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TMI Blog2024 (1) TMI 1316X X X X Extracts X X X X X X X X Extracts X X X X ..... ue has raised the following three grounds:- "1. The order of the learned ld.CIT(A) is contrary to law and facts and circumstances of the case. 2. The ld.CIT(A) has erred in following the decision of the Hon'ble ITAT in the assessee's own case for the A.Y. 2014-15, without appreciating the fact that the said order was not accepted by the Revenue & further appeal against the said order was filed by the Revenue. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored. 3. Brief facts are that the assessee is a government of Tamil Nadu undertaking engaged in the business of wholesale / retail vending in liquor. The assessee filed its return of income for the assessment year 2015-16 declaring income at Rs. Nil. The assessee's case was reopened u/s. 147 of the Act after taking prior approval from the Additional Commissioner of Income Tax, Corporate Range-3, Chennai. The assessee, in its books has debited a sum of Rs. 12906 crores as VAT expenses in the profit & loss account. During the assessment proceedings, the AO has considered the amount debited of Rs. 12,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FL-9 licence are not deductible, as it is an exclusive levy on the Corporation. Further a distinction is drawn from FL-1 licence from FL-9 licence, to apply Section 40(a)(iib), only on the ground that, FL-1 licences are issued not only to the appellant/KSBC but also issued to one other Government Undertaking, i.e., Kerala State Co-operatives Consumers Federation Ltd. High Court has held that as there is no other player holding licences under FL-9 like KSBC as such the word 'exclusivity' used in Section 40(a)(iib) attract such amounts. At the same time only on the ground that FL-1 licences are issued not only to the KSBC but also to Kerala State Co-operatives Consumers' Federation Ltd., High Court has held that exclusivity is lost so as to apply the provision under Section 40(a)(iib). If the amended provision under Section 40(a) (iib) is to be read in the manner, as interpreted by the High Court, it will literally defeat the very purpose and intention behind the amendment. The aspect of exclusivity under Section 40(a)(iib) is not to be considered with a narrow interpretation, which will defeat the very intention of Legislature, only on the ground that there is yet another player, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L-1licences are concerned, is not attracted by Section 40(a)(iib), cannot be accepted and such finding of the High Court runs contrary to object and intention behind the legislation. 14.2. Further, because another State Government Undertaking, i.e., Kerala State Co-operatives Consumers' Federation Ltd. was also granted licences during the relevant years, as such exclusivity mentioned in Section 40(a)(iib) is lost, also cannot be accepted, for the reason that exclusivity is to be considered with reference to nature of licence and not on number of State owned Undertakings. If the interpretation, as held by the High Court, is accepted, the legislative intent can be defeated by issuing licences in FL-1 to several State Government Undertakings and then make a contention that exclusivity is lost. Said interpretation runs contrary to the intent of the amendment. 14.3. So far as surcharge on sales tax is concerned, the High Court has held in favour of KSBC and against the revenue. The reasoning of the High Court is that surcharge on sales tax is a tax and Section 40(a)(iib) does not contemplate 'tax' and surcharge on sales tax is not a 'fee' or a 'charge'. Therefore, High Court was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956 the tax payable by such dealer under the Kerala General Sales Tax Act, 1963 together with the surcharge payable under this sub¬section, exceeds four per centum of the sale or purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed four per centum of the sale or purchase price." Section 5(1)(b) of the Kerala General Sales Tax Act, 1963 reads as under : 5. Levy of tax on sale or purchase of goods: (1) Every dealer (other than a casual trader or agent of a nonresident dealer or the Central Government, or Government of Kerala or the Government of any other state or of any Union Territory, or any local authority) whose total turnover for a year is not less than two lakhs rupees and every casual trader or agent of a nonresident dealer, the Central Government, Government of Kerala, the Government of any other state or of any Union Territory, or any local authority whatever be its total turnover for the year in respect of goods included in the Schedule at the rate mentioned against such goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge on land revenue levied under the Surcharge Act, being an enhancement of the land revenue, is part of the land revenue and has to be treated as such for the purpose of assessing compensation under Section 12 of the Ceiling Act." 14.5. Further, CBDT itself has issued circular in Circular No. 3/2018 which is issued, as a measure for reducing litigation, by revision of monetary limits for filing appeals by the Department before the Incometax Appellate Tribunal, High Courts and SLP/appeals before this Court. In the said circular it is clearly mentioned that for considering tax effect it includes applicable surcharge and cess. Same will also strengthen the stand of the assessee. Thus it is clear that the surcharge which is sought to be levied is nothing but the enhancement of sales tax, which is levied under Section 5(1) of the KGST Act. When the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If the revenue does not consider Section 40(a)(iib) is applicable to the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, it is not known how the surcharge on sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act, 1961. 15. So far as turnover tax is concerned it is submitted by the learned ASG appearing for the revenue that such tax was imposed not only on KSBC in terms of Section 5(1)(b) of KGST Act, but it is imposed on various other retail dealers specified under Section 5(2) of the said Act. Further turnover tax is also a tax. The very same reason which we have assigned above for surcharge, equally apply to the turnover tax also. As such turnover tax is also outside the purview of Section 40(a) (iib)(A) and 40(a)(iib)(B). 16. For the aforesaid reasons, we hold that the gallonage fee, licence fee and shop rental (kist) with respect to FL¬9 and FL¬1 licences granted to the appellant will, squarely fall within the purview of Section 40(a)(iib) of the Income-tax Act, 1961. The surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard is rightly set aside by the High Court. 17. Accordingly, the civil appeal filed by the assessee is dismissed and the civil appeals filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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