Db Income Tax Appeal v. M/S. Rajasthan State Ganganagar Sugar Mills Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR (1) DB Income Tax Appeal No.99/2009Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (2) DB Income Tax Appeal No.212/2009Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (3) DB Income Tax Appeal No.539/2009Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (4) DB Income Tax Appeal No.95/2011Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (5) DB Income Tax Appeal No.655/2011Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (6) DB Income Tax Appeal No.244/2012Commissioner of Income Tax Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (7) DB Income Tax Appeal No.99/2014Commissioner of Income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. (8) DB Income Tax Appeal No.66/2015 Principal Commissioner of Income Tax Vs. M/s. Rajasthan State Beverages Corpn. Ltd. (9) DB Income Tax Appeal No.98/2011Commissioner of Income Tax Vs. M/s. Rajasthan State Beverages Corporation Ltd. (10) DB Income Tax Appeal No.120/2012Commissioner of Income Tax M/s. Rajasthan State Beverages Corporation Ltd. Date of Order :::: 26[th] May, 2016 Hon'ble Mr. Justice M.N. BhandariHon'ble Mr. Justice J.K. Ranka Mr. RB Mathur assisted by Mr. Nikhil Simlote & Mr. Kushlesh Kumar, on behalf of appellants-Revenue Mr. TC Jain on behalf of respondent-assessee (RajasthanState Ganganagar Sugar Mills Ltd. Mr. Sanjay Jhanwar on behalf of respondent-assessee(Rajasthan State Beverages Corporation Ltd.) BY THE COURT (Per: Hon'ble J.K. Ranka, J.) Reportable 1.These Income Tax Appeals under Section 260A ofthe Income Tax Act, 1961 (for short, 'Act') raisingidentical questions of law and which have beenadmitted by this Court are directed against the orderdt.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 theIncome Tax Appellate Tribunal, Jaipur Bench (for short,'Tribunal'). These appeals relate to the assessment year2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09respectively. 2.The respondents-assessee's in the aforesaidappeals are two different State GovernmentUndertakings namely; Rajasthan State GanganagarSugar Mills Ltd. (RSGSML) and Rajasthan State BeveragesCorporation Ltd. (RSBCL) and the questions of law raisedand admitted being almost identical in all the appeals,the same are being decided by this common order forthe sake of convenience and after taking consent of theparties. 3.As regards the appeals filed by the appellant-Revenue against the respondent-assessee (RajasthanState Ganganagar Sugar Mills Ltd.) are concerned, thefirst substantial question framed by this Court in thoseappeals is similar and identical while in two of suchappeals the second/additional substantial question wasalso framed which read ad-infra:- First Substantial Question: “Whether in the facts and circumstances ofthe case, the Tribunal was justified in lawin holding that the excise duty is notleviable as the goods are not transferredand as such the same cannot be added inclosing stock contrary to provisions ofsection 145A of the Act ?” Second/additional Substantial Question: “Whether in the facts and circumstances ofthe case, the Tribunal was justified indeleting the additions made by the AssessingOfficer by way of disallowing Privilege Fee paid by the assessee to ExciseCommissioner, Government of Rajasthandespite the fact that it was application ofincome ?” First Substantial Question: “Whether in the facts and circumstances ofthe case, the Tribunal was justified in lawin holding that the excise duty is notleviable as the goods are not transferredand as such the same cannot be added inclosing stock contrary to provisions ofsection 145A of the Act ?” Second/additional Substantial Question: “Whether in the facts and circumstances ofthe case, the Tribunal was justified indeleting the additions made by the AssessingOfficer by way of disallowing Privilege Fee paid by the assessee to ExciseCommissioner, Government of Rajasthandespite the fact that it was application ofincome ?” 4.As regards the appeals filed by the appellant-Revenue against the respondent-assessee (RajasthanState Beverages Corporation Ltd. are concerned, thesubstantial questions framed by this Court in theseappeals read ad-infra:- DB Income Tax Appeal No.98/2011: “Whether in the facts and circumstances ofthe case, the Tribunal was justified inconfirming the order of CIT(A) in deletingthe addition made by the Assessing Officerby disallowing the payment of privilege feeswithout appreciating the fact that the saidexpenses are of capital in nature ?” DB Income Tax Appeal No.120/2012: (i) Whether in the facts and circumstancesof the case, the Tribunal was justified inconfirming the order of CIT(A) in deletingthe addition of Rs. 15,00 crore made by theAssessing Officer by disallowing thepayment of privilege fees withoutappreciating the fact that the said expensesare of capital in nature. (ii)Whether in the facts andcircumstances of the case, the Tribunal wasjustified in confirming the order of CIT(A)in deleting addition of Rs.7,61,777/- madeon account of depositing the PF/ESIpayment beyond the prescribed timedespite the fact that as per section 36(1)(Va) employees contribution should havebeen deposited in time as prescribed in therelevant law. Section 43B permits delayedpayment if paid before filing of ROI as persection 139(1) in case of employer'scontribution not in the case of employee's contribution.” 5.For the sake of brevity, we are taking the facts ofDB Income Tax Appeal No.95/2011 (CIT Vs. M/s.Rajasthan State Ganganagar Sugar Mills Ltd.) Rajasthanfor the assessment year 2006-07 as a leading case. 6.In this appeal, the respondent-assessee had madea payment of Rs.12.50 crore as privilege fees forregulating production, distribution and supply of countryliquor in the State of Rajasthan to the ExciseCommissioner, Government of Rajasthan as per ordersof the Excise Commissioner and Government ofRajasthan (Finance Division) (Excise). It was claimed bythe respondent-assessee that as per the GovernmentPolicy to levy privilege fees as per the statutoryprovisions of Section 24, 30 and 42 of the RajasthanExcise Act, 1950, it being a business expenditure wasclaimed, as such. However, the Assessing Officer (forshort, 'AO') was of the view that on the one hand theassessee being a State Government undertaking,privilege fee was determined by the ExciseCommissionerate, which also being part of the StateGovernment, the amount levied in the name of privilegefee was nothing-else but was transfer of share in thegarb of profits transferred to the owner of the Company i.e. Government of Rajasthan and the assessee beingpart of the tripartite agreement, the said amount wasnot allowable and thus disallowed the same by holdingthat it is appropriation of profits. The another claim wasthat the AO noticed under valuation of the closing stockto the tune of Rs.45,84,000/- on the premise that it wasexcise duty component which was not included in thevalue of closing stock of finished goods and in view ofthe provisions of Section 145A, the said amount wasrequired to be added. However, the claim of theassessee was that the excise duty was neither actuallypaid nor accrued on the value of closing stock and itbecame payable only when the goods are taken out ofthe warehouse and sold and admittedly in the instantcase, the said stock was available in the bondedwarehouse and since the excise duty was not payablenor accrued, it was not includable. However, the AOincluded the said amount. 7.The matter was assailed before the Commissionerof Income Tax (Appeals) [for short, 'CIT(A)']. However,the CIT(A) in so far as the claim regarding the privilegefees is concerned, upheld finding of the AO but in so faras the claim relating to inclusion of excise duty isconcerned, the same was directed to be deleted. 8.On a further appeal, both by the Revenue as wellas the assessee before the Tribunal, while claim of theprivilege fees was allowed and so also deletion of theexcise duty component under Section 145(A), the orderof the CIT(A) was upheld. Thus, both the issuesaforesaid were decided by the Tribunal in favour of theassessee. 9.As regards the respondent-assessee (RajasthanState Beverages Corporation Ltd.), for the sake ofbrevity, we are taking the facts of DB Income TaxAppeal No.98/2011 (CIT Vs. M/s. Rajasthan StateBeverage Corporation Ltd.) Rajasthan for the assessmentyear 2006-07 as a leading case. 10.The respondent-assessee Rajasthan State BeverageCorporation Ltd. is a State Government undertaking andthe business of the assessee was to have exclusiveprivilege for wholesale trade in Indian made foreignliquor and Beer and to distribute liquor and in this casealso, the assessee paid privilege fees amounting toRs.12.50 crore for sale of Indian made foreign liquor(IMFL) and beer in the State of Rajasthan. While claimof the assessee was that it is a revenue expenditure andthe same is allowable under Section 37 as it wasexpanded wholly and exclusively for the purposes of business, however, the AO was of the view that it is inthe nature of appropriation of profits paying out of thereceipts or in the alternative it is in the nature ofcapital 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 heldthat no benefit of enduring nature has been obtained bythe assessee and it is a revenue expenditure. 12.On a further appeal before the Tribunal by theRevenue, the same resulted into dismissal of appeal andorder of CIT(A) was upheld. 13.Mr. RB Mathur, learned counsel for the appellant-Revenue contended that huge expenditure has beenincurred in both the cases and the AO had arrived to acorrect conclusion that on the one hand the privilegefee was nothing-else except appropriation of the profitsand was paying from one hand to another i.e. from thehands of the assessee being one wing of the Governmentand 100% subsidiary to the Government of Rajasthanresulting into reduction of the book profits. It wasnothing-else except appropriation of profits or thenature was that it was not allowable under Sec.37 of theAct as it was in the nature of capital expenditure. Hefurther contended that none has a fundamental right to 13.Mr. RB Mathur, learned counsel for the appellant-Revenue contended that huge expenditure has beenincurred in both the cases and the AO had arrived to acorrect conclusion that on the one hand the privilegefee was nothing-else except appropriation of the profitsand was paying from one hand to another i.e. from thehands of the assessee being one wing of the Governmentand 100% subsidiary to the Government of Rajasthanresulting into reduction of the book profits. It wasnothing-else except appropriation of profits or thenature was that it was not allowable under Sec.37 of theAct as it was in the nature of capital expenditure. Hefurther contended that none has a fundamental right to carry on the trade in vending of liquor and it is only theState which can run the same and once the right/licensewas given to two of the State Government undertakings,the said amount paid by the assessee to theGovernment was in the nature of capital expenditure.The expenditure incurred in a way was to bring intoexistence long-term benefits of obtaining to vend theliquor or sale and thus was in the nature of capitalexpenditure. 14.In so far as excise duty is concerned, counsel forthe Revenue contended that once manufacturing takesplace, excise duty is leviable and even if the said stockis kept in the bonded warehouse, still the levy of exciseduty remains and admittedly, the stock was lying of theliquor already manufactured/produced and in view ofthe provisions of Section 145A being mandatory, the AOwas correct in including the said excise dutycomponent. He further contended that taxable event isthe manufacture but the liability to pay the duty may bepostponed till the time of removal but in so far as thevaluation is concerned, the assessee ought to haveincluded the same. In support of his submission, herelied upon the judgments rendered in the case of CITVs. Bangalore Attrack Co.: (1993) 201 ITR 25 (Karnataka); Manoj Textiles Vs. CIT: (1995) 214 ITR 441(Raj.); Manoj Dyeing Co. Vs. CIT: (1995) 212 ITR 299(Raj.); M.K. Brothers (P) Ltd. Vs. CIT : (1972) 86 ITR 38(SC); CIT Vs. Coal Shipment (P) Ltd. : (1971) 82 ITR 902(SC); The Mewar Sugar Mills Ltd. Vs. CIT : (1973) 87 ITR400 (SC); Neel Kamal Talkies Vs. CIT: (1973) 87 ITR 691(Allahabad); Wallace Flour Mills Co. Ltd. Vs. Collector ofCentral Excise: (1990) 186 ITR 440 (SC); CIT Vs. ShriSitaldas Tirathdas: (1961) 41 ITR 367 (SC); CIT Vs. SaloraInternational Ltd. (ITA No.12/2003), decided by DelhiHigh Court vide judgment dt.13/05/2016; ConvergysIndia Services (P) Ltd. Vs. CIT: (2015) 12 SCC 804 (SC);CIT Vs. Mastek Ltd. : (2014) 15 SCC 403 (SC); CIT Vs.Kharawalla Ltd. : (1968) AIR SC 197 (SC); KarnatakaState Beverages Corpn. Ltd. Vs. CIT: Writ PetitionNo.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 therespondent-assessee (Rajasthan State Ganganagar SugarMills Ltd.) contended that the privilege fee admittedlywas paid in the month of April itself i.e. at the openingof the financial year and it could not have been saidthat it was appropriation of profits rather appropriationtakes place if at all around the close of the financial year. He further contended that initially, the privilegefee was Rs.20 crore. However, on a representation bythe assessee, it was reduced to Rs.12.5 crore and theclaim of the assessee was rightly made and according tohim it does not make any difference if the assessee is aState Government undertaking and may be having ashare holding of 98% but the company has its ownseparate and distinct corporate entity having beenincorporated as a Public Limited Company andregistered with the Registrar of Companies. Hecontended that appropriation of profit/share can beonly by mutual agreement of the parties but in theinstant case, levy of privilege fees was as per excisepolicy of the State Government which regulatesproduction, distribution and supply of country liquor inthe State of Rajasthan and there was no question of anysharing of profits. The privilege fees was paid as perstatutory provisions of Sections 24, 30 and 42 of theRajasthan Excise Act, 1950. He also contended that theexpenditure is a plain simple revenue expenditure and itbeing a business expenditure is allowable under Section37(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 bondedwarehouse and the liability to excise duty arises whenthe goods are removed from the bondedwarehouse/factory and admittedly, even by theRevenue the goods had not come out of the bondedwarehouse/factory and therefore, there was no questionof adding the excise duty component in the value of theclosing stock. In support of his submissions, he reliedupon the judgments rendered in the case of JalloSubsidiary Industries Co. (India) Pvt. Ltd. Vs. CIT: (2002)256 ITR 452 (Del.); Wallace Flour Mills Co. Ltd. Vs.Collector of Central Excise: (1990) 186 ITR 440 (SC); CITVs. Dynavision Ltd.: (2012) 348 ITR 380 (SC) ACIT Vs.D&H Secheron Electrodes (P) Ltd. : (2008) 5 DTR 279(MP); DCIT Vs. Marudhar Hotels (P) Ltd. : (2000) 245 ITR138 (Raj.). 17.Mr. Sanjay Jhanwar, learned counsel for therespondent-assessee (Rajasthan State BeveragesCorporation Ltd.) supported the contentions of Mr. TCJain, counsel appearing on behalf of the respondent-assessee Rajasthan State Ganganagar Sugar Mills Ltd.and further contended that the said amount cannot betreated either as appropriation of profits or a capitalexpenditure as the said amount has been paid on year to year basis. He contended that capital expenditureamounts to an asset acquired which has permanencyand which is capable of being a source of income andcapital expenditure must therefore generally mean anacquisition of asset and the asset must be intended tobe of lasting value. Admittedly, in the case of theassessee, the privilege fees is being paid at thebeginning of the year and on year to year basis thus thenature remains that of a business expenditure. He reliedupon the judgments rendered in the case of The JagatBus Service Vs. CIT: (1950) 18 ITR (All); CIT Vs. NationalEngineering Industries Ltd.: (1990) 85 CTR 98 (Cal.); CITVs. Coal Shipment (P) Ltd.: (1971) 82 ITR 902 (SC); CITVs. Piggot Chapman and Co.: (1949) 17 ITR 317 (Cal) ;CIT Vs. Lumax Industries Ltd.: (2008) 5 DTR 338 (Del);CIT Vs. Indian Oxygen Limited: (1996) 218 ITR 337 (SC)Empire Jute Co. Ltd. Vs. CIT: (1980) 17 CTR 113 (SC).18.We have noticed the facts in the case of RajasthanState Gangangar Sugar Mills and Rajasthan StateBeverages Corporation Ltd. and though both areundertakings of the State of Rajasthan but they havetheir own distinct legal identity and are incorporated asPublic Limited Companies. While in the case ofRajasthan State Ganganagar Sugar Mills Litd, it was regulating, producing and distributing supply of countrymade liquor whereas in the case of Rajasthan StateBeverages Corporation Ltd., it was regulating andtrading in Indian made foreign liquor and beer. In boththe cases, the assessee paid privilege fees as was leviedby the Excise Commissioner, State Government and theassessee enjoyed exclusive privilege of wholesaletrading in Indian Made Foreign Liquor (IMFL) and Beer inthe State of Rajasthan, while in the case of RSGSML, theAO has gone on a theory that it is appropriation ofprofit/income but in the case of RSBCL, the AO has goneon the same theory that the payment of privilege fee isin effect appropriation of profits and also alternativelyheld that if that is not so, then it is certainly in thenature of capital expenditure as the assessee hadexclusive license and monopoly right or sole sellingagency rights which is to the exclusion of all others. 19.We have considered the rival submissions, haveperused the impugned orders in both sets of appeals andhave scanned the material and judgments cited at theBar. 20.It would be appropriate to quote Sections 24, 30and 42 of the Rajasthan Excise Act, 1950 which providead-infra:- “24. Grant of exclusive privilege ofmanufacture, etc- Subject to the provisionsof section 31, the Excise Commissioner mayorder the grant to any person of a licencefor the exclusive privilege- (1) of manufacturing or of supplying bywholesale, or of both, or (2) of selling by wholesale or by retail, or (3) of manufacturing or of supplying bywholesale, or of both, and selling by retail,any country liquor, Foreign liquor orintoxicating drugs within any local area ofthose parts of the State of Rajasthan towhich this Act extends.” “30- Payment for exclusive privilege-Instead of or in addition to any duty leviableunder this chapter, the Excise Commissionermay accept payment of a sum inconsideration of the grant of the licence forexclusive privilege under section 24.” “42- Power of Chief Excise Authority tomake rules- The Excise Commissioner may,subject to the previous sanction of the StateGovernment make rules- (a) regulating the manufacture, supply,storage or sale of any excisable articleincluding- (i) the erection, alteration, repair,inspection, supervision, management andcontrol of any place for the manufacture,supply, storage or sale of such article ordrug and the fittings, implements andapparatus to be maintained therein.; (ii) the cultivation of the hemp plant(Cannabis Sativa); (iii) the collection of portions of the hempplant (Cannabis Sativa) from which manyintoxicating drugs can be manufactured andthe manufacture of any intoxicating drugtherefrom; (iv) the bottling of liquor for purpose ofsale, (b) regulating the deposit of any excisablearticle in a ware house and the removalthereof from any such warehouse or fromany distillery pot-still or brewery; (c) prescribing the scale of fees or themanner of fixing the fees payable in respectof any licence, permit or pass or the storingof any excisable article:- Explanation- Fees may be prescribed underthis sub-clause at different rates fordifferent classes of licence, permits, passesor storage, and for different areas. (d) regulating the time, place and manner of payment of any duty or fee; (e) prescribing the restrictions under andthe conditions on which any licence, permitor pass may be granted including provisionsfor the following matters- (i) the prohibition of the admixture with any excisable article of any substance deemed tobe noxious or objectionable, (ii) the regulation or prohibition of thereduction of liquor by a licensedmanufacturer or licensed, vendor from ahigher to a lower strength, (iii) the fixing of the strength, price or Explanation- Fees may be prescribed underthis sub-clause at different rates fordifferent classes of licence, permits, passesor storage, and for different areas. (d) regulating the time, place and manner of payment of any duty or fee; (e) prescribing the restrictions under andthe conditions on which any licence, permitor pass may be granted including provisionsfor the following matters- (i) the prohibition of the admixture with any excisable article of any substance deemed tobe noxious or objectionable, (ii) the regulation or prohibition of thereduction of liquor by a licensedmanufacturer or licensed, vendor from ahigher to a lower strength, (iii) the fixing of the strength, price or quantity in excess of or below which anyexcisable article shall not be sold orsupplied or possessed and the quantity inexcess of which denatured spirit shall not bepossessed and the prescription of a standardof quality for any excisable article, (iv) the prohibition of sale except for cash, (v) the fixing of the days and hours duringwhich any licensed premises may or may notbe kept open, and the closure of suchpremises on special occasions; (vi) the specification of the nature of thepremises in which any excisable article maybe sold and the notice to be exposed at suchpremises; (vii) the form of accounts, to be maintainedand the returns to be submitted by licence-holders, and (viii) the regulation of the transfer of licences; (f) (i) declaring substance and the process bywhich spirit manufactured in India shall bedenatured; (ii) for causing such spirit to be denaturedthrough the agency or under the supervisionof Excise Officer; (iii) for ascertaining whether such spirit hasbeen denatured; (g) providing for the destruction or otherdisposal of any excisable article deemed tobe unfit for use. (h) regulating the disposal of confiscatedarticles.” 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 beingexpenditure of the nature described insections 30 to 36 and not being in the natureof capital expenditure or personal expensesof the assessee, laid out or expanded whollyand exclusively for the purposes of thebusiness or profession shall be allowed incomputing the income chargeable under thehead “Profits and gains of business orprofession. Explanation-1- For the removal of doubts, itis hereby declared that any expenditureincurred by an assessee for any purposewhich is an offence or which is prohibited bylaw shall not be deemed to have beenincurred for the purpose of business orprofession and no deduction or allowanceshall be made in respect of suchexpenditure. Explanation-2- For the removal of doubts, itis hereby declared that for the purposes ofsub-section (1), any expenditure incurred byan assessee on the activities relating tocorporate social responsibility referred to insection 135 of the Companies Act, 2013 (18of 2013) shall not be deemed tobe anexpenditure incurred by the assessee for thepurposes of the business or profession.” 22.In our view, in so far as payment of privilege feesis concerned, granting of exclusive privilege right formanufacturing/producing/regulating wholesale trade of Explanation-2- For the removal of doubts, itis hereby declared that for the purposes ofsub-section (1), any expenditure incurred byan assessee on the activities relating tocorporate social responsibility referred to insection 135 of the Companies Act, 2013 (18of 2013) shall not be deemed tobe anexpenditure incurred by the assessee for thepurposes of the business or profession.” 22.In our view, in so far as payment of privilege feesis concerned, granting of exclusive privilege right formanufacturing/producing/regulating wholesale trade of Indian made country liquor or/and whole sale trade ofIndian made foreign liquor (IMFL) and beer is concerned,can be said to have been incurred as businessexpenditure. Admittedly, the privilege fee as has beenpointed out by counsel for the assessee and not deniedby counsel for the Revenue is that the assessee paid theso-called privilege fee at the beginning of the year i.e.in the month of April itself in all the years and once theamount was paid at the beginning of the year, in ourview, could not be treated or held as appropriation ofprofits. It may be that both are State Governmentundertakings and have exclusive license to manufacturecountry made liquor or/and is a wholesaler of Indianmade foreign liquor and Beer and may be ultimately theState Government is a beneficiary but that does notmean that it becomes appropriation of profits orexpenditure in the nature of capital in so far as theassessee is concerned. 23.Rajasthan State Ganganagar Sugar Mills Ltd as alsoRajasthan State Beverages Corporation Ltd. are engagedmainly in the business of production and sale of liquoras also production/distribution and supply of countryliquor or Indian made foreign liquor and beer in theState of Rajasthan. The production and supply of liquor is regulated by Excise Department of the StateGovernment and in pursuance of the Rajasthan ExciseAct, 1950, the Excise Department of the Government ofRajasthan decides from time to time the excise policy toregulate production, distribution and supply of liquor inthe State of Rajasthan for a particular year. 24.We have already reproduced the relevant Sectionsof the Rajasthan Excise Act, 1950 and in exercise of thepowers granted to the Excise Commissioner by theState, a policy has been made which is required to befollowed by the assessee. We have already observedearlier that in the assessment year 2006-07, initially theprivilege fee was determined at Rs.20 crore, however, itwas contested by the assessee-company before theGovernment of Rajasthan which was redetermined atRs.12.5 crore and as per directives and guidelines issuedby the Government of Rajasthan through ExciseDepartment, the Company had no option but to complywith the orders of the Excise Department with regard topayment of privilege fee and has paid Rs.12.5 crore tothe Excise Department and similarly varying amounts indifferent years and so also the Rajasthan StateBeverages Corporation Ltd also paid privilege fee inaccordance with the State policy from time to time. 25.In our view, the amount of privilege fee paid byboth the assessees was for carrying on its business. It isan annual outgoing and which is certainly deductiblefrom the profits of the business under Section 37 andsince it was an annual outgoing, the assessee-companyincurred the same as privilege fee which did not acquireor bring into existence any asset of enduring benefit ornature. In our view, the privilege fee or the so-calledlicence fee is a revenue expenditure and paymentsmade to the State for licence or permit are nonethelessdeductible, though both licence or permit may carrywith it an exclusive right where monopoly or exclusivecharacter of the right is incidental to the licence orpermit. 25.In our view, the amount of privilege fee paid byboth the assessees was for carrying on its business. It isan annual outgoing and which is certainly deductiblefrom the profits of the business under Section 37 andsince it was an annual outgoing, the assessee-companyincurred the same as privilege fee which did not acquireor bring into existence any asset of enduring benefit ornature. In our view, the privilege fee or the so-calledlicence fee is a revenue expenditure and paymentsmade to the State for licence or permit are nonethelessdeductible, though both licence or permit may carrywith it an exclusive right where monopoly or exclusivecharacter of the right is incidental to the licence orpermit. 26.In our view, the payment of privilege fee was forprocuring the right to manufacture or/and sale of liquorand therefore, the amount paid could not be said to bein the nature of dividend or profit sharing with the StateGovernment. The fees once charged was fixed by theState Government/ Excise Commissioner on the basis ofits policy under Section 24 and Section 30 of theRajasthan Excise Act. In our view, the privilege fee hada direct nexus and connection to carry on and continuethe business of the assessee-company. It was integral part of profit earning process and was in the nature ofexpenditure and fulfill the requirement allowing it as abusiness expenditure under Section 37(1). Thecommercial expediency for payment of that price werethe market conditions and need to procure right /licence to manufacture liquor and therefore, theamount paid could not be said to be dividend to theState or shareholders or payment in the form of profitsharing as it could be paid only after determination ofprofits i.e. at the end of the accounting year in theannual general meeting whereas admittedly, theprivilege fee was determined before close of the yearand paid in the month of April itself. 27.Taking into consideration the provisions of Section 37 which we have reproduced herein before, it allowsdeduction of any expenditure not being in the nature ofcapital expenditure or personal expenditure of theassessee laid out or expanded wholly or exclusively forthe purpose of business. Since the privilege fee waspaid by way of statutory levy and it was not in thenature of personal expenditure or in the nature ofcapital expenditure but for earning income and waswholly and exclusively for the purposes of business, inour view, the privilege fee was rightly allowed as a deduction by the Tribunal. 28.The Apex Court in the case of CIT Vs. Walchand &Co. P. Ltd.(1967) 65 ITR 381 (SC); J.K. WoolenManufacturers Vs. CIT: (1969) 72 ITR 612 (SC);Aluminium Corporation Vs. CIT: (1972) 86 ITR 11 (SC)and S.A. Builders Ltd. Vs. CIT(A): (2007) 288 ITR 1 (SC)has held that any expenditure incurred out ofcommercial expediency, the same is an allowablededuction. The commercial expediency is to beconsidered from the angle of businessman and not fromthe angle of Revenue. The Revenue cannot sit in thearm chair of businessman and dictate the terms to theassessee as to how one is required to conduct itsbusiness or incur an expenditure and how it is to beallowed. 29.The privilege fee was paid for granting right tomanufacture and vend the liquor/sale of country liquor/Indian made foreign liquor and Beer and determinationof privilege fee was within the jurisdiction of the Stateauthorities and levy of such fee cannot be termed asapplication of income or dividend as well. The AO hasmade an observation that privilege fee was not paid asper agreement entered between the assessee and theGovernment of Rajasthan. In our view, it is not 29.The privilege fee was paid for granting right tomanufacture and vend the liquor/sale of country liquor/Indian made foreign liquor and Beer and determinationof privilege fee was within the jurisdiction of the Stateauthorities and levy of such fee cannot be termed asapplication of income or dividend as well. The AO hasmade an observation that privilege fee was not paid asper agreement entered between the assessee and theGovernment 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 theassessee-company was allowed to manufacture and vendliquor after fixing the privilege fee which was agreed bythe assessee and which was paid accordingly. It isfurther seen that the privilege fee was to be paidcompulsorily to start the business activity. In ourconsidered opinion, the levy of privilege fee is likelicence fee and to vend the liquor and admittedly evenafter payment of privilege fee in the instant assessmentyear, the assessee showed huge profit of about Rs.4.9crore. 30.In the case of Empire Jute Co. Ltd. Vs. CIT(supra), the Apex Court was considering a case wherethere was an agreement between owners of Jute Millwhich provided for restriction on working hours of jutemills and such agreement provided that the company isnot utilizing permitted working hour and transferred thesame to other companies and whether expensesincurred by the assessee in that case to purchase suchworking hour can be treated as expenses of Revenue orit is in the nature of capital expenditure. The ApexCourt, taking into consideration various judgments, wasof the opinion that whether a particular expenditure incurred by the assessee is of capital or revenue nature,has always presented a difficult problem andcontinuously baffled the courts, because it was notpossible despite occasional judicial valour to formulatea test to distinguish between capital and revenueexpenditure which will provide an infallible answer inall situations. There have been numerous decisionswhere this question has been debated but it is notpossible to reconcile the reasons given in all of them,since each decision has turned up some particularaspect which has not been regarded as crucial and nogeneral principle can be deduced from any decision andapplied blindly to a different kind of case where theconstellation of facts may be dissimilar and otherfactors may be present. This may give a different hue tothe case. The Apex Court, however, taking intoconsideration various factors held that “What is anoutgoing of capital and what is an outgoing on accountof revenue, depends on what the expenditure iscalculated to effect from a practical and business pointof view rather than upon the justice classification of thelegal rights, if any, secured, employed or exhausted inthe process.” and “the question must be viewed in thelarger context of business necessity or expediency. If the outgoing expenditure, is so related to the carryingon or the conduct of the business that it may beregarded as an integral part of the profit-earningprocess and not for acquisition of an asset or a right of apermanent character, the possession of which is acondition of the carrying on of the business, theexpenditure may be regarded as revenue expenditure.”It also observed that the same text was formulated byLord Clyde in the words: “Is it part of the company'sworking expenses, is it a capital outlay, is itexpenditure necessary for the acquisition of property orof rights of permanent character, the possession ofwhich is a condition of carrying on its trade at all ?” andafter taking into consideration, it was held by the ApexCourt in the above case that the payment by theassessee for purchase of loom hours was expenditurelaid but as part of the process of profit earning. It was,to use an outlay of a business in order to carry it on andto earn profit out of this expense, as an expense ofcarrying it on. It was part of the cost of operating theprofit earning apparatus and was clearly in the nature ofrevenue expenditure.” 31.The Apex Court in the case of CIT Vs. IndianOxygen Limited (supra), held noticing facts that the English Company did not sell any information, processesand inventions to the Indian Company. The IndianCompany is not entitled to use them after thetermination of the agreement. The Indian Company isprohibited from disclosing those informations, processesand inventions during the currency and also after thedetermination of this agreement and the agreement isfor a period of ten years and it could be terminatedearlier as provided in various clauses of the agreementand whether the Indian Company has incurredexpenditure for the purposes of bringing into existenceany asset or advantage of an enduring nature and it heldthat the said expenditure is not a capital expenditurebut a revenue expenditure and it was incurred by theIndian Company for running its business on working for itwith a view to produce profits. 32.In the case of CIT Vs. Lumax Industries Ltd.(supra), Delhi High Court, taking into consideration thefact that the assessee in that case paid royalty andlicence fee to licensor for granting non-exclusive rightsand licence to manufacture licensed products of licensoron a year to year basis, the assessee, being amanufacturer, with a view to increasing its efficiencyand profitability entered into an agreement with average company for having non-exclusive rights andlicence to manufacture the licensed products whichwere patented and also to receive technical informationfrom the latter and in such a deal, assessee wasrequired to pay royalty and licence fee on year to yearbasis and it was held that the payment by the assesseefor obtaining non-exclusion rights and licence formanufacturing licensed products are revenue in nature.33.Taking into consideration the facts, referred toherein before and the judgments, in our opinion, thequestion posed for our consideration about the privilegefee is in the nature of revenue expenditure anddeductible expenditure under Section 37(1) of the Act. 34.We may also deal with the judgments cited bycounsel for the appellant-Revenue. 35.In the case of CIT Vs. Bangalore Attrack Co.(supra), the facts were that the expenditure wasincurred once and for all with a view to bring intoexistence the asset or the addition of obtaining theprivilege of one year and the entire business itself wasof one year duration and the Karnataka High Court,taking into consideration this fact, held that it wascapital expenditure because the very business asset hada life of one year only. The facts in the instant case are distinguishable to that of the case of Karnataka HighCourt. 35.In the case of CIT Vs. Bangalore Attrack Co.(supra), the facts were that the expenditure wasincurred once and for all with a view to bring intoexistence the asset or the addition of obtaining theprivilege of one year and the entire business itself wasof one year duration and the Karnataka High Court,taking into consideration this fact, held that it wascapital expenditure because the very business asset hada life of one year only. The facts in the instant case are distinguishable to that of the case of Karnataka HighCourt. 36.The judgment of this Court in the case of ManojTextiles Vs. CIT (supra) relates to the developmentcharges paid to RIICO and this Court, taking intoconsideration that it related to an expenditure incurredon a plot of land which was a capital asset, theexpenditure being in the nature of fixed capital/assetand not a circulating capital, the development chargespaid makes the land in workable position and therefore,it held that it as an expenditure of capital naturewhereas the facts of the instant case are distinguishableto the said judgment. 37.We have also considered the judgment renderedby Karnataka High Court in the case of Karnataka StateBeverages Corpn. Ltd. Vs. CIT (supra). Though the samesupports the view of the Revenue, however, challengein the said case was also of privilege fee in view of theamended provisions brought by the Finance Act, 2013w.e.f. the Assessment Year 2014-15, in Section 40(a)(iib), suffice it to say that the amendment was boughtinto by the Finance Act, 2014 w.e.f. 01/04/2014 inSection 40(a)(iib) where any amount paid by way ofroyalty, licence fee, service fee, privilege fee, service charge or any other fee or charge by whatever namecalled, which is levied exclusively by or on any amountwhich is appropriated directly or indirectly from theState Government Undertaking by the StateGovernment, shall not be allowed as deduction incomputing the income chargeable under the headbusiness or profession and any privilege fee payable by aState Undertaking to the State Government would betaxable w.e.f. 01/04/2014 and not prior thereto. We areconsidering the assessment years prior to 01/04/2014,therefore, the said judgment is also inapplicable as it isprospective in nature and the amendment cannot beheld to be clarificatory in nature. 38.We have gone through the other judgments citedby learned counsel for the appellant-Revenue. However,the same are distinguishable on facts and are thusinapplicable. 39.Taking into consideration the above facts and inparticular the provisions of the Excise Act, in our view,the Tribunal was correct in holding the said expenditureof privilege fee as allowable expenditure and thus thesaid question is answered in favour of the assessee andagainst the Revenue. 40.In so far as the second question about excise duty 38.We have gone through the other judgments citedby learned counsel for the appellant-Revenue. However,the same are distinguishable on facts and are thusinapplicable. 39.Taking into consideration the above facts and inparticular the provisions of the Excise Act, in our view,the Tribunal was correct in holding the said expenditureof privilege fee as allowable expenditure and thus thesaid question is answered in favour of the assessee andagainst the Revenue. 40.In so far as the second question about excise duty is concerned, in our opinion, the liability to excise ariseswhen goods are removed from the factory/bondedwarehouse. The taxable event is manufacture/production but the liability to pay the duty is postponedtill the time of removal under Rule 9A. In our view,under Section 145A only the tax duty, cess or feesactually paid or incurred by the assessee to bring thegoods to its place of location forms part value of stock.Unpaid excise duty on goods in stock that have not leftthe premises/factory/bonded warehouse, could not beadded to the value of closing stock. We have taken intoconsideration the judgments of the Apex Court in thecase of Wallace Flour Mills Co. Ltd. Vs. Collector ofCentral Excise (supra) and CIT Vs. Dynavision Ltd. tocome to the aforesaid opinion. In fact, even theRevenue has relied upon the judgment of Wallace FlourMills Co. Ltd. Vs. Collector of Central Excise (supra) butin our view, taking into consideration the view of theApex Court that a taxable event though is manufacturebut the liability to pay duty is postponed till the time ofremoval under Rule 9A of the said Rules and admittedly,there is a finding of fact recorded by the authoritiesthat the goods were lying in the bondedwarehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment ofWallace Flour Mills Co. Ltd. Vs. Collector of CentralExcise (supra) supports the contention of the assesseerather than of the Revenue. 41.As regards the substantial question framed in DBIncome Tax Appeal No.120/2012, referred to supra, inregard to deleting addition of Rs.7,61,777/- made onaccount of depositing the PF/ESI payment beyond theprescribed time, counsel for the appellant-revenuecontended that the said amount was required to bedisallowed as once it was paid beyond the prescribedtime under the relevant statutes of Provident Fund/ESI,the amount could not have been allowed. He thuscontended that the mandate of the statute has to bestrictly followed and the assessee ought to have paidthe amount according to the due date according to therelevant provisi