2018 (7) TMI 135 - HC - Income Tax

Disallowance u/s 40(a)(iib) - disallowance was made to deductions claimed as gallonage fee licence fee shop rental (kist) and surcharge on sales tax - scope of the new provision introduced w.e.f. AY 2015-16 - exemption towards payment of licenece fee and surcharge on liquor (vendors) to the State government - Held that - Provision was one introduced in the subject year and the deductions were allowed in all the earlier years. The income so generated by the Corporation also goes to the exchequer of the State which definitely is used for welfare purposes. Yet again we are of the view that there is a debatable issue which has to be considered especially on the new provision introduced in the Income Tax Act. We hence direct the Commissioner (Appeals) to consider the appeal itself and in the meanwhile keep recovery in abeyance. We make it clear that the observations by this Court or the learned Single Judge need not regulate the consideration by the Appellate Authority. The observations if at all made are only in the nature of prima facie ones to invoke the extra-ordinary jurisdiction under Article 226 of the Constitution. Writ Appeal would stand allowed.

Summary

Issues:
Enhanced demand under Section 40(a)(iib) of the Income Tax Act, 1961 for the assessment year 2015-16.

Analysis:
The judgment addressed the issue of an enhanced demand made on the appellant due to the introduction of a new provision at Section 40(a)(iib) of the Income Tax Act, 1961. The appellant had filed a return showing a total income, and a disallowance was made to deductions claimed as various fees and charges. The disallowance amount was substantial, leading to the appeal challenging the decision.

The judgment highlighted the specific provision in Section 40(a)(iib) which pertains to amounts paid by way of various fees and charges exclusively on or appropriated from a State Government undertaking by the State Government. The appellant was considered a State Government undertaking, but the dispute arose regarding the exclusivity of the levy and whether there was any appropriation directly or indirectly by the State Government. The appellant argued that the levies were not exclusive as they applied to various entities selling liquor within the State, and there was no direct or indirect appropriation by the State Government.

The legal representatives presented their arguments, with the Standing Counsel for the Revenue submitting that the Assessing Officer and the Commissioner had already considered the issue in detail. The judgment acknowledged the complexity of the issue, especially considering the new provision introduced in the Income Tax Act. It directed the Commissioner (Appeals) to reconsider the appeal, keeping the recovery in abeyance. The judgment emphasized that the observations made were prima facie and did not restrict the Appellate Authority's consideration. Ultimately, the impugned judgment and conditional order were set aside, and the Department was directed to act in accordance with the court's directions, allowing the Writ Appeal with no order as to costs.