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TMI Blog2014 (12) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the above Act as well as other Acts such as Kerala Akbari Act. Hence the assessee has been regularly remitting sales tax, turnover tax and surcharge on sales tax to the Government of Kerala as per the provisions of The Kerala General Sales Tax Act, 1963 and The Kerala Surcharge on Taxes Act,1957. The Assessing Officer while completing the assessment disallowed the amounts paid by the assessee towards surcharge on sales tax and turnover tax. 4. On appeal, the CIT(A) observed that in usual course of any payment relating to the sales made under the provisions of Sales Tax Act, is an indirect tax, because such taxes are collected from the purchasers. According to the CIT(A), in the instant case, and in this particular commodity of liquor and beverages, an arrangement has been made by the Government to collect the surcharge on sales tax as well as the turnover tax directly from the seller, which is the assessee company, which enjoys monopoly, under the State law in this trade. But, the question is whether such an arrangement could withstand vis-à-vis the Central legislation under the I.T. Act, so far as determination of profit from business and profession is concerned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the provision of sub-section (2) shall be punishable with fine which may extend upto One Thousand Rupees and no court below rank of a Magistrate of the First Class shall try any such offence". The Ld. AR submitted that the above provisions of law clearly states that any dealer in foreign liquor is bound to remit surcharge and cannot do the business without remittance of surcharge. Hence the CIT(A) ought to have held that the above payment was made purely for the business of the assessee and further that the assessee would be exposed to penal provisions if he carries on the business without payment of surcharge. Hence the Ld. AR submitted that the assessee have paid surcharge, a statutory liability, wholly and exclusively for the purpose of the business carried on by the assessee and therefore allowable under section 37 of the Income Tax Act, 1961. 6. As per the provisions of sub-section 1(b) of section 5 of The Kerala General Sales Tax Act, 1963, the assessee is specifically made liable to pay turnover tax at the point of sale. Further sub clause 1 of sub-section 2 of section 5 of the said Act states "Notwithstanding anything contained in sub-section (1) every dealer in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Apex Court in the case of S Kodar s. State of Kerala (1974) 34 STC 73(SC) wherein the Supreme Court has confirmed its earlier decisions in J.K. Jute Mills Co. vs. State of U.P. and in Konduri Buchirajalingam vs. State of Hyderabad wherein it was held that it is not an essential characteristics of sales tax that the seller must have the right to pass it on to the consumer. 9. The Ld. AR further submitted that the Hon'ble Apex Court has in Hoechst Pharmaceuticals Ltd. vs. State of Bihar, Jamuna Flour and Oil Mills vs. State of Bihar, Pharma Associates vs. State of Bihar (1985) 154 ITR 0064 has held that "That a dealer falling within the class defined in s. 5(1) of the Bihar Finance Act, 1981, viz. one whose gross turnover exceeds Rs. 5 lakhs a year, is prevented by s. 5(3) from collecting the surcharge imposed by s. 5(1) recovered from him, does not effect the competence of the State Legislature to make a provision like s.5(3) nor does the surcharge on that account become a tax on his income." 10. The Ld. AR submitted that the CIT(A)'s observation that "it is obvious that under this arrangement albeit, under the provisions of the law enacted by the State would the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Although the legal incidence of a tax on sale of goods under the Act falls squarely on the dealer. It may be that he can add the tax to the price of the goods and thus pass it on to the purchaser." As already stated the levies are indirectly passed on to the consumers as these levies are considered as an expenditure of the assessee while fixing the sale price of the products. The statutes specifically stipulate that the levies should be collected from the consumers and hence the ld. AR requested that in view of the above Apex Court judgment, these are revenue expenditures of the assessee and hence allowable under the provisions of the I.T. Act. 12. The Ld. AR submitted that the object of the state legislature for surcharge and turnover tax is to increase the rate of tax on dealers and not to appropriate profits. The levy of surcharge and turnover tax is based on acts enacted during 1957 and 1963. The assessee is a company formed on 23rd February 1984 and the statutory provisions for the levy of surcharge and turnover tax were in force well before the incorporation of the assessee company. According to the Ld. AR as per section 5 of The Kerala General Sales Tax Act, the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of its rights nor can the existence or absence of entries in its books of account be decisive or conclusive in the matter. Since the assessee is following the mercantile system of accounting, the assessee is fully justified in claiming deduction towards surcharge on sales tax and turnover tax which is payable in the financial year corresponding to the relevant assessment year. Accordingly, we are inclined to hold that the claim of the assessee is to be allowed. 16. This has the support of the following judgments of the High Courts and Supreme Court: i) Kedarnath Jurte Mfg. Co. Ltd. vs. CIT (82 ITR 363) (SC) ii) CIT vs. Kalinga Tubes Ltd. (218 ITR 164) (SC) iii) Kalpetta Estates Ltd. vs. Commissioner of Agricultural Income-tax (220 ITR 546) (Ker.) iv) Haji Lal Mohd. Biri Works vs. CIT (224 ITR 591) (SC) 17. The next ground in I.T.A No. 66/Coch/2014 is with regard to laboratory expenses. The Ld. AR submitted that the assessee has to regularly conduct chemical analysis of the products at the Government Chemical Examiners Laboratories at Trivandrum, Ernakulam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the liquor samples provided by the assessee. Modern analytical instruments for the analysis of liquor samples were not available in these "Excise Division" of the Laboratory and there were several instances of inordinate delay in getting the results, which had adversely affected the business of the assessee. Realizing the lack of essential equipments and for the improvement and quality outturn of work in the "Excise Divisions", the Government of Kerala had accorded sanction to the proposal of Chief Chemical Examiner to modernize the laboratory, vide Government Order No. 1740/2008/Home dated 31-05-2008. In the above Government order it has been stated that "The Kerala State Beverages Corporation (KSBC) will meet the expenditure for Rs. 90 lakhs (Rupees Ninety Lakhs) for the above purpose. Subsequently, the Principal Secretary to the Government had directed the assessee to release the payment for the purchases effected by the Chemical Examiner's Laboratories Department as per the letter No. 21597/F3/09/TD dated 19/10/2009. The Ld. AR submitted that the assessee had made the payment for the furtherance of its own business and as the equipments are not owned by the assessee these pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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