2020 (5) TMI 176 - HC - Income Tax

Disallowance u/s 40 (a) (iib) - payment of Gallonage Fee, Licence fee, Shop rental (Kist) and Surcharge on Sales Tax - HELD THAT - Gallonage Fee - The Gallonage Fee paid by the assessee under Rule 15A of the Foreign Liquor Rules with respect to the wholesale trade in foreign liquor for human consumption, cannot be equated or in any way identical to the Gallonage Fee paid by any industrial or research undertaking, in respect of the rectified spirit / industrial spirit dealt with them, 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. 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. 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 undertakings by the State Government. Instead, the word used is exclusively on a state government undertaking . Therefore, inorder to bring the disallowance within the ambit and scope of Section 40 (a) (iib), it should be an exclusive levy on the assessee, which should be a state government undertaking. Since the licence fee and shop rental (kist) are also levied from the Consumer Federation with respect to the FL-1 licence granted, it becomes out of the purview of the term levied exclusively on a state government undertaking, contained in 40 (a) (iib). Disallowance made with respect to the licence fee and shop rental (kist) paid with respect to the FL-1 licences granted to the appellant for retail trade in foreign liquor, cannot be sustained. Surcharge on Sales Tax and Turnover tax - 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 tax is outside the ambit and scope of the said provision. In order to include surcharge on sales tax or turnover tax within the sweep of Section 40 (a) (iib), it becomes necessary to read something into the provision. Therefore we are inclined to accept the view as contended by the appellant, that the disallowance of surcharge on sales tax and turnover tax cannot be sustained. While summing up the conclusions, we are persuaded to answer the question of law raised, partly in favour of the revenue and partly in favour of the assessee.

Issues Involved:
1. Disallowance of Gallonage Fee under Section 40(a)(iib) of the Income Tax Act.
2. Disallowance of Licence Fee and Shop Rental (Kist) under Section 40(a)(iib).
3. Disallowance of Surcharge on Sales Tax and Turnover Tax under Section 40(a)(iib).

Detailed Analysis:

1. Disallowance of Gallonage Fee:
The court examined whether the Gallonage Fee paid by the appellant, a state government undertaking, for the wholesale trade of foreign liquor under FL-9 licence, falls under the disallowance provisions of Section 40(a)(iib) of the Income Tax Act. The Assessing Officer and the first appellate authority found that Gallonage Fee is an exclusive levy on the appellant as it holds the exclusive FL-9 licence. The appellant argued that Gallonage Fee is also collected from other agencies under different rules, hence it is not an exclusive levy. However, the court upheld the Tribunal's view that since the wholesale trade in foreign liquor under FL-9 licence is exclusively granted to the appellant, the Gallonage Fee levied under the Foreign Liquor Rules is an exclusive levy on the appellant, thus falling within the scope of Section 40(a)(iib).

2. Disallowance of Licence Fee and Shop Rental (Kist):
The court analyzed the disallowance of Licence Fee and Shop Rental (Kist) paid by the appellant for FL-9 and FL-1 licences. The Assessing Officer and the first appellate authority found that these fees are exclusive levies on the appellant, a state government undertaking. The appellant contended that similar fees are levied on other traders and entities, hence they are not exclusive levies. The court held that the Licence Fee and Shop Rental (Kist) for FL-9 licences are exclusive levies on the appellant, thus falling within the scope of Section 40(a)(iib). However, for FL-1 licences, since the retail trade in foreign liquor is also granted to another state government undertaking (Consumer Federation), the court found that the levy is not exclusive to the appellant. Therefore, the disallowance of Licence Fee and Shop Rental (Kist) for FL-1 licences was not sustained.

3. Disallowance of Surcharge on Sales Tax and Turnover Tax:
The court considered whether Surcharge on Sales Tax and Turnover Tax paid by the appellant could be disallowed under Section 40(a)(iib). The appellant argued that surcharge is a tax and not a fee or charge, and it is levied on various entities, not exclusively on the appellant. The Tribunal initially found surcharge to be an exclusive levy on the appellant. However, the court accepted the appellant's contention that surcharge on sales tax is an increment in sales tax and not a fee or charge. The court noted that surcharge, being a tax, falls outside the ambit of Section 40(a)(iib), which applies to fees or charges. Consequently, the disallowance of Surcharge on Sales Tax and Turnover Tax was set aside.

Conclusion:
The court concluded that the Gallonage Fee, Licence Fee, and Shop Rental (Kist) for FL-9 licences are disallowable under Section 40(a)(iib). However, Licence Fee and Shop Rental (Kist) for FL-1 licences and Surcharge on Sales Tax and Turnover Tax are not disallowable under the same section. The assessments for the relevant years were set aside and remitted to the Assessing Officer for recomputation in accordance with the court's findings. The appeals were disposed of accordingly.

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