TMI Blog2019 (10) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... L 9 license under the Abkari Act and only the assessee before us is granted FL 9 license under the Abkari Act. Hence, the additional evidence is of no assistance to the assessee and the same is rejected. Thus, the argument of the assessee s Counsel is rejected. Surcharge is nothing but sales tax paid by the assessee to the State Government. - In our opinion, this argument of the Ld. AR has no merit on the reason that sales tax is collectable or recoverable from the customers to whom the goods are sold or services are rendered. In the present case, there is prohibition on collection of surcharge from the customers and it should be borne by the assessee itself. As per the Kerala Surcharge on Taxes Act, 1957, there is prohibition for levy of surcharges on certain taxes. Hence, it cannot be said that surcharge is equivalent to sales tax. This argument of the Ld. AR is rejected. Surcharge is not exclusively levied by State Government on the assessee - In our opinion, FL 9 license under the Abkari Act was exclusively given to the assessee and no other undertaking has been granted such license. Being so, it is exclusively levied on the assessee. This argument of the Ld. AR is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied exclusively on the Appellant as is required u/s. 40(a)(iib). In the course of appeal hearings, the Tribunal directed the Appellant to file evidence to show that other Assessees dealing in liquor have also paid Surcharge on Sales Tax. In that connection. the Appellant would like to submit the following documents evidencing payment of Surcharge on Sales Tax under Kerala Surcharge on Taxes Act, 1957 and Turnover Tax u/s. 5(2)(b) of the Kerala General Sales Tax Act, 1963. Sl. No. Name of Assessee Page No. 1. Muthoot Hotels Pvt. Ltd., Vivanta by Taj 1-11 2. M/s. Hotel Vivanta by Taj Vazhuthacaud 12-22 3. Vivanta By Taj Green Cove, Kovalam 23-26 4. MPD Hotels and Infrastructures Pvt. Ltd. 27-28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government; . 4.1 According to the Ld. AR, the wording of the section would clearly show that type of expenditure sought to be disallowed under this section are only such expenditure which is incurred in consideration of obtaining some benefits or rights or license by the State Government in connection with conduct of business. For example, Royalty for grant of mining rights, Privilege Fees for grant of license for distribution of Liquor etc. Therefore, it was submitted that the expenditure contemplated in section 40(a)(iib) are payments/expenditure incurred in connection with rights granted or parted with by the Government in favour of the assessee for the purpose of the asessee carrying on his business i.e in exchange for some benefits accruing specifically for the assessee and there is an element of Quid Pro Quo in payments. 4.2 The Ld. AR submitted that AO and CIT(A) had ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of payment of sales and surcharge. The Ld. AR relied on the judgment of the Supreme Court in the case of The Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954 SCR 1005) pointing out the difference between tax and fee as follows: A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. There are various kinds of fees. But a fee may generally be defined as a charge for a special service rendered to individuals by some governmental agency. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is a payment for a special benefit or privilege. 4.4 Thus, it was submitted that tax is a compulsory payment levied by the government on its citizens and various business firms. As payment of tax is compulsory, refusal to pay tax invites punishment. There is no direct quid pro quo relationship between the taxpayer and the tax-levying authority. A taxpayer cannot demand any reciprocal benefits for paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is carrying out sales and purchase of goods. Further, the turnover tax and surcharge are part of the sales-tax and are not different independent levies. It was submitted that under the VAT regime, items mentioned in Sch IV were excluded from the VAT and was subject to tax by the State viz., KGST and sales tax is payable by all persons dealing In Sch IV goods. Surcharge payable I not only persons dealing with liquor paying sales tax but also added to agricultural income tax. The Ld. AR submitted that surcharge sales tax, and consequently, surcharge and turnover tax, are payable, all persons dealing in liquor at the point of sale specified in the Schedules. Apart from the assessee, there are other entities which retail IMFL and which pay surcharge on sale of liquor to their clients/ members, under the Kerala Surcharges Act. Thus, it was submitted that surcharge on sales tax and turnover tax is part of the KGST (Sec. 5(2). Surcharge and turnover tax cannot therefore be considered as a levy specifically on State Government Undertakings as others also pay sales tax, surcharge on sales tax and turnover tax under the respective Acts. 4.7 It was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as profit available for appropriation. This is appropriated towards Redemption Reserves, Capital reserve, General reserve and balance to the credit of the Profit and Loss account. According to the Ld. AR appropriation means allocating or taking away funds for a specific purpose and it is an application of income. According to the Ld. AR, it will not cover levies made on sales which is and always has been a deduction while arriving at the net profits and such deductible expenditure cannot be considered as an appropriation/ application of income. Further, it was submitted that it is a charge on profits and is based on the type of transaction and not a particular assessee. For example the levy is on the different types of License holders without reference to whom or how many persons, may have been granted that type of License. Individual holders of the license may vary, but the levy is constant for all such License holders and such a common levy on sale of goods applicable to all sellers cannot be considered as an appropriation in the case of assessee alone. Surcharge on sales Tax is part of the sales tax and when sales tax is not disallowed under this section, surcharge on sales t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sec. 40(a)(iib) of the Income Tax Act, 1961. By bringing in a colourable device, the intention of the State Government is to take away the profit from trading in liquor as Surcharge or by any other name. Assessse's contention that surcharge of sales tax is an increment on sales tax only and therefore is not an exclusive levy is against the facts. The Kerala Surcharge on Taxes Act is a separate legislation, distinct from Kerala General Sales Tax Act. The legislations were independently enacted by the State Legislature. Various levies have been made on various classes of tax payers. The levy u/s. 3(1) is solely for the distributor of foreign liquor in the state, being the assessee company, Kerala State Beverages (M M) Corporation Ltd. The enactment of distinct legislations fundamentally points to the levy and charging of independent taxes. The contention that surcharge is subsumed by sales tax is unacceptable. The incidence of surcharge and sales tax are wholly different and the tax-base, being the classes of tax payers for both the levies is different. 5.1 The Ld. DR submitted that the intention of the State Government is to apportion the profits from State Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend attracts dividend distribution tax under section 115-O. So, it was submitted that State Governments instead of taking profits from their undertakings in the form of dividends opt to take it in the form of royalty, privilege fee, etc. exclusively levied by them on the State Government undertakings. Such colourable devices are used by the State Governments to reduce the taxable profits of their undertakings and also to escape DDT. Thus, it was submitted that amounts are appropriated directly or indirectly from the State Government undertakings by the State Government. 5.4 The Ld. DR referred to the legislative intent behind the enactment of Sec. 40(a)(iib) of the Income Tax Act has been detailed in the Circular No.3/2014[F.No.l42/24/2013-TPL]- Finance Act2013-Explanatory notes to the provisions of Finance Act of CBDT dated 24.01.2014; The relevant excerpts of read as follows: ..Disputes have arisen in respect of income-tax assessment of some State Government undertakings as to whether any sum paid by way of privilege fee, license fee, royalty, etc. levied or charged by the State Government exclusively on its undertakings ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch date as the Government may, by notification, in the Gazette, appoint. 2. Levy of surcharge on agricultural income-tax.- The [ Agricultural income tax ] payable by any person [ other than a company ] assessed to such tax under the [ The Kerala Agricultural Income Tax Act, 1991 ] shall be increased by a surcharge at the rate of [ten per centum] of the tax payable each year, and the provisions of the [ The Kerala Agricultural Income Tax Act, 1991 ] shall [apply in relation to the said surcharge as they apply in relation to the [ Agricultural income tax ] payable under the said Act] [Explanation.- In this section, company shall have the same meaning as in the Agricultural Income-tax Act, 1950.] 3. Levy of surcharge on sales and purchase taxes.- [ (1) The tax payable under sub-section (1) of section 5 of the Kerala General Sales Tax Act, 1963, by a dealer in foreign liquor shall be increased by a surcharge at the rate of ten per cent, and the provisions of the Kerala General Sales Tax Act, 1963 shall apply in relation to the said surcharge as they apply in relation to the tax payable under the said Act .] Provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 3 shall be instituted in respect of the same facts one which a penalty has been imposed or forfeiture has been ordered under this section. .] [*****************************************] 6. Removal of difficulties- If any difficulty arises in giving effect to the provisions of this Act, the Government may, as occasion may arise, by order do anything which appears to them necessary for the purpose of removing the difficulty. 7. Power to make rules- The Government may, by notification in the Gazette make rules for carrying out the purposes of this Act. 8. Amendment to the Madras Elementary Education Act, 1920- (1) The Chapter 111 (sections 32 to 40, both inclusive) of the Madras Elementary Education Act, 1920, as in force in the Malabar District referred to in subsection (2) of section 5 of the States Reorganisation Act, 1956, shall be omitted. (2) As soon as may be after the commencement of this Act, the elementary education fund constituted for each local authority under the said Act shall be transferred to the Government by such local authority and the same shall vest in the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surcharges on certain taxes as follows: [ (3) Any dealer who collects the surcharge payable under sub-section (1) in contravention of the provision of sub-section (2) shall be punishable with fine which may extent to one thousand rupees and no court below the rank of a Magistrate of the first class shall try any such offence. ] ['4. Penalty for illegal collection of surcharge.- (1) If any person collects any sum by way of surcharge or purporting to be by way of surcharge in contravention of sub-section (2) of section 3, he shall be liable to pay penalty not exceeding five thousand rupees and any sum so collected by the person shall be liable to be forfeited to the Government by an order issued by the assessing authority after giving such person an opportunity to show cause why penalty or forfeiture shall not be ordered: Provided that no penalty or forfeiture shall be ordered under this subsection if the assessing authority is satisfied that the sum so collected has been returned to the person from whom it was collected. Hence, it cannot be said that surcharge is equivalent to sales tax. This argument of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated, Thiruvananthapuram 27th September,2011 S.R.O. No, 614/2011 - In exercise of the powers conferred by sub-Section (3) of section 10 of the Kerala General Sales Tax Act. 1963 (15 of 1963) read with sub-section (1) of section 3 of The Kerala Surcharge on Taxes Act, 1957 (11 of 1957), the Government of Kerala having considered it necessary in the public interest so to do, hereby rescind the notification issued under G.O.(P) No. 78/2004/TD dated 14th May, 2004 and published as S.R.O. No. 499/2004 in the Kerala Gazette Extraordinary No. 1064 dated 18th May, 2004. By Order of the Governor, sd/- V. P. Joy Secretary to Government Explanatory Note (This does not form part of the notification, but is intended to indicate the general purpose) As per notification issued under G.O.(P) No. 78/2004/TD dated 14th May, .2004 Published as S.R.O. NO. 499/2004 in the Kerala Gazette Extraordinary No. 1064 dated 18th May, 2004, the Government had reduced the rate of surcharge payable by the Kerala State Beverages Corporation, being the dealer holding FL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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