Property tax reimbursed to licensor cannot be treated as tax for Section 43B

Areva India Pvt. Ltd. Vs ACIT (ITAT Mumbai)

Brief facts are, in the course of assessment proceedings the Assessing Officer while verifying the Profit & Loss account noticed that the assessee has debited an amount of Rs. 19,37,936 under the head “General and Administrative Expenses”. After calling for necessary details and examining them, he found that the amount represents property tax payable to the Municipal Authority through the landlord as per the terms of the leave and license agreement. Further, he observed, during the year under consideration, demand for depositing the same was made by the Municipal Authorities and the assessee has claimed the expenditure on estimate basis. Referring to the provisions of section 43B(a) of the Act, the Assessing Officer observed that tax, duty, cess or fee, if any, claimed by the assessee can be allowed as a deduction only on actual payment. He observed, since the amount in question has not been actually paid during the year, it has to be disallowed and added back to the income of the assessee. As against the aforesaid addition, the assessee raised objections before learned DRP. However, the the addition mad by the Assessing Officer was upheld.

ITAT have considered rival submissions and perused the material on record. Undisputedly, the amount of Rs 19,37,936 has been paid to the landlord towards reimbursement of property tax to be paid by the landlord / licensor on the property taken on lease by the assessee. On a perusal of the lease and license agreement, a copy of which has been submitted before us, it is seen that as per Para–6.2, the burden of paying the property tax is on the licensor. However, as per the mutual agreement between the parties, the licensee agreed to reimburse the property tax to the licensor save and except any late fee / charge for any statutory dues. Thus, as could be seen from the aforesaid terms of the agreement, the reimbursement of property tax by the assessee to the licensor is purely contractual and not a statutory liability. Even otherwise also, property tax levied by the Municipal Authority is a charge on the property. Undisputedly, the licensor is the owner of the property, hence, liable to pay the property tax. That being the case, the amount equivalent to the property tax reimbursed to the licensor cannot be treated as rate, tax, fee, cess, etc., as provided under section 43B(a) of the Act. Therefore, the disallowance made of Rs. 19,37,936, has to be deleted. Accordingly, we do so. Ground is allowed.

In the result, appeal is partly allowed.

FULL TEXT OF THE ITAT JUDGEMENT

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