9911796707
Advanced Search 
TMI Blog2016 (12) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... the exclusive privilege of importing and exporting and carrying on the wholesale trade and distribution of IMFL, Foreign liquor, Wine and Beer on behalf of the Government, for the whole of the State of Andhra Pradesh and no other person shall be entitled to any privilege of carrying on such business in wholesale or distributing the same for the whole or any part of the State. He observed that in pursuance of Act 15 of 1993, the wholesale trade of Indian Made Foreign Liquor, ("IMFL") and beer in the State of A.P, was entrusted to the Corporation w.e.f. 01.01.1994 and sections 23A and 23B were inserted in the Excise Act to ensure proper collection of Revenues from the APBCL which has exclusive rights over wholesale trade in liquor in the State of A.P. He observed that for the previous year relevant to the A.Y. 2010-2011, the assessee has declared a turnover of Rs. 11,862.84 crores and a profit of Rs. 7,06,770 as per the provisions of the Companies Act. He also observed that on account of adjustments on account of depreciation, allowances on account of section 43B and deduction under section 80G, the income was shown at Rs.NIL for Income Tax purposes. From the P & L A/c of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and since the assessee is deemed to be an Authority acting on behalf of the Government, it has to be considered as an agent of the State. It was submitted that the payment of privilege fees is 'diversion of income by overriding title' and is not application of income and further that, income tax is to be ascertained after profit is ascertained after payment of the privilege fee. It was also claimed that the expenditure incurred by way of privilege fee is revenue in nature as per the provisions of the Income Tax Act and therefore, it cannot be disallowed. It was submitted that Income Tax is to be ascertained only after the profit is ascertained after payment of the privilege fees. The assessee also submitted that the provisions of the Act which conferred the privilege on the assessee underwent an amendment by insertion of sections 4A, 4B and 4C by Act 5 of 2012 w.r.e.f 21.7.1993, by virtue of which, it is the Govt, which from time to time, specifies the Trade Margin, Privilege fee or any other levy by whatever income called to be collected by the Assessee and the amount so realized u/s 4A, being the income of the Govt, is to be remitted by APBCL to the Govt. in the manner specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of payment to LIC towards group leave encashment scheme, the assessee had submitted that the entire amount claimed was in accordance with the provisions of Section 43B(f) of the Act and therefore, it is allowable. With regard to the interest on such Group Leave Encashment, it was submitted that the assessee has no control over the interest as it accrues in the LIC on the payment to Group Leave Encashment fund and as per the terms and conditions of LIC, the LIC will intimate the liability of the assessee for the next year after adjusting the payments made during the year to the employees after carrying out actuarial valuation and interest earned during the previous year. It was submitted that on receipt of such advice, the Corporation would pay the amount as contribution for the year. Thus, according to the assessee, interest earned on the fund has neither accrued nor paid to the Corporation unless the fund is terminated and hence, is not liable to tax in the hands of the assessee. The A.O. however, disallowed the contribution to LIC, on the ground that the same is not allowable under section 43B(f) of the Act and also brought to tax the interest on the said fund. 9. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts realized by the Corporation, from whatever source, after deducting the expenses incurred by the Corporation, shall be paid as privilege fee or special privilege fee or any other fee by whatever name called to the Commissioner of Prohibition & Excise in terms of section 23(1) of the Excise Act in the month succeeding the month of sale. Thus, according to him, the section clearly provides that the assessee is entitled to only the expenditure incurred by it and all other receipts are to be transferred to the Government of A.P. towards privilege fee, special privilege fee etc. Thus, according to him, the receipts are not the income of the assessee but are the income of the Government of A.P. and the assessee is entitled to keep only the amount incurred by it towards the expenditure. According to the Ld. Counsel for the assessee, this fact has not been properly appreciated by the Coordinate Bench of this Tribunal in the assessee's own case for the earlier A.Ys. Further, he submitted that the assessee has been following the same method of making payment of privilege fee to the Government since inception and it was only in the years 2006-2007 and 2009-2010 that the revenue authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee that this issue is now covered in favour of the assessee by virtue of the Hon'ble Karnataka High Court decision in the case of Karnataka State Beverages Corpn. Vs. CIT (cited Supra) and that the decision of the Hon'ble Karnataka High Court has to be followed since there is no decision of any other High Court against the assessee. 16. We find that the Coordinate Bench of this Tribunal in the assessee's own case for the A.Y 2006-07, 2008-09 and 2009-10 has held the issue against the assessee vide orders dated 22.01.2014. We have perused the order and we find that in the said orders, the Tribunal has considered as to whether the Privilege fee, Special Privilege fee etc., paid by the assessee to the Govt. was "diversion of income by overriding title". The Tribunal has held that as per the amended provision of Excise Act, the payment of margins in the form of privilege fee etc, is not the income of the Government nor is it "diversion of income by overriding title". Further, at Para 21 of its order, the Tribunal has also considered as to whether the special privilege fee paid to the Govt. can be allowed as expenditure. The Tribunal, after considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessments are quasi-judicial and each assessment year being a unit, what is decided in one year may not apply in the following year, but where a fundamental aspect permeating through the different A.Ys has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 19. The Hon'ble Supreme Court in the case of CIT vs. Brij Lal Lohia and Mahabir Prasad Khemka (cited Supra) was dealing with the case of an assessee who gifted some of the money to his brother and his nephew who are stated to have started a new firm dealing in jute while the assessee has stopped his business of dealing in Jute. The question for consideration was whether the gifts stated to have been given by the assessee were genuine. This question had come up for consideration before the authorities while dealing with the assessment of the assessee for the A.Ys 1945-46 and 1946-47 and on the basis of the material before them, the Tribunal held that the gifts, in question, are not genuine gifts. The Hon'ble High Court did not interfere wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the judgment of the Hon'ble Karnataka High Court in the case of Karnataka State Beverage Corporation (cited Supra) to demonstrate that under similar circumstances, the privilege fee paid to the Govt. of Andhra Pradesh is to be allowed. Further, he has also placed reliance upon the following decisions for the proposition that the I.T. Act being an all India Statute, uniformity in the construction of its statutory provisions is desirable and the considered opinion of any of the High Court should be followed unless there are overriding reasons for taking divergent view. (i) CIT vs. T.Maneklal Mfg.Co. Ltd (115 ITR 725 (Bom.) (ii) CIT vs. Jayantilal Ramanlal & Co. (137 ITR 257 (Bom.) (iii) Arvind Boards & Paper Products Ltd vs. CIT (137 ITR 635 (Guj.) (iv) CIT vs.Highway Constructions Co. (217 ITR 234) 22. Having gone through these decisions, we find that the common finding of all the Hon'ble High Courts is that there is a need for uniform decisions and the decision of one High Court on identical provisions should be followed by another High Court unless there are overriding reasons for taking a divergent view. 23. Hon'ble Supreme Court in the case of Radhasoam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of Article 14, if the Government tries to get the best available price for its valuable. rights." Section 27 of the Act recognises the right of the Government to grant a lease of its right to 'manufacture, supply or sell intoxicants. Section 34 of the Act read with section 59(d) empowers the Financial Commissioner to direct that a licence, permit or pars be granted under the Act on payment of such fees and subject to such restrictions and on such conditions as he may prescribe. In such a scheme, it is not of the essence whether the amount charged to the licensees is predetermined as in the appeals of Northern India Caterers and of Green Hotel or whether it is left to be determined by bids offered in auctions held for granting those rights to licensee,,. The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determine either the true nature of the charge levied by the Government or its right to levy the same. The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Karnataka Beverage Corporation Ltd vs. CIT & 3 others in W.P. No.12872 of 2013 dt. 18.2.2016 which held that the privilege fee is an expenditure that needs to be deducted while arriving at the total income needs to be considered. This judgment is the only judgment of a High Court in the country on the subject and the orders of the Hon'ble Tribunal for the earlier years runs counter to this judgment. f) Income tax is an enactment of All India Application. The law cannot be different in one State and altogether different in another State. Therefore, if there is one judgment of any High Court which has taken a particular view and there is no contrary judgment it is necessary for all the Benches of the Hon'ble Tribunal to follow the above High Court judgment. g) Whether the payment privilege fees constitute an allowable expenditure u/s 37(1) of the I.T. Act has not been gone into and discussed by the Hon'ble Tribunal in its previous order. In the present appeal it is the case of the appellant corporation that the payment of privilege fees constitutes an allowable expenditure u/s 37(1) of the I.T. Act. 29. We find that, in the case of CIT vs. McDo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or at the beginning of the year and the payments made by the company are against the provisions of the Companies Act, 1956, The Income-tax Act, 1961 and Accounting Standards. viii) The Government order on levying the privilege fee is passed purposefully only at the fag end of the financial year. ix) The petitioner - Company is parting with its taxable profits to the Government under the name of "privilege fee". x) Provisions of Section 40(a)(ii) would be applicable. xi) The privilege fee does not satisfy the definition of "fee", as all the elements of "tax" levied are missing. xii) The payment of privilege fee is not an expenditure incurred towards earning of income. xiii) Section 40(a)(iib) is held as clarificatory in nature. Page No.88 of the order for the Assessment Year 2012-2013. xiv) Amendment made in Section 24 of the Karnataka Excise Act, 1965 is illegal". ............. "5. On a consideration of the above contentions and the facts and circumstances, it is not in dispute that the privilege fee which was paid by the petitioner to the State Government for the years 2004-05, 2005-06, 2006-07 was allowed as business expenditure. The respondents 1 and 2 have d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l's case, "if the Government" is the exclusive owner of those privileges, reliance on Article 19 (1) (g) or Article 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the Government, nor can there be any infringement of Article 14 , if the Government tries to get the best available price for its valuable rights." Section 27 of the Act recognises the right of the Government to grant a lease of its right to 'manufacture, supply or sell intoxicants. Section 34 of the Act read with Section 59(d) empowers the Financial Commissioner to direct that a licence, permit or pass be granted under the Act on payment of such fees and subject to such restrictions and on such conditions as he may prescribe. In such a scheme, it is not of the essence whether the amount charged to the licensees is predetermined as in the appeals of Northern India Caterers and of Green Hotel or whether it is left to be determined by bids offered in auctions held for granting those rights to licensees. The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad the power to exact a tax, the levy could be upheld as a tax, even if it could not be justified as a 'fee', in the constitutional sense of that term. But the 'Licence fee' or 'Fixed fee' in the instant case does not have to conform to the requirement that it must bear a reasonable relationship with the services rendered to the licensees. The amount charged to the licensees is not a fee properly so- called nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading or business transaction." In any event, with the insertion of sub-clause (iib) in the Act, it would no longer be possible for the petitioner to claim that the said privilege fee is not taxable. The question as to whether the said provision can be applied with retrospective effect, is the only question that would remain for consideration. As rightly pointed out by Shri Shankar, a plain reading of the provision would not indicate that it is to be applied with retrospective effect. There are other provisions which were also amended, and wherever the Legislature intended that certain provisions would have retrospective effect, it is expressly indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the State Government; (iii) a company in which more than fifty per cent, of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government. 12.3 Applicability.- This amendment takes effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014- 15 and subsequent assessment years." Further, Clause 7 which is appended to the Finance Bill, 2013, reads as follows: "Clause 7 of the Bill seeks to amend Section 40 of the Income-tax Act relating to amounts not deductible. The provisions of Section 40 specify the amounts which shall not be deducted in computing the income chargeable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government having exercised its power "unscientifically, illegally and irrationally". (sic) Consequently, these petitions are allowed. The impugned assessments are set aside insofar as it treats the privilege fee paid as being taxable to income. In so far as the other disallowances are concerned, the matter is remanded to the Assessing Officer to re-examine the same after affording an opportunity of hearing to the petitioner in respect of the several assessment years". 31. Thus, it can be seen that the Hon'ble Karnataka High Court has considered all the aspects of the issue and has held that the payment of privilege fee/special privilege fee etc., by whatever name called is an allowable expenditure. As there is no contrary decision of either the jurisdictional High Court or any other High Court on the issue, we respectfully following the said judgment, direct the AO to allow the privilege fee, special privilege fee and the special privilege force as expenditure of the assessee u/s 37 of the Act. 32. As regards assessee's contention that there is diversion of income by overriding title, we are of the opinion that this issue was not considered by the Hon'ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed in the hands of the Corporation, she directed the AO to allow deduction u/s 80G, against which the Revenue is in appeal before us. 38. The learned DR placed reliance upon the assessment order, while the learned Counsel for the assessee submitted that the assessee being the undertaking of the Govt. of A.P is bound by the direction of the Govt. and therefore, the contribution to the CM's Relief Fund is to be allowed u/s 80G of the Act. 39. Having regard to the rival contentions and the material on record, we find that the CM's Relief Fund is an approved fund u/s 80G of the Act but the assessee is required to pay the privilege fee, special privilege fee etc, after setting off its expenditure only from the receipts and we have already held that privilege fee is an allowable expenditure. In these circumstances, the assessee would not be left with any fund to make a donation to C.M's Relief Fund. Even otherwise, the contribution is an allowable deduction. Therefore, we are of the opinion that this ground of the Revenue becomes infructuous in view of our finding above. 40. As regards Ground No.2 against the deletion of Rs. 3,19,05,158 out of Rs. 3,40,00,804 made by the AO u/s 43B( ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
