TMI Blog1991 (12) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- Total Rs. 9,83,30,732 ---------------------------- The Assessing Officer was of the opinion that the provisions made in respect of the aforesaid items were hit by the provisions of section 43B of the Income-tax Act, 1961. He, therefore, invited the response of the assessee on this issue. 3. The assessee responded by making the following points :--- (1) Vend Fee on Arrack and Addl. Vend Fee on IMFL and beer are levied under the Tamil Nadu Prohibition Act, 1937, the basis of charge being the turnover. They are not in the nature of tax or duty. As the very names suggest, they are fee simpliciter levied in consideration of the licence exclusively granted to the assessee by the Government. (2) As it stood at the relevant point of time, Section 43B did not take within its pale any fee. It was only as a result of the 1988 amendment that cess and fee were brought within the pale of that section. What was more, the amendment itself came into effect from 1-4-1989 ; that is to say, the amended provisions were applicable in relation to the assessment year 1989-90 and onwards. There is nothing in the amended provision to suggest that the intention of the Legislature was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has nothing to do with the grant of such licence. In this regard the Assessing Officer sought support from the Supreme Court case of Municipal Corporation of Delhi v. Mohd. Yasin [1983] 142 ITR 737. Yet another consideration weighed with the Assessing Officer in this regard and that was that, according to him, the 1988 amendment to section 43B was merely clarificatory in nature. 5. In view of the foregoing, the Assessing Officer, invoking the provisions of section 43B of the Act, disallowed the assessee's claim for revenue deduction in respect of the provisions made in an aggregate sum of Rs. 9,83,30,732. 6. The said disallowance was naturally one of the points which the assessee-corporation agitated before the C. I. T.(A). All the arguments, which had earlier been advanced unsuccessfully before the Assessing Officer, were reiterated before the CIT(A). On his part the Assessing Officer also made various submissions in support of the impugned assessment order. On hearing the rival submissions the C. I. T.(A) held : (1) The 1988 amendment to section 43B is not clarificatory in nature and hence it cannot have retrospective operation. (2) The first proviso to section 43B, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Har Shankar v. Deputy Excise and Taxation Commissioner AIR 1975 SC 1121. He drew our attention in this regard to the fact that similar views have been expressed in Panna Lal v. State of Rajasthan AIR 1975 SC 2008 and State of Mysore v. D. Cawasji Co. AIR 1971 SC 152. 12. Shri Ramamani's second thesis was that, as it stood at the relevant point of time, section 43B did not take within its fold any cess or fee. It should, therefore, follow that the said section is not applicable to Vend Fee and Addl. Vend Fee levied under the Prohibition Act. 13. Shri Ramamani's third thesis was that the words " cess or fee, by whatever name called " were inserted into section 43B(a) of the Act by the Finance Act, 1988 with effect from 1-4-1989. In other words, the amended provisions would be applicable to the assessment years 1989-90 and onwards. There is nothing in the said Finance Act to indicate that the said amendment was to have retrospective force. It should, therefore, follow that, even if the Vend Fee and Addl. Vend Fee in question are somehow regarded as " fee " within the meaning of the amended provisions, yet the amended provisions, being only prospective and not retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence fees, Vend Fee, sales-tax. customs duty etc. This would also go to show that the Vend Fee and Addl. Vend Fee are nothing but tax. (d) Section 56B of the Act (analogous to section 293 of the Income-tax Act, 1961) provides for the bar, usually contained in taxing statutes, of the jurisdiction of Civil Courts in respect of any action taken by any authority in pursuance of any power conferred by or under the Act. This is yet another pointer to the fact that neither the Act nor the Rules framed thereunder make any distinction whatsoever amongst the various imposts levied by them. (2)(a) The assessee-corporation, being a creature of the State Government, is not in a position to object to the levies in question. Thus we have a case of compulsory extortion which renders the levies indistinguishable from tax properly so called. (b) Being a Corporation wholly owned and controlled by the State Government, the assessee is nothing but an arm of the Government-an arm used by the State Government for purposes of collecting, under the guise of increased price, what is in effect tax, and remitting the tax so collected to the coffers of the Government. (3) The nomenclature given to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State List and the Concurrent List included in the Seventh Schedule to the Constitution. Of relevance to the purpose on hand are the Union List and the State List. A couple of points may be made about the nature of the said two Lists in general, and of their contents in particular. While the Union List demarcates the area of legislative competence of Parliament, the State List defines the area of legislative competence of the Legislature of any State. As has been pointed out by the Supreme Court in the case of State of Bihar v. Sir Kameshwar Singh AIR 1952 SC 252 the Entries in the Lists are mere legislative heads and are of an enabling character. They are designed to define and delimit the respective areas of legislative competence of the Union and the State legislatures. They neither impose any implied restrictions on the legislative power conferred by the Article, nor prescribe any duty to exercise that legislative power in any particular manner. Secondly, it is well settled that the language of the Entries should be given the widest scope of which their meaning is fairly capable, because they set up a machinery of Government. Each general word should, accordingly, be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding export duties' would be wholly redundant. Entries 43 and 44 relate to incorporation, regulation and winding up of corporations. Entry 85 provides separately for Corporation tax. Turning to List II, Entries 1 to 44 from one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is 'Land' and Entry 45 is 'Land revenue'. Entry 23 is 'Regulation of mines' and Entry 50 is 'Taxes on mineral rights'. The above analysis ---- and it is not exhaustive of the Entries in the Lists ---- leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Art. 248, Clauses (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate List gives the legislature of a State the power to levy fees in respect of any of the matters in the State List but not including fees taken in any court. 23. It is convenient at this stage to notice not only what exactly is meant by the term 'fees' occurring in Entry 66 of the State List (as also in Entry 96 of the Union List and Entry 47 of the Concurrent List), but also the features that distinguish a fee from tax. Broadly stated, a tax is an imposition made for public purposes without reference to any service rendered by the State or any specific benefit to be conferred upon the taxpayers. The object of the Revenue is to raise "general revenue". A fee, on the contrary, is a payment levied by the State in respect of services performed by it for the benefit of the payers of the fee. Conceptually speaking, a fee is levied on a principle opposed to that of a tax. While a tax is levied for the common benefits conferred by the Government on the public, a fee is a payment made for some special benefit enjoyed by the payer, the payment being usually commensurate with the benefit enjoyed. Paraphrased differently, while there is do element of quid pro quo (between the taxpayer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the result that no legislative sanction is necessary for the exercise of this function. 26. Entry 8 of the State list empowers the Legislature of a State to make laws on the subject of "Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors." The power to make laws on the said subject is not only unfettered but also a fundamental imperative, particularly in the context of Art. 47, which incorporates one of the most important directive principles of State policy namely that the "State shall endeavour to bring about prohibition of the consumption, except for medicinal purposes, of intoxicating drinks and of drugs which are injurious to health." These wide legislative powers taken in conjunction with equally wide executive powers conferred by Article 298 lead to the following significant conclusions which are relevant for the purpose on hand : (1) State has the plenary powers to regulate matters connected with intoxicating liquors and drinks. It has also exclusive right and privilege of making and marketing intoxicating liquors. (2) Therefore, acting under Entry 8 of the State List, or under Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 17D makes it clear that it contemplates the levy of a sum or fee or both on two counts, namely, as price or consideration for the grant of any exclusive or other privilege under section 17C and for the grant of licence under the said section. The matters relating to both the aforesaid levies are governed by the Rules issued by the State Government from time to time, such as the Tamil Nadu Arrack (Supply by Wholesale), Rules, 1983, the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1983 and the like. 28. We are here concerned with Vend Fee and Addl. Vend Fee collected by the State Government from the assessee-corporation under Rule 15 of the Tamil Nadu Indian-made Foreign Spirits (Supply by Wholesale) Rules, 1983 read with section 17C(1A) of the Prohibition Act, and the issue is whether the said Vend Fee and Addl. Vend Fee are fees within the meaning of Entry 66 of the State List, or a tax simpliciter, or the price or consideration charged by the State Government for parting with, in favour of the assessee-corporation, its exclusive rights and privilege of supply by wholesale Indian-made Foreign Spirits for the whole of the State of Tamil Nadu. 29. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Article 19(1)(g) or Article 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the Government nor can there be any infringement of Article 14, if the Government tries to get the best available price for its valuable rights." (emphasis supplied) In the case of Nashirwar v. State of Madhya Pradesh AIR 1975 SC 360 it was held that the State had the exclusive right or privilege of manufacturing and selling liquor; that it had the power to hold a public auction for granting the right or privilege to sell liquor; that traditionally introxicating liquors were the subject-matter of State monopoly; and that there was no fundamental right in a citizen to carry on trade or business in liquor. A. N. Ray, the learned Chief Justice, speaking on behalf of the 3-Judge Bench observed : " There are three principal reasons to hold that there is no fundamental right of citizens to carry on trade or to do business in liquor. First, there is the police power of the State to enforce public morality to prohibit trades in noxious or dangerous goods. Second, there is power of the State to enforce an absolute prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty or tax in the accepted sense of the term. 31. If, as demonstrated above, the Vend Fee and the Addl. Vend Fee in question are the price paid by the assessee-Corporation to the State Government for acquiring from the State Government the exclusive right and privilege in question, then the fact that these were levied and collected under the Prohibition Act along with excise duty, or the fact that the magnitude of the levy is disproportionate to the services rendered, or the compulsory nature of the levy, or even the fact that the incidence of the levy was on the ultimate consumers as in the case of excise duty on liquor - considerations which weighed with the lower authorities do not alter the nature of the levy. The levy remains what it essentially is, namely, the price paid in a purely commercial transaction to the State Government for parting with its valuable rights and privilege relating to intoxicating liquors. 32. The question then arises for consideration is whether the provisions of section 43B of the Income-tax Act, 1961, with or without the 1988 amendment, would be applicable to this case. In our considered opinion, the provisions of the said sections are not at al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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