2024 (1) TMI 1316 - AT - Income Tax

Disallowance u/s 40(a)(iib) - VAT in the nature of any other fee or charge - HELD THAT - As the issue is squarely covered by the decision of Hon ble Supreme Court in the case of Kerala State Beverages Manufacturing Marketing Corporation Ltd. 2022 (1) TMI 184 - SUPREME COURT as finally held that the VAT is entirely distinct as that of any other fee or charge - we confirm the action of the CIT(A) deleting the disallowance and accordingly, dismiss the appeal filed by the Revenue.

Summary

Issues Involved:
1. Legality of CIT(A)'s order deleting the disallowance made by the AO under Section 40(a)(iib) of the Income Tax Act, 1961.
2. Interpretation of VAT as "any other fee or charge" under Section 40(a)(iib) of the Income Tax Act, 1961.
3. Applicability of the Hon'ble Supreme Court judgment in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. to the present case.

Issue-wise Analysis:

1. Legality of CIT(A)'s Order Deleting the Disallowance Made by the AO under Section 40(a)(iib) of the Income Tax Act, 1961
The Revenue challenged the CIT(A)'s decision to delete the disallowance made by the AO under Section 40(a)(iib) of the Income Tax Act, 1961. The CIT(A) had followed the Tribunal's decision in the assessee's own case for the assessment year (A.Y.) 2014-15, where it was held that VAT payments do not attract the provisions of Section 40(a)(iib). The CIT(A) allowed the VAT expenses claimed by the assessee as a deduction under Section 37 read with Section 43B of the Income Tax Act, 1961.

2. Interpretation of VAT as "Any Other Fee or Charge" under Section 40(a)(iib) of the Income Tax Act, 1961
The AO had disallowed VAT expenses of Rs. 12,906 crores claimed by the assessee, considering them as an indirect appropriation of the surplus of the state government undertaking by the state government itself. The AO held that VAT expenses fit into the clause "any other fee or charge" under Section 40(a)(iib) of the Income Tax Act, 1961. However, the CIT(A) disagreed and allowed the VAT expenses as a deduction, following the Tribunal's decision for the A.Y. 2014-15.

3. Applicability of the Hon'ble Supreme Court Judgment in the Case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. to the Present Case
The assessee's counsel presented a copy of the Hon'ble Supreme Court judgment in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. vs. ACIT, which discussed the interpretation of various fees and charges under Section 40(a)(iib). The Supreme Court held that VAT is distinct from "any other fee or charge" and does not attract the provisions of Section 40(a)(iib). The Court emphasized that the interpretation of Section 40(a)(iib) should not defeat the legislative intent and that taxes and surcharges are outside its scope.

The Tribunal noted that the CIT-DR could not present any contrary decision from the Hon'ble Apex Court. As the issue was squarely covered by the Supreme Court's decision, the Tribunal confirmed the CIT(A)'s action of deleting the disallowance made by the AO.

Conclusion
The Tribunal dismissed the appeal filed by the Revenue, confirming the CIT(A)'s order deleting the disallowance of VAT expenses under Section 40(a)(iib) of the Income Tax Act, 1961. The Tribunal relied on the Hon'ble Supreme Court's judgment in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd., which clarified that VAT does not fall under "any other fee or charge" as per Section 40(a)(iib). The Tribunal's decision was pronounced in the open court on 30th January, 2024, at Chennai.