TMI Blog2020 (5) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned Assistant Solicitor General of India, as long as it is not in dispute that the wholesale trade in foreign liquor under FL-9 licence is an exclusive trade in the state permitted to the assessee herein alone, the Gallonage Fee levied under the Foreign Liquor Rules becomes an exclusive levy on the assessee. Therefore we are of the considered opinion that the levy of Gallonage Fee with respect to the wholesale trade under the FL-9 licence will squarely fall within the scope of the disallowances provided under Section 40 (a) (iib). Hence the finding of the Tribunal in this regard need to be upheld. Licence Fee and Shop Rental (Kist) - Question is whether the exclusivity will be lost if it is levied from more than one State Government undertaking. Sub-clause (iib) of Clause (a) of Section 40 provides that, any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge which is levied exclusively on a state government undertaking by the State Government (emphasis supplied) alone will satisfy the ingredients for disallowance. The statute has not used the word; levied exclusively on the state government und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Tribunal, Cochin Bench in ITA Nos.536/Coch/2018 and 537/Coch/2018, dated 12-03-2019. Income Tax Appeal No.313/2019 is filed against the revised order passed by the same Tribunal ITA No.537/Coch/2018, dated 11-10-2019. The assessee was the appellant before the Tribunal, who is the appellant herein. The revenue is the respondent. 2. Appellant is a company registered under the Companies Act, engaged in wholesale and retail trade of beaverages within the State of Kerala, and is a State Government Undertaking falling within the Explanation provided under Section 40 (a) (iib) of the Income Tax Act, 1961 (hereinafter referred to as the Act for short). With respect to the assessment year 2014-2015, the Deputy Commissioner of Income Tax, Circle-2 (1), Thiruvananthapuram finalized the assessment of income tax against the appellant, under Section 143 (3) of the Act, through the order of assessment dated 14- 12-2016. But, the Principal Commissioner of Income Tax, Thiruvananthapuram initiated proceedings under Section 263 of the Act and set aside the order of assessment, on holding that the same is erroneous and is prejudicial to the interest of the revenue, to the extent it failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Solicitor General appearing for the respondent-Assessing Officer, 6. Common question of law arising in these cases is that, whether the Gallonage Fee, Licence fee, Shop rental (Kist) and Surcharge on sales tax and turn over tax, with respect to which debits were made by the assessee in their Profit and Loss Account, are liable to be disallowed while computing the income derived as profit and gains of business or profession , under Section 40 (a) (iib) of the Act, by treating them as amounts paid by the assessee by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called, which is levied exclusively on the assessee. 7. With respect to the assessment year 2014-2015 the Principal Commissioner of Income Tax, while setting aside the original assessment, directed the Assessing Officer to disallow an amount of ₹ 96,076.20 lakhs debited to the Profit and Loss Account of the assessee towards surcharge on sales tax and turn over tax, by invoking Section 40 (a) (iib). With respect to the assessment year 2015-2016 the Assessing Officer had disallowed a total debit of ₹ 811,90,88,115/- being the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is-a-vis exclusively levy of fee, charge, etc or appropriation of amount by the State Government from its undertakings, section 40 of the Income Tax Act has been amended to provide that any amount paid by way of fee, charge, etc, which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Government undertaking, by the State Government, shall not be allowed as deduction for the purposes of computation of income of such undertakings under the head Profits and gains of business or profession. The expression State Government Undertaking for this purpose includes- (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on FL-9 licence holder as well as consumers of rectified spirit, other than pharmaceutical manufactures, as per Rule 14 of the Kerala Rectified Spirit Rules, 1972, framed under the Abkari Act. Inorder to constitute the levy an exclusive levy as envisaged in Section 40 (a) (iib), it shall be intended on the entity alone and not on any particular product. The levy of Gallonage Fee falls on the assessee, as it happens to be the wholesale dealer of foreign liquor within the state. But when similar levy is being charged on various other state government and central government undertakings as well as on private licencees., the levy of Gallonage Fee on the assessee is not an exclusive levy imposed on the assessee as a state government undertaking, was the contention. 10. The first appellate authority found that, merely because a fee in the name of Gallonage Fee is levied under Rule 14 of the Kerala Rectified Spirit Rules also, it is not relevant for the purpose of examining applicability of Section 40 (a) (iib), with respect to fee paid under the Foreign Liquor Rules. As long as the FL-9 licence is exclusively granted to the appellant, the Gallonage Fee paid by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, which are governed by provisions of the Kerala Rectified Spirit Rules. Both the levies cannot be considered as similar, because the levies are on different trades for different products, charged under separate statutes. Merely because the same nomenclature of Gallonage Fee is used, it cannot be contended that there is no exclusivity with respect to the levy of Gallonage Fee from the assessee, is the argument. 12. We are persuaded to accept the view taken by the Tribunal, which confirmed the view of the authorities below. As supported by the learned Assistant Solicitor General of India, as long as it is not in dispute that the wholesale trade in foreign liquor under FL-9 licence is an exclusive trade in the state permitted to the assessee herein alone, the Gallonage Fee levied under the Foreign Liquor Rules becomes an exclusive levy on the assessee. Therefore we are of the considered opinion that the levy of Gallonage Fee with respect to the wholesale trade under the FL-9 licence will squarely fall within the scope of the disallowances provided under Section 40 (a) (iib). Hence the finding of the Tribunal in this regard need to be upheld. 13. Licence Fee and Shop Rental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pirit products, like rectified spirit, denatured spirit etc., Such licences are issued to persons dealing with such products and to different categories of sellers of foreign liquor and beer. Therefore it was contended that the licence fee levied for conducting the trade in foreign liquor is not an exclusive levy attracting Section 40 (a) (iib). The Tribunal discarded the above contention on the finding that, the appellant is paying licence fee and shop rental (kist) in respect of the exclusive licences granted, FL-1 and FL-9, issued by the State Government. 14. Before this court, learned counsel for the appellant argued that, the licence fee as well as shop rental (kist) are also not levies paid directly to the State Government and they are not levies imposed exclusively on the appellant. Those levis are also imposed on other dealers who are licenced for same type of trade and those are levies charged on other traders by virtue of similar provisions in other statutes. On the other hand, learned Assistant Solicitor General of India contended that, the licence fee is charged specifically and exclusively on the assessee with respect to each premises of the business sanctioned unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was argued that, provision under Section 40 (a) (iib) makes it abundantly clear that the levy imposed or the amount appropriated from a state government undertaking shall not be allowed as deduction when the levy is imposed exclusively on such a state government undertakings. Since the levy is made from one more state government undertakings, the exclusivity is not there. In this regard, findings of the Tribunal is that, the wordings of Section 40 (a) (iib), which is levied exclusively on indicates that the fee or charge should be one exclusively levied from the state government undertakings, and it is not any fee or charge which is levied exclusively from the assessee by the state government. Therefore the question is whether the exclusivity will be lost if it is levied from more than one State Government undertaking. Sub-clause (iib) of Clause (a) of Section 40 provides that, any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge which is levied exclusively on a state government undertaking by the State Government (emphasis supplied) alone will satisfy the ingredients for disallowance. The statute has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the provisions of Section 40 (a) (iib), is the finding. 18. As observed in the foregoing paragraphs, while passing the common order in ITA Nos.536 537/Coch/2018 on 12-03-2019, the Tribunal had omitted to consider the contentions raised against disallowance of the surcharge on sales tax and turnover tax. After recalling the order passed in ITA No.537/Coch/2018, the issue was considered by the Tribunal elaborately. It was pointed out before the Tribunal that, the wording of Section 40 (a) (iib), any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge by whatever name called , would clearly indicate that the disallowance is intended with respect to fee or charges and it will not take within its ambit and scope any amount collected by way of tax. The categorisation of surcharge also under the group of fee or charges provided under Section 40 (a) (iib), by the Assessing Officer by depending upon the wording, by whatever name called cannot be sustained, because the principle of ejusdem generis would apply and it should be of the same kind of fee or charge . Surcharge on sales tax is nothing but sales tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the customers to whom the goods are sold, because of the express restrainment contained in the provisions of the Kerala Surcharge on Taxes Act. Hence the surcharge is not equivalent of sales tax, is the finding of the Tribunal. 19. Before this court, learned counsel for appellant raised contention that, a tax is not a fee or charge . Section 3 (1) of the Kerala Surcharge on Tax Act was reiterated to content that, it provides only an increment in the tax payable under Sub- Section (1) of Section (5) of the KGST Act by a dealer in foreign liquor by way of surcharge at 10%. Further, it is provided that, provisions of the KGST Act shall apply in relation to surcharge, as they apply in relation to tax payable under the KGST Act. It is pointed out that, from a plain reading of the provision it is clear that surcharge on sales tax is nothing but a tax and it partakes all the characteristics of tax levied under a specific fiscal statute. Hence the disallowance is made only by way of rewriting Section 40 (a) (iib), under the guise of interpreting the said provision, is the argument. From a plain reading of Section 40 (a) (iib) it is clear that, the provision was never intended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Commissioner, Hindu Religious Endowments, Madras V. Sri. Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954 SCR 1005) and on some other cases to emphaise that, tax is not a compulsory extraction of money by public authority for a public purpose enforcible and is not a payment made for services rendered. A fee may be generally defined as a charge for special services rendered to individuals by some Governmental agencies. Various decisions of other High Courts are also pressed into service to content that tax and dues are not same as cess or fee or charge . 22. On analysing the rival contentions, we take note of the fact that the surcharge on sales tax was introduced only as an increase in the tax payable. Merely because the statute imposed a prohibition with respect to passing on such liability to others, the basic characteristics of the levy is not changed. As settled through various legal precedents, a tax cannot by equated with a fee or charge . When the provisions contained in Section 40 (a) (iib) is clear in its terms that it will take in only fee or charges enumerated therein or any fee or charge by whatever name called, it is clear that any levy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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