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TMI Blog2019 (10) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee on levy of surcharge in respect of assessees mentioned in para 2 above, these assessees are not granted FL 9 license under the Abkari Act and only the assessee before us is granted FL 9 license under the Abkari Act. Hence, the additional evidence is of no assistance to the assessee and the same is rejected. Thus, the argument of the assessee s Counsel is rejected. Surcharge is nothing but sales tax paid by the assessee to the State Government. - In our opinion, this argument of the Ld. AR has no merit on the reason that sales tax is collectable or recoverable from the customers to whom the goods are sold or services are rendered. In the present case, there is prohibition on collection of surcharge from the customers and it should be borne by the assessee itself. As per the Kerala Surcharge on Taxes Act, 1957, there is prohibition for levy of surcharges on certain taxes. Hence, it cannot be said that surcharge is equivalent to sales tax. This argument of the Ld. AR is rejected. Surcharge is not exclusively levied by State Government on the assessee - In our opinion, FL 9 license under the Abkari Act was exclusively given to the assessee and no other undertaking has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Appellant to file evidence to show that other Assessees dealing in liquor have also paid Surcharge on Sales Tax. In that connection. the Appellant would like to submit the following documents evidencing payment of Surcharge on Sales Tax under Kerala Surcharge on Taxes Act, 1957 and Turnover Tax u/s. 5(2)(b) of the Kerala General Sales Tax Act, 1963. Sl. No. Name of Assessee Page No. 1. Muthoot Hotels Pvt. Ltd., Vivanta by Taj 1-11 2. M/s. Hotel Vivanta by Taj Vazhuthacaud 12-22 3. Vivanta By Taj Green Cove, Kovalam 23-26 4. MPD Hotels and Infrastructures Pvt. Ltd. 27-28 5. Malayalam Industries, Vytilla 29-31 6. M/s. Vivanta by Taj, Taj Malabar 32-33 As this goes to the root of the matter, it is prayed that the Income Tax Appellate Tribunal may be pleased to admit and take into consideration the above documents, while deciding the appeal on merits. " 3. We have gone through the petition for admission of additional evidence/documents. We find bona fide reasons in the act of the assessee in not raising the additional ground on an earlier occasion by placing reliance on the judgment of the Supreme Court in the case of National Thermal Power C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e in exchange for some benefits accruing specifically for the assessee and there is an element of Quid Pro Quo in payments. 4.2 The Ld. AR submitted that AO and CIT(A) had extended the type of expenditure mentioned in sec. 40(a)(iib) to cover Surcharge on Sales Tax also, on account of the phrase "by whatever name called" used in the section. According to them, Surcharge on Tax is also to be categorized along with and treated on par with royalty, license fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called. It was submitted that for extending the meaning to expenditure other than those specified in the section on the basis of the phrase "by any other name called", it would require the application of the legal principle of Ejusdem generis which means "of the same kind". Therefore, it was submitted that there should be an underlying thread of common characteristic between the various types of charges specified in sec 40(a)(iib) and the expenditure sought to be roped into the ambit of the section. According to the Ld. AR, the section refers to various charges for completely different types of services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxpayer and the tax-levying authority. A taxpayer cannot demand any reciprocal benefits for paying taxes. According to the Ld. AR, a fee is a voluntary payment to the government for the special services rendered by it in the public interest, but conferring a specific advantage on the person paying it and fee is payable only when a benefit is conferred/ agreed to be conferred, on the payer. It was submitted that the provisions of sec 40(a)(iib), which refer to various fees payable in connection with rights granted/parted with by the Government cannot be extended by applying the principle of ejusdem Generis to taxes. They are totally different in nature, character and application and source of the right to levy is also different. The Ld. AR relied on the judgment of the Delhi High Court in the case of Dalmia Cement (Bharat) Ltd. (357 ITR 419) wherein it was held that levy of additional cess and cess surcharge under the Tamil Nadu Panchayat Act, 1958 is not tax and hence, will not attract provisions of sec 43B which, before amendment in 1989, was applicable to Taxes and Duties. Therefore, it was submitted that the provisions of sec 40(a)(iib) cannot be applied to any taxes (inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax under the respective Acts. 4.7 It was submitted that as directed by the Tribunal, sample returns of some of the hotels which are dealing in liquor which is liable to pay turnover tax and surcharge on sales tax, have been submitted which show that surcharge and turnover tax have been levied and paid by them in connection with sale of liquor (items in Sch IV of the VAT Act, which are excluded from VAT and included in KGST which clearly shows that surcharge and turnover tax are not levied exclusively on the assessee alone but are levied on other persons who are dealing in liquor to whom sec 5(1) of KGST applies. It was submitted that the character of Surcharge on Sales Tax would not change merely because it is borne by the seller and it cannot be recovered from the client. 4.8 The Ld. AR submitted that the CIT(A) has referred to a GO(P) No 139/2011/TD dt 27.09.2011, wherein an earlier GO(P) No.78/2004/TD dt 14.5.2004 was rescinded, to that levy of surcharge is specific to the assessee. It was submitted that apart from the fact Surcharge is payable and had been paid all persons dealing in foreign liquor to whom sec 5(1) of the KGST applies, in 2004 the Govt. thought it fit to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , surcharge on sales tax cannot be considered as appropriation to be disallowed under this section. The Ld. AR submitted that when surcharge on sales tax is considered as part of sales tax and allowed as a charge (deduction) against profits in all other cases of sellers dealing in foreign liquor, the same cannot be considered as an appropriation in the case of State Government Undertakings. Character of levy, which is applicable to all sellers as a deduction against profits, does not change to one seller alone and become an appropriation. Thus, it was submitted that surcharge on sales tax payable by the assessee is part of sales tax and it is neither in the nature of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called nor is it a levy exclusively on the assessee nor can it be considered as appropriation by the State Government. Therefore, it was submitted that surcharge on sales tax and turnover tax would not attract the provision of sec. 40(a)(iib) and hence, is allowable u/s. 37 r.w.s. 43B of the Act. 5. The Ld. DR submitted that there is no disputing the fact that M/s. Kerala State Beverages (Manufacturing & Mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment undertaking BEVCO by bringing in colourable devices like Surcharge, which is not tantamount to tax. Hence, the principle of ejusdim generis does not arise. Thus, according to the Ld. DR, Section 40(a)(iib) is very much applicable in the case of assessee, especially limb 2 by which amount is being appropriated directly or indirectly from a State Government undertaking by the State Government from trading in liquor as Surcharge or by any other name. According to the Ld. DR, the assessee company is the only company holding FL 9 license under the Abkari Act as detailed in the website of Kerala State Excise Department. It was submitted that the Government of Kerala has granted the license solely to the assessee. Hence, the Ld. DR contended that it is the sole taxpayer falling within the ambit of the levy and regarding Vivanta by Taj Green Cove, they are neither a State Government undertaking nor they hold FL 9 License. Thus, it was submitted that in the case of the assessee BEVCO, there is a congruence of natural monopoly and taxability, leading to exclusivity. Therefore, it was submitted that the surcharge paid by the assessee is covered by provisions u/s. 40(a)(iib) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect that surplus arising to such undertakings shall vest with the State Government. As a result, it has been claimed that such income by way of surplus is not subject to tax. It is a settled law that State Government undertakings are separate legal entities than the State are liable to incometax. Hence, in order to protect the tax base of the State Government undertakings vis-a-vis exclusive levy of fees, charge, etc. Or appropriation of amount by the State Governments from its undertakings, Section 40 of the Income-tax Act was amended to provide that any amount paid by way of fee, charge, etc., which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Government undertaking, by the State Government, shall not be allowed as deduction for the purpose of computation of income of such undertakings under the head "Profits and gains of business or profession"... 5.5 From the above, it was submitted that surcharge is a colourable device used by the Kerala State Government to appropriate amount directly or indirectly from the assessee, a State Government undertaking, in whose case there is a congruence of natural monopoly and taxabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed [four per centum] of the sale or purchase price. (2) Notwithstanding anything contained [in sub-section (1) of section 22 of the Kerala General Sales Tax Act, 1963] no dealer referred to in sub-section (1) shall be entitled to collect the surcharge payable under the said subsection. ["(3) Any dealer who collects the surcharge payable under sub-section (1) in contravention of the provision of sub-section (2) shall be punishable with fine which may extent to one thousand rupees and no court below the rank of a Magistrate of the first class shall try any such offence."] ['4. Penalty for illegal collection of surcharge.- (1) If any person collects any sum by way of surcharge or purporting to be by way of surcharge in contravention of sub-section (2) of section 3, he shall be liable to pay penalty not exceeding five thousand rupees and any sum so collected by the person shall be liable to be forfeited to the Government by an order issued by the assessing authority after giving such person an opportunity to show cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in connection with conduct of business. In other words, it covers the expenditure incurred in connection with rights granted or parted with by the Government in favour of the assessee for the purpose of carrying on the business of the assessee. There should be an element of quid pro quo in payments. According to the ld. AR, payments incurred by way of surcharge is only a statutory payment and it is not covered by section 40(a)(iib) of the Act. In our opinion, the assessee has been granted FL 9 license under the Abkari Act and the assessee is liable to pay surcharge to the State Government. This surcharge is exclusively levied only on State Government undertaking and the FL 9 license was not given to any undertaking other than the assessee for carrying on business. Being so, the payment was incurred for obtaining specific benefits from the State Government and it cannot be said that there is no element of quid pro quo in the payments. With regard to the additional evidence filed by the assessee on levy of surcharge in respect of assessees mentioned in para 2 above, these assessees are not granted FL 9 license under the Abkari Act and only the assessee before us is granted FL 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and not to the appropriation of P&L account. His argument is that it cannot be considered as appropriation of profit so as to attract the second limb of section 40(a)(iib) of the Act. In our opinion, it is a flow back of the profits of the assessee by way of payment of surcharge to the government account which is nothing but a colourable device used by the State Government so as to reduce the taxable profits of the assessee. Thus, it amounts to appropriation of the profits of the assessee directly or indirectly to the State Government. The word 'appropriation' used in section 40(a)(iib) of the Act does not mean that it should be charged to P&L appropriation account. In the present case it was charged to P&L account by way of colourable device, hence, the provisions of section 40(a)(iib) of the Act are applicable. 6.4 For this proposition, we refer to the Budget speech of the Finance Minister of Kerala for the FY 2011-12 which highlights the purpose of the surcharge levied as under: Surcharge 359. In 2004 when KSBC had incurred losses, the surcharge payable on foreign liquor was reduced from 10% to 5%. Since the Corporation is profitable now, the original rate of 10% will b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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