TMI Blog2014 (12) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming deduction towards surcharge on sales tax and turnover tax which is payable in the financial year corresponding to the relevant AY – relying upon Kedarnath Jute Manufacturing Company Limited Versus Commissioner of Income-Tax (Central), Calcutta [1971 (8) TMI 10 - SUPREME Court] – Decided in favour of assessee. Laboratory expenses – Held that:- The assessee had incurred expenses for purchasing and handing over the equipment to the Government Chemical Examination Laboratory at Trivandrum, Ernakulam and Calicut - the contentions of the assessee cannot be accepted because the nexus of expenditure with the business cannot be a reason to allow the expenditure - The expenses incurred should be wholly and exclusively laid out or expended for the purpose of business - The expenditure incurred by the assessee shall be for carrying on the business of the assessee, i.e., to enable the assessee to earn profit in that business - It is not enough that the disbursements are made in the course of or arise out of or concerned with profits made out of the business. But it means also is to be for the purpose of earning profit from the business – a mere liability to satisfy the obligation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and vis- -vis the Central legislation under the I.T. Act, so far as determination of profit from business and profession is concerned. The CIT(A) observed that it is obvious under this arrangement under the provisions of the law enacted by the State would the tax on actual profit be not forgone because if the taxes so charged as surcharge and turnover tax (TOT), and debited to P L a/c, the profit would be reduced to that extent and the taxes would have been appropriated only after payment of income tax on the profit earned by the assessee. According to the CIT(A), though the express provision has been brought on the Income Tax statute u/s. 40(iib) w.e.f. 1/4/2014, denying thereby certain amount which are not deductible in computing the income chargeable under the head profits and gains of business or profession, the underlying principle is based on the subject as to how to charge certain expenses not amounting to appropriation of profit. in view of the discussion of the facts and the applicability of the provisions of section 37 of the Act, the CIT(A) held that the Assessing officer has rightly inferred that any payment on account of surcharge on sale tax and turnover tax cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b clause 1 of sub-section 2 of section 5 of the said Act states Notwithstanding anything contained in sub-section (1) every dealer in foreign liquour, as specified hereunder, shall pay turnover tax on the turnover of foreign liquor at all points of sale in the State .. . Further subclause(ii) of sub-section 2 of section 5 of the said Act says that Notwithstanding anything contained in sub-section (1)of section 22, no dealer shall collect from his purchaser the turnover tax payable by him under the sub-section . The above provisions of law clearly states that the assessee is liable to pay turnover tax at the point of sale and the business cannot be carried on without the remittance of turnover tax. Hence the Ld. AR submitted that the CIT(A) ought to have held that the above payment was made purely for the business of the assessee. The Ld. AR submitted that the assessee have paid the turnover tax a statutory liability, wholly and exclusively for the purpose of the business carried on by the assessee and therefore allowable under section 37 of the I.T. Act, 1961. 7. The Ld. AR submitted that the finding of the CIT(A) that the assessee should have appropriated the surcharge and tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) s observation that it is obvious that under this arrangement albeit, under the provisions of the law enacted by the State would the tax on actual profit be not foregone is against the facts of the case. The surcharge on sales tax and turnover tax are in the nature of taxes levied on every dealer of foreign liquor and are not an appropriation from profits by the State Government. Moreover, the assessee has to pay these levies based on the sales irrespective of the fact whether the assessee is making profit or not. The Ld. AR also relied on the judgment of the Hon ble Apex Court in the case of S. Kodar vs. State of Kerala (1974) 34 STC73 (SC) wherein it was held that we are of the view that additional tax is really a tax on sale of goods. The object of the Act is to increase the tax on sale or purchase of goods imposed by Tamil Nadu General Sales Tax Act, 1959and the fact that quantum of additional tax is determined with reference to the sales tax imposed would not alter its character. It is in reality a tax on the aggregate of sales affected by a dealer during the year .. . The decision in Ernakulam Radio Company vs.State of Kerala (1) which was affirmed by a division benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the incorporation of the assessee company. According to the Ld. AR as per section 5 of The Kerala General Sales Tax Act, the provisions related to charging of turnover tax are also applicable for Petroleum products and other goods and to other assessees including bar attached hotels, which is licensed under Foreign Liquor Rules. Similarly, as per the provisions of the Kerala Surcharge on Taxes Act, 1957, surcharge is also chargeable on agricultural income taxes. Hence, the Ld. AR submitted that the levy of surcharge and turnover tax is not a legislative arrangement by the State Government to appropriate profit of the assessee company which enjoys a monopoly under the State laws in its trade. 13. The Ld. AR relied on the judgment of the Hon ble Calcutta High Court in the case of CIT vs. V.K.L. Thirani Co. Ltd. (1996) 218 ITR 0149 wherein it was decided that the turnover tax is an expenditure allowable under section 43B of the I.T. Act. The Ld. AR submitted that Section 43B of the I.T. Act begins with the words Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act This means that expenditure allowable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the assessee has to regularly conduct chemical analysis of the products at the Government Chemical Examiners Laboratories at Trivandrum, Ernakulam and Calicut. There were several instances of inordinate delay in getting the results which had already affected the business of the assessee. In view of the situation the assessee had to contribute to for enhancement of the capacity by giving equipments required for analysis to the above laboratories. The Assessing officer disallowed the expenditure under this head stating that the payments made in this respect are capital in nature. The Ld. AR submitted that the Assessing officer ought to have seen that the above payments were made for the furtherance of the business of the assessee and that the above payment is of revenue nature as the assessee did not have the ownership of the items. Hence, the Ld. AR submitted that it should have been held that the above payments were made for the business purpose of the assessee and hence allowed as an expenditure. 18. On appeal, the CIT(A) observed that the equipments relating to laboratory instruments for chemical examination of liquor sample etc. were purchased by the assessee and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/2009. The Ld. AR submitted that the assessee had made the payment for the furtherance of its own business and as the equipments are not owned by the assessee these payments are revenue in nature. 20. The Ld. AR submitted that the CIT(A) ought to have seen that the above payments were made for the furtherance of the business of the assessee and that the above payment is of revenue nature as the assessee did not have the ownership of the items. It was held by the Hon ble Delhi High Court in similar circumstances in the case of CIT vs. D.T.T.D.C. Ltd. (350 ITR 0001) that the expenditure incurred by the assessee on construction of flyovers, pedestrian facilities, etc. was expenditure incurred by the assessee u/s. 37 of the Income Tax Act, 1961. Hence it should have been held that the above payments were made for the business purpose of the assessee and ought to be allowed as expenditure. 21. On the other hand, the Ld. DR relied on the order of the CIT(A). 22. We have heard both the parties and perused the record. In this case, the assessee had incurred expenses for purchasing and handing over the equipment to the Government Chemical Examination Laboratory at Trivandrum, Ern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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