1. This is an appeal filed by the Revenue against the order dt. 20th Dec., 1994, of CIT(A)-XV, New Delhi, It pertains to the asst. yr.
1989-90.
"On the facts and in the circumstances of the case, the learned CIT(A), has erred in directing to allow licence fee of Rs. 2-68 crores as deduction under Section 43B of the IT Act on the plea that the assessee maintains mercantile system of accounting and the liability of the licence fee was duly reflected in its account." 3.1 The learned Departmental Representative places reliance on the assessment order. Our attention was invited to page 3 of the same on the basis of which it was submitted by him that although the assessee is claiming the expenses of MCD licence fee, no actual payment of the said fee has been made to the MCD. Our attention was also invited to the provisions of the Act on the basis of which the submission was that "fee" has specially been included by the Finance Act, 1988, w.e.f. 1st April, 1989. Accordingly, it was submitted that the CIT{A) erred in holding at page 3 para 2.3 of the impugned order as under : "I have considered the submissions made before me as well as the observation of the AO in the assessment order. I am afraid the AO has missed the point altogether. The licence agreement entered into between NDMG and the appellant company is in the nature of a lease or tenancy agreement and licence fee of Rs. 2.68 crores has been charged in the same manner as a landlord would from his tenant with the actual difference that Section 52 of the Indian Easement Act comes into operation in view of the licence agreement. Just because the word 'fee' is mentioned in Section 43B, the provisions of Section 43B cannot be invoked in the case of the appellant and licence fee cannot be incorporated as a part of the fee prescribed in this section. The disallowance under Section 43B is not called for and is deleted as the Appellant maintains mercantile system of accounting and the liability of licence fee is duly reflected in its accounts." 3.2 It was also submitted that the mode of recovery was as per Clause 54 of the agreement between the assessee and the NDMC which the AO has reproduced in his order. This according to the learned Departmental Representative clearly states that in case of non-payment of dues the recovery shall be made as per section of Punjab Land Revenue Act, 1887.
Therefore, the amount was payable under law. Thus, the payment not having been made the CIT(A) was not justified to grant relief after the change of the position in law. Reliance was placed on a decision of the Madhya Pradesh High Court in the case of CIT v. Gorelal Dubey (1998) 232 ITR 246 (MP) wherein their Lordships have held that royalty is a tax and the Tribunal thus was not justified in holding that royalty was a contractual payment for extraction of the lime stone and that the provisions of Section 43B were not applicable to the unpaid liability towards royalty payment.
3.3. Learned Departmental Representative also submitted that the agreement between the assessee only prescribes the rates and the NDMC was a statutory body. Accordingly, the licence fee connoted the 'fee' as envisaged by Section 43B of the Act.
4.1. Authorised representative of the assessee, on the other hand, placed reliance on the impugned order.
4.2. Our attention was invited to the licence deed dt. 14th July, 1982, executed between the NDMC and the assessee on the basis of which it was submitted that this agreement was on a one to one basis between the owners of the land and the assessee. Consequently, the liability was a contractual liability and not a statutory liability. Out attention was also invited to a comparison of the licence fee charged by NDMC from other hotels to show that these were individual contracts on a one to one basis in the case of M/s Bharat Hotel Ltd. for Hotel Intercontinental, Barakhamba Road was a fixed licence fee of Rs. 1,45,00,000 and in the case of Indian Hotels Ltd. for Taj Mahal Hotel Mansingh Road was 2.5 per cent of the gross income or 25 per cent of the income in the hotel building whichever is higher.
4.3. Out attention was also invited to the order dt. 7th March, 2000, of the Delhi High Court in Civil Writ Petition No. 7163 of 1999. It was submitted by the learned authorised representative that although the said writ petition was dismissed by the High Court but there was no dispute over the fact that the reason for dismissal of the said writ petition was that while looking at the aspect of the maintainability of the writ petition it was held to be a contractual obligation involving no public element and that this was strictly in the realm of contract, 4.4. On the applicability of the decision of the Madhya Pradesh High Court in the case of CIT v. Gorelal Dubey (supra) it was submitted that their Lordships of the M.P. High Court had followed the decision of the apex Court in the case of India Cement v. CIT (1991) 188 ITR 690 (SC).
The issue being different as such, it does not advance the case of the Revenue.
4.5. regarding the recovery clause, out attention was invited to the Section 98(a) of the Punjab Land Revenue Act, 1887, which reads as under : "Other sums recoverable as arrears of land revenue--In addition to any sums recoverable as arrears of land revenue under this Act or any other enactment for the time being in force, the following sums may be also recovered, namely: (a) Fees, fines, costs and other charges, including the village officers' cess payable under this Act; Thus, Clause 54 was merely a mode of recovery and did not make the obligation a statutory obligation.
5.1 We have heard the rival submissions and perused the material placed on our files. The decision cited before us have also been considered.
It is seen that in the relevant assessment year certain changes were made in Section 43B by which 'fee' has specifically been included. It may be pertinent to reproduce relevant portion of the Act ; payment.--Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him." 5.2. In the relevant assessment year, the assessee had debited a sum of Rs. 1.11 crores in his P&L a/c as licence fee payable to NDMC @ Rs. 22.33 lakh per month for a five months period. In the computation of income filed with the return the assessee claimed a sum of Rs. 2.68 crores as immediate licence fee payable to NDMC per annum. On a query the assessee replied vide his letter dt. 23rd Jan., 1992 : "The licence fee is payable to New Delhi Municipal Committee in pursuance of an agreement entered into between the above named assessee and the NDMC and the liability therefore accrues as a result of the contractual obligation between the assessee-company and the NDMC. The liability does not arise as a result of any statutory provisions in any of the Acts and there is, therefore, no question of treating the liability as a statutory liability. The liability being a contractual one, the provisions of Section 43B of the IT Act are not applicable." 5.3. The assessee accordingly claimed that now the entire 17 months is being treated as operational and since the hotel is deemed to have commenced running from 1st Nov., 1987, the licence fee for the entire period be allowed as an expense. The AO noted that the assessee is claiming the expenses despite the fact that no actual payment of the said fee has been made. The AO held that the contention of the assessee that the "licence fee" is not statutory liability within the meaning of Section 43B is wrong. According to him, licence fee was charged in return for the use of plot of land by MCD from the assessee in lieu of rent of land revenue which otherwise could be earned on the said plot by MCD. He further observed that this fact is clear from Clause 54 of the said agreement which reads as under: "All arrears of licence fee and other payments due in respect of the premises hereby demised shall be recoverable in the same manner as arrear of land revenue under the provisions of the Punjab Land Revenue Act, 1887 (XVII of 1887), and any amending Act for the time being in force." Thus, he came to the conclusion that the licence fee charged from the assessee is a statutory liability. He was also of the belief that: "Although the nomenclature for the said charge may be "licence fee" but it was clear that the MCD was recovering it as land revenue from the said plot of land leased out to the assessee".
"It makes no difference as far as Section 43B is concerned whether the said recovery is termed as licence fee or leased rent or land revenue." 5.4. Aggrieved by this, the assessee went in appeal before the CIT(A) contending that the licence fee is payable in consideration of the licensor granting to the licencee the licence in respect of the said plot of land measuring 4.29 acres for construction of a five-star hotel on payment of licence fee of Rs. 2.68 crores per annum. It was also contended that the provisions of Section 43B are not applicable to contractual liability and that the recovery clause had nothing to do with the liability as it only stipulated the made of recovery of licence fee. Accepting the contentions of the assessee, the CIT(A) deleted the addition. Aggrieved by this, the Revenue is in appeal before us.
5.5. The assessee before us has placed reliance on the CWP No. 7163 of 95 filed by the assessee-company before the Delhi High Court wherein the Addl. Solicitor General of India appearing on behalf of the NDMC unequivocally stated that the matter was in the realm of contract between the assessee-petitioners and the NDMC. The Single Judge of the High Court also dismissed the CWP holding as under; "Here, we are dealing with the maintainability of the writ petition and contractual obligations under the realms of contract in a private field without any insignia of public element. The case law which has developed in this field and taken note in this judgment has no co-relation with the situation prevailing in the case of Uphaar tragedy and the case law dealt with in the aforesaid judgment of the Division Bench. Therefore, this case is of no assistance of the petitioner." The proposition to be examined is that what are the relevant requirements of Section 43B for our purposes. Section 13B envisages that ; (1) any sum payable by the assessee; (2) by way of fee; (3) under any law for the time being in force. Notwithstanding anything contained in any other provisions of this Act, a deduction allowable otherwise under this Act shall be allowed irrespective of the previous year in which the liability to pay sum was incurred by the assessee according to the method of accounting regularly employed by him shall be allowed in the previous year in which a sum is actually paid by him.
5.6 After examining the provisions of Section 43B it is pertinent to state certain relevant facts. It is not disputed that the land was allotted by the Central Government to the NDMC for the purpose of constructing a five-star hotel accommodation for Asian Games to be held in 1982. It is also not disputed that the land was allotted at a certain rate with certain stipulations and the NDMC thereafter invited offers by way of an advertisement and the offer of Pure Drinks Ltd. being the highest bid was accepted. The fact that thereafter Pure Drinks was allowed to float a Public Limited Company namely, the assessee and that a dispute arose between the NDMC and the assessee-company over the rate of payment of licence fee and that NDMC issued a show-cause notice to the assessee calling upon it to make payment of arrears of licence fee and in the absence of which why the allotment/licence of the hotel site in question might not be withdrawn besides disconnection of electricity supply and taking action under Sections 5, 7, of the Public Premises Act, 1971 (Eviction of Unauthorised Occupants) is not disputed before us and in fact is relied upon before us is as an undisputed fact.
5.7 The same is being referred to only for the purpose of stating that on receiving the aforesaid notice the petitioner invoked the arbitration clause and referred the dispute to arbitration by Lt.
Governor, Delhi, CWP No. 356/89 challenging the show-cause notice of NDMC before the Delhi High Court whereby disconnection of electric supply was threatened. Apart from this Suit No, 1193 of 1990 under Section 20 of the Indian Arbitration Act, 1940, for appointment of arbitrator and other such remedies was resorted to by the assessee. In the said suit the assessee filed ITA. No. 2957 of 1990 under Clause (b) of Section 41 r/w 11 Schedule of the Arbitration Act seeking an order restraining the Estate Officer under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, from proceedings further in pursuance to the two notices issued by him under Section 4(1) and Section 7(3) of the PP Act. The said ITA was dismissed by a Single Judge of the Delhi High Court with costs. The assessee again approached the Delhi High Court by filing a CWP No. 7163/99 praying for a writ of certiorari to quash the show-cause notice dt. 28th June, 1999, and 12th Jan., 1999, issued by NDMC and also a prayer for issuing a writ of mandamus to constitute a committee of independent agencies, bodies, etc. to evaluate the legitimate fair licence fee payable in respect of the said land to the NDMC. The prayer was also made for passing order declaring the demand raised by the NDMC as illegal and arbitrary and passing an order restraining the NDMC from dispossessing the petitioner from the hotel Le Meridien without due process of law and from the disconnection, withholding or causing to be with held any amenities, including electricity and water to the said hotel premises. This writ petition was dismissed by the Delhi High Court and held to be not maintainable as it was arising out of a contractual obligation and was under the realm of contract in a private field without any insignia of public demand and sufficient legal remedies were available to the assessee as such in the circumstances the writ was not maintainable. It is also pertinent to note that the assessee was invited our attention to the submissions of the Addl. Solicitor General of India appearing on behalf of NDMC who in the course of the hearing of this writ petition arguing that the matter was in the realm of contract between the petitioner and the NDMC and was accordingly governed by law of contract in private field and there was no public element involved.
5.8. Thus, looking at the peculiar facts and circumstances as brought out before us, it is seen that the sum payable to the NDMC has been held to be arising out of a contractual obligation and their lordships of the High Court in CWP No. 7163 of 1999 and in 1TA No. 2597/90 filed by the assessee before the Delhi High Court in Suit No. 1193/90 under Section 20 of the Indian Arbitration Act, 1940, for appointment of arbitrator have held it to be so.
5.9 Thus, in this background it would be pertinent to examine the case sought to made out by the Revenue that the nomenclature of 'fee' is not relevant as the amount is of the nature of 'tax'. For this, learned Departmental Representative has placed reliance on CIT v. Gorelal Dubey (supra) wherein it has been held that royalty is tax and the High Court held therein that the Tribunal was not justified in holding that the provisions of Section 43B were not applicable to the unpaid liability towards royalty payment. A perusal of the said judgment shows that their lordships of the Madhya Pradash High Court therein relied upon the case of India Cement v. State of Tamil Nadu (supra). Brief relevant facts of the case before their lordships of the Madhya Pradash High Court may be brought out hereunder to elucidate the issue before them.
The assessee in its return for asst. yr. 1984-85 had among others claimed a deduction of Rs. 76,956 towards its liability for payment of royalty. In view of the provisions of Section 43B of the IT Act, 1961, same was disallowed by the AO. The appeal of the assessee was dismissed on this ground by the CIT(A) and on further appeal before the Tribunal it was held that only tax and duty was disallowable under the provisions of Section 43B of the IT Act. According to the Tribunal there was a quid pro quo between the persons who paid the royalty and the public authority which imposed it. Thus, the relief was a contractual payment made by the assessee for extracting lime from the land. An application was made for making a reference to the High Court and the following question of law had been referred by the Tribunal for answer: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the provisions of Section 43B of the IT Act were not applicable to the unpaid liability towards royalty payment of Rs. 76,956 since royalty was neither tax nor duty?" Their lordships of the Madhya Pradash High Court relying upon the case of India Cement (supra) wherein their lordships of the apex Court held that royalty is a tax. Accordingly, the reference was answered in favour of the Revenue.
5.10. It is seen that their lordships of the Supreme Court in the case of India Cement Ltd. examined the constitutionality of the cess on royalty relied as . levied by the Madras Panchayat Act, 1958, Sec. 415 (as amended in 1964) and Mines and Minerals (Regulation & Development) Act, 1957, Section 9. Their Lordships therein held that royalty is a tax and as such cess on mining royalty being a tax on royalty is beyond the competence of the State legislature because Section 9 of the Mines and Minerals (Regulation & Development) Act, 1957, covers the field and the State legislature is denuded of its competence under entry 23 of List II of Schedule VII to the Constitution. It seems that the AO seems to have been influenced by the following observation made by their Lordships at p. 701 : "It is, however, clear that, over a period of centuries, land revenue in India has acquired a connotative meaning of share in the produce of land which the King or the Government is entitled to receive ......." 5.11. Examined in this background also even if it is held for the sake of an argument that the licence fee charged by the NDMC from the assessee is of the nature of land revenue and as such a tax would still be out of the purview of Section 43B of the IT Act as it is clearly arising out of a contractual obligation and is not levied by any Act of Central or State legislature.
The case of the Revenue is clearly out on this count by the decisions of the Delhi High Court in the CWP No. 7163 of 1999 filed by the assessee and dismissed by the Delhi High Court on the reasoning that the writ is not maintainable as the dispute is in the realm of a contractual obligation. In the case of CIT v. Gorelal Dubey (supra), it is pertinent to note that the 'royalty' was payable under a specific statute whereas in the case before us, the sum payable is not governed by any statute but has been arrived at by way of an across the table negotiations between the two contracting parties. Regarding the fact that the mode of recovery if governed by the Punjab Land Revenue Act, we are of the opinion that it is a recovery procedure prescribing the mode of recovery in the event, the amount agreed upon is not paid and is not a levying clause. As such, the amount agreed upon to be paid by the assessee to the NDMC is on the basis of their negotiations and is not levied by any Act of State.
5.12. Accordingly, in the aforementioned facts and circumstances and position of law, the conclusion arrived at by the learned CIT(A) in the impugned order is upheld by us on account of the reasons given by us in the earlier part of our order. As such, the ground raised by the Revenue is rejected.