9911796707
TMI Blog2022 (1) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 2014-2015, the Deputy Commissioner of Income Tax, Circle2(1), Thiruvananthapuram finalised the assessment of income of the appellant under Section 143(3) of the Income-tax Act, 1961 (in short, 'the Act') vide Assessment Order dated 14.12.2016. The Principal Commissioner of Income Tax, Thiruvananthapuram has exercised power of revision as contemplated under Section 263 of the Act and set aside order of assessment on the ground that same is erroneous and is prejudicial to the interest of the revenue, to the extent it failed to disallow the debits made in the Profit & Loss Account of the assessee, with respect to the amount of surcharge on sales tax and turnover tax paid to the State Government, which ought to have been disallowed under Section 40(a)(iib) of the Act. Against order of the Principal Commissioner, Income Tax, dated 25.09.2018, the appellant herein filed appeal before the Income Tax Appellate Tribunal (in short, 'the Tribunal') in ITA No.536/Coch/2018. 4. With respect to Assessment Year 2015-2016 assessment against the appellant was completed under Section 143(3) of the Act by the Assistant Commissioner of Income Tax, Circle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver tax is not a 'fee or charge' coming within the scope of Section 40 (a) (iib) and is not an amount which can be disallowed under the said provision. Therefore the disallowance made in this regard is liable to be set aside. 24. In the result the assessment completed against the appellants with respect to the assessment years 20142015, 2015-2016 are hereby set aside. The matter is remitted to the Assessing Officer to pass revised orders, after computing the I.T. Appeal Nos. 135, 146 & 313/2019 32 liability in accordance with the position settled hereinabove, on affording an opportunity of hearing to the appellant. The needful steps in this regard shall be completed at the earliest, at any rate, within three months from the date of receipt of a copy of this judgment." 5. For the purpose of disposal, we refer to the parties, as arrayed in the appeal filed by Kerala State Beverages Manufacturing & Marketing Corporation Ltd. (KSBC). 6. We have heard Sri S. Ganesh, learned senior advocate for the appellant and Sri N. Venkataraman, learned Additional Solicitor General appearing for the respondent. 7. Section 40 of the Income-tax Act, 1961 is the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such amounts are not deductible for the purpose of computation of income, for the assessment years 2014-2015 and 2015-2016. 9. During the assessment years 2014-2015 and 2015-2016 the appellant was holding FL9 and FL1 licences to deal in wholesale and retail of, Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL) granted by the Excise Department. FL9 licence was issued to deal in wholesale liquor, which they were selling to FL1, FL3, FL4, 4A, FL11, FL12 licence holders. The FL1 licence was for sale of foreign liquor in sealed bottles, without privilege of consumption within the premises. The gallonage fee is payable as per Section 18A of the Kerala Abkari Act and Rule 15A of the Foreign Liquor Rules. The appellant was the only licence holder for the relevant years so far as FL9 licence to deal in wholesale, and so far as FL1 licences are concerned, it was also granted to one other State owned Undertaking, i.e., Kerala State Cooperatives Consumers' Federation Ltd.. By interpreting the word 'exclusively' as worded in Section 40(a)(iib)(A) of the Act, High Court in the impugned order has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale or purchase of goods, as such it is nothing but an increment to the basic sales tax levied under Section 5(1) of Kerala General Sales Tax Act, 1963 (for short, 'KGST Act'). It is submitted that surcharge on sales tax is nothing but an enhancement of tax itself. In support of the said submission, the learned counsel has placed reliance on the judgments of this Court in the case of C.I.T. v. K. Srinivasan (1972(4) SCC 526 and in the case of Sarojini Tea Co. Ltd. v. Collector, Dibrugarh (1992) 2 SCC 156. Reference is also made on the CBDT Circular No.3/2018 dated 11.07.2018, to buttress the said submission. Learned counsel, by drawing our attention to the distinction between 'fee' and 'taxes' which is maintained throughout the scheme under Section 40(a) has submitted that, the sales tax and turnover tax is outside the scope of Section 40(a) (iib) of the Act. Lastly it is submitted that for the assessment year 2014-2015, the assessing officer has allowed deductions in respect of surcharge on sales tax and turnover tax, the Commissioner interfered, in exercise of power of revision under Section 263 of the Act. It is submitted that the view taken by the assessing officer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ury. Learned counsel also referred to the Memorandum attached to the Finance Bill of 2013 which explains the provisions relating to direct taxes. The relevant portion of the Memorandum reads as under : "Disallowance of certain fee, charge, etc. in the case of State Government Undertakings The existing provisions of section 40 specifies the amounts which shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". The nondeductible expense under the said section also includes statutory dues like fringe benefit tax, Income-tax, wealthtax, etc. 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 are deductible or not for the purposes of computation of income of such undertakings. In some cases, orders have been issued to the effect that surplus arising to such undertakings shall vest with the State Government. As a result it has been claimed that such income by way of surplus is not subject to tax. It is a sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the KSBC and the Kerala State Cooperatives Consumers' Federation Ltd. are undertakings of the State of Kerala, therefore, the levy is an exclusive levy on such State Government Undertakings which are licensees. 11.2. So far as surcharge on sales tax is concerned, again it is submitted that such a levy is an exclusive levy on KSBC alone, therefore, attracts Section 40(a)(iib)(A) itself. Alternatively, it is further submitted that even assuming that such tax is not attracted by Section 40(a)(iib)(A), it would fall under Section 40(a)(iib)(B) for the reason that surcharge on sales tax is a 'tax' and tax is a form of appropriation by the State from KSBC. It is submitted that the surcharge levied under Section 3(1) of the KST Act is on the tax payable by a dealer in foreign liquor under Section 5(1) of the KGST Act. It is the contention of the learned counsel that, the cumulative reading of Section 3(1) of the KST Act and Section 5(1)(b) of the KGST Act would reveal that surcharge is levied on the tax payable by a dealer in foreign liquor under Section 5(1) of KGST Act. It is submitted that Section 3(1) does not deal with any other category and specifically pertain only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective States to have a protection under Article 289. In the instant case the KSBC, a State Government Undertaking, is a company like any other commercial entity, which is engaged in the business and trade like any other business entity for the purpose of wholesale and retail business in liquor. As much as these kind of undertakings are under the control of the States as the total shareholding or in some cases majority of shareholding, is held by States. As such they exercise control over it and shift the profits by appropriating whole of the surplus or a part of it to the Government by way of fees, taxes or similar such appropriations. From the relevant Memorandum to the Finance Act, 2013 and underlying object for amendment of Income-tax Act by Act 17 of 2013, by which Section 40(a)(iib)(A)(B) is inserted, it is clear that the said amendment is made to plug the possible diversion or shifting of profits from these undertakings into State's treasury. In view of Section 40(a)(iib) of the Act any amount, as indicated, which is levied exclusively on the State owned undertaking (KSBC in the instant case), cannot be claimed as a deduction in the books of State owned undertaking, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of undertaking, in this particular case, both KSBC and Kerala State Cooperatives Consumers' Federation Ltd. are undertakings of the State of Kerala, therefore, levy is an exclusive levy on the State Government Undertakings. Therefore, we are of the considered view that any other interpretation would defeat the very object behind the amendment to Income-tax Act, 1961. 14.1. It is fairly well settled that the interpretation is to be in the manner which will subserve and promote the object and intention behind the legislation. If it is not interpreted in the manner as aforesaid it would defeat the very intention of the legislation. To defeat the said provision, the State Governments may issue licences to more than one State owned undertakings and may ultimately say it is not an exclusive undertaking and therefore Section 40(a)(iib) is not attracted. The submission of Sri Ganesh, learned senior counsel for the appellant is that the gallonage fee, licence fee and the shop rental (kist) are the levies under the Abkari Act on all the licence holders, as such it cannot be said that same is an exclusive levy on the appellant/KSBC. It is submitted that because of the Abkari Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. Secondly, it is submitted, as an alternative submission that if the same is not covered by Section 40(a)(iib)(A) it would fall under Section 40(a)(iib)(B) of the Act, for the reason that the surcharge on sales tax is a tax and tax is a form of appropriation by the State from KSBC. The learned counsel placed reliance on a recent judgment of this Court in the case of Jalkal Vibhag Nagar Nigam and Others. On the other hand it is the case of the appellant/assessee that the sales tax is outside the scope of Section 40(a)(iib) and the surcharge is nothing but is an enhancement of the tax. By referring to words used in Section 40(a)(iib), learned counsel Sri Ganesh has submitted that the said provision is to be interpreted by applying the doctrine of ejusdem generis. It is submitted that the words 'any other fee or charge' immediately following the words 'royalty, licence fee, service fee, privilege fee, service charge' relate to such similar charges and none of the terms can possibly cover a tax, like sales tax or surcharge on sales tax. With regard to surcharge on sales tax, we are in agreement with the submission of Sri Ganesh, learned senior counsel appearing for appellant. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everages (Manufacturing and Marketing) Corporation Limited. (c) ... ... ... ..." 14.4. A reading of preamble and Section 3(1) of the KST Act, make it abundantly clear that the surcharge on sales tax levied by the said Act is nothing but an increase of the basic sales tax levied under Section 5(1) of the KGST Act, as such the surcharge is nothing but a sales tax. It is also settled legal position that a surcharge on a tax is nothing but the enhancement of the tax. In this regard, in support the said view, ready reference can be made to the judgments of this Court in the case of K. Srinivasan and Sarojini Tea Co. Ltd.. Para 7 of the judgment in the case of K. Srinivasan reads as under : "7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term "Income tax" as employed in Section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax and supertax were to be increased by a surcharge for the purpose of the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to cover the tax it specifically mentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically relate to tax related items. Section 40(a)(ic) refers to a sum paid on account of fringe benefit tax. At the same time, Section 40(a)(iib) refers to royalty, licence fee, service fee, privilege fee or any other fee or charge. If these words are considered to include a tax or surcharge like sales tax, the distinction so carefully spelt out in Section 40 between a tax and a fee will be obliterated and rendered meaningless. It is settled principle of interpretation that where the same Statute, uses different terms and expressions, then it is clear that Legislature is referring to distinct and different things. To support the said view ready reference can be made to judgments of this Court in the case of DLF Qutab Enclave Complex Educational Charitable Trust v. State of Haryana & Ors. (2003) 5 SCC 622; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. (2003) 4 SCC 305; and Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609. The judgment relied on by the learned ASG in the case of Jalkal Vibhag Nagar Nigam and Others would n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
