2022 (1) TMI 184 - SC - Income Tax

Revision u/s 263 by CIT - additions u/s 40(a)(iib) - CIT observed that, AO 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) - HELD THAT - As by virtue of licence which is granted in favour of State owned Undertaking, the statutory fees etc., viz., gallonage fees, licence fee and shop rental (kist) are payable by the appellant Undertaking, i.e., KSBC. Once the State Government Undertaking takes licence, the statutory levies referred above are on the Government Undertaking because it is granted licences. Therefore, we are of the view that the finding of the High Court that gallonage fee, licence fee and shop rental (kist) so far as FL 1 licences 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. 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. 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 sales tax, which is nothing but the sales tax, can be brought in the net of Section 40(a)(iib)(A) or 40(a) (iib)(B) of the Act. Further a clear distinction between fee and tax is carefully maintained throughout the scheme under Section 40(a) of the Act itself. Wherever the Parliament intended 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. Even the other alternative submission of the learned counsel that it may attract Section 40(a)(iib)(B) also cannot be accepted for the reason that wherever the Parliament intended to include tax, referred clearly to taxes clearly in the very Section 40. That itself indicates that the surcharge or tax were never intended to be included in the net of amended Section 40(a)(iib)(A) or 40(a)(iib)(B) of the Income- tax Act, 1961. 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). Thus 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. In result, the assessments completed against the assessee with respect to assessment years 2014 -2015 and 2015-2016 stand set aside. The assessing officer to pass revised orders after computing the liability in accordance with the directions as indicated above. As the dispute relates to assessment years 2014 -2015 and 2015 -2016, the assessing officer shall pass appropriate orders, within a period of two months from the date of receipt of this judgment.

Summary

Issues Involved:
1. Applicability of Section 40(a)(iib) of the Income-tax Act, 1961 to gallonage fee, licence fee, and shop rental (kist) for FL-9 and FL-1 licences.
2. Applicability of Section 40(a)(iib) to surcharge on sales tax.
3. Applicability of Section 40(a)(iib) to turnover tax.

Detailed Analysis:

1. Applicability of Section 40(a)(iib) to Gallonage Fee, Licence Fee, and Shop Rental (Kist) for FL-9 and FL-1 Licences:
The High Court held that the gallonage fee, licence fee, and shop rental (kist) with respect to FL-9 licences granted to the appellant fall within the purview of Section 40(a)(iib) of the Income-tax Act, 1961, and the amounts paid in this regard are liable to be disallowed. However, it distinguished the FL-1 licences, stating that the levy on FL-1 licences is not an exclusive levy on the appellant as it is also granted to another State-owned undertaking, Kerala State Co-operatives Consumers’ Federation Ltd. Therefore, the disallowance made with respect to FL-1 licences cannot be sustained.

The Supreme Court disagreed with the High Court's interpretation, stating that the aspect of exclusivity under Section 40(a)(iib) should be viewed from the nature of the undertaking on which the levy is imposed and not on the number of undertakings on which the levy is imposed. Both KSBC and Kerala State Co-operatives Consumers’ Federation Ltd. are State Government undertakings, so the levy is an exclusive levy on the State Government undertakings. The Supreme Court concluded that the gallonage fee, licence fee, and shop rental (kist) with respect to both FL-9 and FL-1 licences fall within the purview of Section 40(a)(iib) and are liable to be disallowed.

2. Applicability of Section 40(a)(iib) to Surcharge on Sales Tax:
The High Court held that the surcharge on sales tax is not a 'fee or charge' within the meaning of Section 40(a)(iib) and is not an amount that can be disallowed under the said provision. The Supreme Court agreed with this interpretation, stating that the 'fee' or 'charge' mentioned in Section 40(a)(iib) does not cover taxes or surcharges on taxes. The surcharge on sales tax is an enhancement of the basic sales tax levied under Section 5(1) of the Kerala General Sales Tax Act, 1963, and is therefore outside the scope and ambit of Section 40(a)(iib)(A) and Section 40(a)(iib)(B) of the Income-tax Act, 1961.

3. Applicability of Section 40(a)(iib) to Turnover Tax:
The High Court did not specifically address the turnover tax. However, the Supreme Court noted that turnover tax is also a tax and, like the surcharge on sales tax, is outside the purview of Section 40(a)(iib)(A) and Section 40(a)(iib)(B). The Supreme Court held that turnover tax is not an amount that can be disallowed under Section 40(a)(iib).

Conclusion:
The Supreme Court dismissed the civil appeal filed by the assessee and partly allowed the civil appeals filed by the revenue. The assessments completed against the assessee for the assessment years 2014-2015 and 2015-2016 were set aside. The assessing officer was directed to pass revised orders after computing the liability in accordance with the directions provided, within a period of two months from the date of receipt of the judgment.