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M/s. Tamilnadu State Marketing –Corporation Ltd. Versus The Asst. Commissioner of – Income Tax, Corporate Circle-3 (1) , Chennai

2017 (8) TMI 1351 - ITAT CHENNAI

Allowable business expenditure - vend fee, special privilege fee and the annual license fee - Held that:- As the issue of fees levied by the government has already been held to be an allowable expenditure, respectfully following the principles laid down in the decision in the case of Karnataka Beverages Corporation Ltd. [2016 (3) TMI 461 - KARNATAKA HIGH COURT], the additions made by the AO and as confirmed by the Ld.CIT(A) in respect of the vend fee, special privilege fee and the annual license .....

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2/14-15, 145/15-16, 233/15-16 dated 06.09.2016 for the AYs 2010-11, 2011-12, 2012-13, 2012-13 & ITA No.233/Mds/2017 is an appeal filed by the assessee against the Order of Commissioner of Income Tax (Appeals)-11, Chennai, in ITA No.115/16- 17/CIT(A)-11 dated 23.12.2016 for the AY 2013-14. 2. Mrs.Ruby George, CIT represented on behalf of the Revenue and Mr.R.Vijayaraghavan, Adv. represented on behalf of the assessee. 3. As the issues in all these cases are inter-connected, common and relates .....

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h and in compliance with the Tami Nadu Prohibition Act 1937 read with the Tamil Nadu liquor (Supply by Whole sale) Rules, 1983. 2.1 The CIT(A) ought to have appreciated that similar payments for the earlier years from 1983-84 to 2009-10 has been allowed by the ITAT and or Hon ble High Court of Madras and the CIT(A) grossly erred in ignoring and not following the earlier decision of the Tribunal and the High Court in assessee s own case on the very same issue. 3. The CIT(A) erred in holding that .....

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ctually paid in accordance with Sec 43B. 3.2 The CIT(A) ought to have appreciated that the assessee has paid all the relevant fees before filing of the return and hence the same is allowable under Section 43B. 3.3 The CIT(A) ought to have appreciated that allowance to which Section 43B applies pre-supposes the same is otherwise allowable under the provisions of the Act, hence the CIT(A) erred in disallowing the claim on the ground that earlier decision did not specify that the same is allowable .....

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n nature. 5. The CIT(A) erred in holding that Levy of Privilege Fee, License fee etc under Tamil Nadu Prohibition Act 1937 read with relevant rules are not reasonable and are conflicting with the Central Act viz., Income Tax Act and is a tax avoidance measure. 5.1 The CIT(A) failed to appreciate that the payments by assessee was in compliance with the statutory provisions of Tamil Nadu Prohibition Act 1937 read with relevant rules and the same cannot be held to be tax avoidance measure. 5.2 The .....

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State to levy said fee. 5.3 The CIT (A) ought to have appreciated that the G.Os have been validly legislated by placing before the Legislative Assembly and duly notified in the Official Gazette. 6. The CIT (A) erred in relying on the decision of the Hyderabad Tribunal in the case of Andhra Pradesh Beverages Corporation Limited ignoring the decision of the Co-ordinate Bench in assessee s own case. 6.1 The CIT(A) ought to have appreciated that the decision of the Hyderabad Tribunal was based on th .....

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of the Andhra Pradesh Beverages Corporation is a fact prevailing were different in both the case. 6.3 The CIT(A) erred in not adjudicating the ground relating to disallowance of a sum of ₹ 40,75,34,247/- being annual privilege fee for FY 2010-11 not pertaining to this AY 2012-13, ought to have allowed the same in AY 2011-12. (only for Asst Year: 2012-13). 5. The Ld.AR at the time of hearing submitted that the assessee is a government company incorporated on 23.05.1983 with the main object .....

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ers. Such license was subject to the Rules made by the State Government in this behalf. The assessee was also granted the license to open branches and also sell by retail IMFL. Under clause 17D of the said Tamil Nadu Prohibition Act, 1937, it was prescribed that the State Government may by Rules, levy a sum or fee or both in consideration of the grant of any exclusive or privilege u/s.17C and also fee on the license granted u/s.17(C). The Tamil Nadu IMFS (Supply by wholesale) Rules, 1983, were a .....

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e GO amends the Rule by substitution of the figures in the Rule 15 of the Tamil Nadu IMFS (Supply by wholesale) Rules, 1983. These substitutions were basically in respect of 3 categories: i. The vend fee which is a fee collected from the assessee on the purchase of liquor. ii. Special privilege fee collected in respect of the sale of liquor under Sec.17C and iii. The annual license fee being the license fee in respect of the various shops nearly 6200 running by the assessee under Sec.15D. 6. It .....

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apply and if the vend fee was paid by the assessee to the state before the due date for filing return then it is allowable as it would fall under fee by whatever name called , even if the vend fee is called privilege . The Hon ble Supreme Court had held that if the payment had been made before the due date of the filing of the return, the same was allowable and alternatively, it was allowable in the year in which it is actually paid. It was a submission that for the AYs 2004-05 to 2008-09, the .....

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10, No.964/Mds/2011 & No.07/Mds/2012 and also in ITA Nos.1367 to 1370/Mds/2012 dated 30.10.2012 and also by the Hon ble Jurisdictional High Court of Madras in TC(A) No.688-690/2004 dated 14.12.2010. It was a submission that now for the AYs 2010-11 to 2012- 13, the AO has disallowed the said expenditure by raising the following four issues: i. The expenditure is not allowable u/s.37 and that the said expenditure was an application of income and consequently capital in nature. ii. The Hyderaba .....

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abad ITAT in the case of AP Beverages Corporation Ltd., Hyderabad in ITA Nos.302-303 & 545/Hyd/2013 dated 21.01.2014 at Page No.47, Para No.26 has held that the decision of the ITAT Chennai Benches in the case of Tamil Nadu State Marketing Corporation in ITA No.962/Mds/2010 dated 18.09.2012 wherein these issues had been considered were factually distinguishable. It was a submission that as per the decision of the ITAT Hyderabad Bench in the case of AP Beverages Corporation Ltd., the said dec .....

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It was a further submission that the issue was fully covered by the decision of the Hon ble Karnataka High Court in the case of Karnataka State Beverages Corporation Ltd., reported in [2017] 391 ITR 185 (Karn). It was a submission that the additions made by the AO and as confirmed by the Ld.CIT(A) in respect of the various fees paid by the assessee to the State Government was liable to be allowed. 8. In reply, the Ld.DR submitted that the levy of the fee has put the assessee into a loss and los .....

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nd the same was also levied as per the request of the Managing Director. It was a further submission that when the costing of the liquor as sold by the assessee is verified, it is noticed that the same includes the basic price plus excise duty plus Sales Tax levied by the manufacturer plus the wholesale and retail margins and the Sales Tax paid by TASMAC. It did not include the various levies by State Government on the assessee s company which showed that the levy was not Revenue expenditure in .....

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of the provisions of Rule 15 of the Tamil Nadu IMFS (Supply by wholesale) Rules, 1983 shows that the levy is made by the State Government in respect of the various varieties of liquor dealt with by the assessee company. A perusal of the Tamil Nadu Prohibition Act, 1937 more specifically Secs.17B, 17C & 17D showed that the State Government has given the exclusive right to deal with IMFL to the assessee subject to levies may be prescribed by the State Government. The State Government has pres .....

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500.00 Cr. the Revenue has put objection stating that the levy is unreasonable and is a colourable device to deprive the Income Tax Department of its rightful share in the form of taxes from the Revenue generated by the assessee. In respect of the special privilege fee, the allegation of the Revenue seems to be that the Managing Director of the assessee s company who is also a government servant has intimated the government regarding the profitability of the assessee s company and the possible .....

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he assessee is also the monopoly dealer of liquor in the state of Tamil Nadu on account of the Tamil Nadu Prohibition Act, 1937. The levy on the assessee company is not by way of any demand but by way of a statutory compulsion in so far as the GOs are modifying the Rule 15 of the Tamil Nadu IMFS (Supply by wholesale) Rules, 1983. This being so, it cannot be said that there is a colourable device or that any attempt is being made to strip the assessee s company of its profits. The assessee compan .....

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not disallow the payments made by the assessee company in compliance to statutory levies holding the levies by the state government to be unreasonable or colourable. The Hon ble Karnataka High Court in the case of the Karnataka State Beverages Corporation Ltd., had by applying the principles laid down by the Hon ble Supreme Court in the case of Har Shankar v. Dy. Excise and Taxation Commissioner, AIR 1975 SC 1121 had held as under: Therefore, it can safely be said that the privilege fee payable .....

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