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2022 (11) TMI 990 - AT - Income TaxRevision u/s 263 by CIT - Value Added Tax paid by assessee and claimed as deduction u/s.37 r.w.s. 43B or u/s 40(a)(iib) disallowed - scope of amended provisions of section 40(a)(iib) - assessee explained that the VAT expenditure was claimed and allowed in the assessment order passed by the AO and now, the PCIT want to disallow the claim, in term of the amended provisions of section 40(a)(iib) of the Act - HELD THAT - PCIT has interpreted the word royalty, license fee, privilege fee, service charge or any other fee or charge by whatever name called, are wide enough to include sales tax i.e., VAT also. According to us, this interpretation is totally wrong because the VAT is levied by the State Government of TamilNadu by the power vested in it under the Entry No.54, List-II, Seventh Schedule, Constitution of India and the assessee pays the State Government VAT as per Section 3(5) of the TNVAT Act, 2006 read with the rate mentioned in Second Schedule to the TNVAT Act, 2006 and claims it as an expenditure u/s.37 r.w.s.43B of the Act, in its income-tax return, which has been disallowed by the Assessing Officer for AY 2017-18 u/s.40(a)(iib) As the list of areas which fall within the exclusive power of States are given in the List II of the Seventh Schedule. State has the exclusive power to levy taxes on sale and purchase of intoxicating liquor (Entry 54). But the power to levy fees in respect of matters in the List is given under a different entry (Entry No 66). Thus, the State derives power to levy sales tax (VAT) on liquor under entry 54 and power to levy fees in connection with production, manufacture, transportation etc. is derived under Entry no 69 of the List II of VII schedule the Constitution of India. So, the power of State Government to levy tax on sale and purchase of liquor and power to levy fees are two different powers and are derived from two different entries in the State list. Thus, fees levied by whatever name called under the power granted under Entry 69 cannot encompass tax levied by virtue of Entry 54. It is impossible to comprehend that when the legislature proposes to disallow taxes that the State Government has levied under its exclusive domain, such tax is not specifically mentioned in the section but allowed to be derived from the phrase charges by whatever name called particularly when the Apex Court has clearly laid down the distinction between taxes and fees and have held that Taxes cannot be levied under the guise of fees. As noted TASMAC cannot collect Privilege Fees/ Vend fees separately from the Purchasers. Value Added Tax is collected from the Customers. It is collected on behalf of the Government and passed on to the Government totality. A trader can collect Value Added Tax as per the provisions of the Act and nothing more. The entire amount so collected is passed on to the Government. In this manner also, Value Added Tax, which is separately collected from the Purchaser, is different and distinct from the charges mentioned in S.40(a)(iib) of the Act, which are borne by the TASMAC and cannot be collected from the purchaser. We are of the view that VAT collected and paid by TASMAC under the provisions of TamilNadu Tax Act, 2006 is an allowable expenditure and cannot be disallowed under the amended provisions of section 40(a)(iib) Value Added Tax is not exclusively on TASMAC, Value Added Tax is only the indirect tax collected from customers and remitted to Government on monthly basis after filing necessary monthly return as per the provisions of TamilNadu Value Added Tax Act, 2006 and rules framed thereunder. We find from records that the taxes collected at the rates specified in the VAT Act and passed on to the State Government. We also noted that even the provision of section 40(a)(iib) of the Act cannot be applied as the value added tax payment is not an appropriation so as to bring the sum within the ambit of provisions of section 40 (a)(iib) of the Act. In sum up, we state that the Value Added Tax payable by the assessee to the State Government is a. Neither in the nature of royalty, licence fee, service fee, privilege fee, service charge nor any other fee or charge, by whatever name called. b. Nor is it levied exclusively on the Assessee. c. Nor can it be considered as appropriation by the State Government. According to us, the VAT payment would not attract the provisions of section 40(a)(iib) of the Act and hence, is allowable u/s.37 r.w.s.43B of the Act, as claimed by the assessee. Hence, we quash the revision order passed by PCIT and allow the claim of assessee.
Issues Involved:
1. Whether the Value Added Tax (VAT) paid by the assessee is deductible under Section 37 read with Section 43B of the Income Tax Act, 1961. 2. Whether the VAT falls under the purview of Section 40(a)(iib) of the Income Tax Act, 1961. 3. Whether the Principal Commissioner of Income Tax (PCIT) was correct in revising the assessment order under Section 263 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deductibility of VAT under Section 37 read with Section 43B: The assessee, a state-owned undertaking engaged in trading and retail vending of liquor, claimed VAT expenses amounting to Rs. 11,491.97 crores as a deduction under Section 37 read with Section 43B of the Income Tax Act, 1961. The VAT was collected from customers and remitted to the State Government as per the provisions of the Tamil Nadu Value Added Tax Act, 2006. The assessee argued that VAT is a tax levied under Entry No. 54, List II, Seventh Schedule of the Constitution of India, and hence, it should be allowed as a deductible expenditure. The Tribunal agreed with the assessee's contention, stating that VAT is not in the nature of royalty, license fee, service fee, privilege fee, service charge, or any other fee or charge, and thus, it is allowable under Section 37 read with Section 43B. 2. Applicability of Section 40(a)(iib): The PCIT contended that VAT paid by the assessee falls under Section 40(a)(iib) of the Income Tax Act, which disallows any amount paid by way of royalty, license fee, service fee, privilege fee, service charge, or any other fee or charge, by whatever name called, which is levied exclusively on a State Government undertaking by the State Government. The Tribunal, however, held that VAT is a tax and not a fee or charge. It distinguished between taxes and fees, citing several judicial precedents, including the Hon'ble Supreme Court's decisions in the cases of Har Shankar vs. Deputy Excise and Taxation Commissioner and Om Prakash Agarwal vs. Giri Raj Kishori & Others. The Tribunal concluded that VAT does not fall within the ambit of Section 40(a)(iib) as it is not exclusively levied on the assessee and is not an appropriation by the State Government. 3. Revision of Assessment Order under Section 263: The PCIT revised the assessment order under Section 263, arguing that the original assessment was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the Assessing Officer had allowed the deduction of VAT after proper examination. It held that the PCIT's interpretation of Section 40(a)(iib) was incorrect and that VAT does not fall under the said section. The Tribunal emphasized that when two views are possible, and the Assessing Officer has taken one possible view, the provisions of Section 263 cannot be invoked. The Tribunal quashed the revision order passed by the PCIT, stating that the original assessment was neither erroneous nor prejudicial to the interest of the Revenue. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that VAT paid by the assessee is deductible under Section 37 read with Section 43B of the Income Tax Act, 1961, and does not fall under the purview of Section 40(a)(iib). The revision order passed by the PCIT under Section 263 was quashed.
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