admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise (supra) supports the contention of the assessee rather than of the Revenue.
41. As regards the substantial question framed in DB Income Tax Appeal No. 120/2012, referred to supra, in regard to deleting addition of Rs. 7,61,777/- made on account of depositing the PF/ESI payment beyond the prescribed time, counsel for the appellant-revenue contended that the said amount was required to be disallowed as once it was paid beyond the prescribed time under the relevant statutes of Provident Fund/ESI, the amount could not have been allowed. He thus contended that the mandate of the statute has to be strictly followed and the assessee ought to have paid the amount according to the due date according to the relevant provisions of PF/ESI and since there was violation of those Acts, therefore, the benefit/deduction cannot be granted/allowed.
41.1 However, learned counsel for the assessee, in so far as the above question is concerned, contended that this Court in the case of Cit v. Jaipur Vidyut Vitran Nigam Ltd: (2014) 363 ITR 70 (Raj.), has held that if the amount is paid on or before the due date of filing of return of income, the same is allowable.
41.2 We have considered the arguments and in our view, the issue is squarely covered by the judgment of this Court in the case of Cit v. Jaipur Vidyut Vitran Nigam Ltd (supra) and CIT v. Udaipur Dugdh Utpadak Sahkari Sangth Ltd.: (2014) 366 ITR 163 (Raj.) wherein, this Court, after taking into consideration the judgments of the Apex Court, has come to the conclusion that if PF/EPF/CPF/GPF etc., if paid after due date under the respective Act but before filing of the return of income under Section 139(1) of the IT Act, the same cannot be disallowed.
42. Taking into consideration the same and the facts noticed herein before, the question relating to PF/ESI payment beyond the prescribed time is also answered against the Revenue and in favour of the assessee.
43. On perusal of DB Income Tax Appeal No. 66/2015 (Principal Commissioner of Income Tax v. Rajasthan State Beverages Corpn. Ltd.) filed at the instance of revenue against the Rajasthan State Beverages Corporation Ltd., it is noticed that the substantial question of law has not been framed in it. However, since the controversy raised in it regarding privilege fee of Rs. 19 crore as also the addition of Rs. 3,91,677/- on account of PF/ESI, the same being covered by the aforesaid judgments, these two questions in the instant appeal are also considered and answered against the revenue and in favour of the assessee for the reasons assigned herein before in this judgment.
44. Consequently, all the appeals filed by the appellant-Revenue are dismissed with no order as to costs.
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