9911796707
TMI Blog2022 (1) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... r as FL 1 licences are concerned, is not attracted by Section 40(a)(iib), cannot be accepted and such finding of the High Court runs contrary to object and intention behind the legislation. Because another State Government Undertaking, i.e., Kerala State Co operatives Consumers Federation Ltd. was also granted licences during the relevant years, as such exclusivity mentioned in Section 40(a)(iib) is lost, also cannot be accepted, for the reason that exclusivity is to be considered with reference to nature of licence and not on number of State owned Undertakings. If the interpretation, as held by the High Court, is accepted, the legislative intent can be defeated by issuing licences in FL 1 to several State Government Undertakings and then make a contention that exclusivity is lost. Said interpretation runs contrary to the intent of the amendment. Surcharge which is sought to be levied is nothing but the enhancement of sales tax, which is levied under Section 5(1) of the KGST Act. When the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If the revenue does not consider Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard is rightly set aside by the High Court. In result, the assessments completed against the assessee with respect to assessment years 2014 -2015 and 2015-2016 stand set aside. The assessing officer to pass revised orders after computing the liability in accordance with the directions as indicated above. As the dispute relates to assessment years 2014 -2015 and 2015 -2016, the assessing officer shall pass appropriate orders, within a period of two months from the date of receipt of this judgment. X X X X Extracts X X X X X X X X Extracts X X X X ..... n sales tax. The said miscellaneous application was allowed by recalling earlier order dated 12.03.2019 passed in I.T.A.No.537/Coch/2018 and a fresh order was passed on 11.10.2019, finding the issue against the appellant and dismissing the appeal. Aggrieved by the aforesaid three orders, the appellant herein has filed Income Tax Appeals before the High Court in ITA Nos.135; 146 and 313 of 2019 which are disposed, by the common impugned order. In the common impugned order passed by the High Court, the question of law raised, was answered partly in favour of the assessee/appellant and partly in favour of the revenue. Para 23 and 24 of the judgment read as under : "23. While summing up the conclusions, we are persuaded to answer the question of law raised, partly in favour of the revenue and partly in favour of the assessee. We hold that the levy of Gallonage Fee, Licence Fee and Shop Rental (kist) with respect to the FL9 licences granted to the appellant will clearly fall within the purview of Section 40 (a) (iib) and the amount paid in this regard is liable to be disallowed. The amount of Gallonage Fee, Licence Fee, or Shop Rental (kist) paid with respect to FL1 licences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by whatever name called, which is levied exclusively on; or (B) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government. Explanation.For the purposes of this subclause, a State Government undertaking includes (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paidup equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paidup 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;". 8. While it is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to Explanatory Note to the Finance Act, 2013, and Section 40(a)(iib) of the Act, has submitted that the levy of gallonage fees, licence fee and shop rental (kist) on FL9 licence is not on any State Government Undertaking but same is a levy on the licensee. It is submitted that the levy was on the licence holder whoever he or it might be and only in view of the Abkari Policy of the relevant years licences were granted to the appellant as such it cannot be said that same was exclusive levy on the appellant attracting Section 40(a)(iib) of the Act so as to disallow the same. It is submitted that the mere fact that in a particular year, the licence holder happens to be State Government Undertaking does not make the levy, one, which is imposed directly and exclusively on the State Government Undertaking. It is submitted that High Court has failed to appreciate that the decision as to whom FL9 licences are to be granted, depends only on the State Government's Abkari Policy, which may vary from year to year. It is submitted that said submission also holds good with regard to gallonage fee, licence fee and shop rental for FL1 licence, which issue is already decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the States. It is submitted that State Government Undertaking - KSBC, which in this case is a company like any other commercial concern, is engaged in trade and business and commercial activity, therefore, is to be treated like any other business entity. However, when it came to filing of Return of Income, the State as the only shareholder or major shareholder in this type of undertakings, exercise control over it and shift profits by appropriating the whole of the surplus or a part of it by way of taxes, fee or similar such appropriations. It is submitted that this resulted in erosion of profits in the hands of State Government Undertakings leading to lesser payment of taxes, since these appropriations by the respective States from their State Government Undertakings were accounted for as allowable expenditure under Section 40(a) and these undertakings claimed deduction of the same from the income earned, therefore could not be taxed in the hands of the State Government Undertakings. It is further submitted that the shifted profit, upon its transfer, went into the Consolidated Fund of the States and on this basis constitutional protection under Article 289 were claimed as a result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 201415 and subsequent assessment years." 11.1. With regard to gallonage fees, licence fee and the shop rental (kist), it is submitted that High Court has upheld the disallowance in favour of the revenue with regard to FL9 licence on the ground that the appellant - KSBC is the exclusive licence holder, so far as FL9 licences are concerned. It is submitted that so far as FL1 licences are concerned only on the ground that similar licences are also given for another licence holder, viz., to Kerala State Cooperatives Consumers' Federation Ltd., the High Court has held that there is no exclusivity so far as FL1 licences are concerned. It is the contention of the learned counsel that the disallowance under Section 40(a)(iib) is not contingent upon the nature of licence. The test should be whether levy under the Abkari Act is exclusive or not and in this case it is exclusive. It is submitted that the restricted interpretation made by the High Court to the extent of FL1 licences issued in favour of the appellant runs contrary to object and intent of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike surcharge which is an exclusive levy on KSBC, it is fairly submitted that such tax was imposed not only on KSBC under Section 5(1)(b) of the KGST Act, but also was being imposed on various other retail dealers specified under Section 5(2) of KGST Act. It is submitted that as the issue has not been dealt and examined in detail by the High Court, made a request to leave it open for fresh adjudication since facts and figures need to be verified. With the above submissions, learned ASG has pleaded to allow the appeals filed by the revenue and dismiss the appeal filed by the KSBC. 12. Having heard the learned counsels on both sides we have perused the impugned order and other material placed on record. 13. Section 40 of the Income-tax Act, 1961 is a provision which deals with the amounts which are not deductible while computing the income chargeable under the head 'Profits and gains of business or profession'. Section 40 of the Act is amended in the year 2013, and 40(a)(iib) is inserted by Amending Act 17 of 2013, which has come into force from 01.04.2014. In terms of Article 289 of the Constitution of India, the property and income of a State shall be exempt from Union taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exclusive levy on the Corporation. Further a distinction is drawn from FL1 licence from FL9 licence, to apply Section 40(a)(iib), only on the ground that, FL1 licences are issued not only to the appellant/KSBC but also issued to one other Government Undertaking, i.e., Kerala State Cooperatives Consumers' Federation Ltd. High Court has held that as there is no other player holding licences under FL9 like KSBC as such the word 'exclusivity' used in Section 40(a)(iib) attract such amounts. At the same time only on the ground that FL1 licences are issued not only to the KSBC but also to Kerala State Cooperatives Consumers' Federation Ltd., High Court has held that exclusivity is lost so as to apply the provision under Section 40(a)(iib). If the amended provision under Section 40(a) (iib) is to be read in the manner, as interpreted by the High Court, it will literally defeat the very purpose and intention behind the amendment. The aspect of exclusivity under Section 40(a)(iib) is not to be considered with a narrow interpretation, which will defeat the very intention of Legislature, only on the ground that there is yet another player, viz., Kerala Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) so far as FL1 licences are concerned, is not attracted by Section 40(a)(iib), cannot be accepted and such finding of the High Court runs contrary to object and intention behind the legislation. 14.2. Further, because another State Government Undertaking, i.e., Kerala State Cooperatives Consumers' Federation Ltd. was also granted licences during the relevant years, as such exclusivity mentioned in Section 40(a)(iib) is lost, also cannot be accepted, for the reason that exclusivity is to be considered with reference to nature of licence and not on number of State owned Undertakings. If the interpretation, as held by the High Court, is accepted, the legislative intent can be defeated by issuing licences in FL1 to several State Government Undertakings and then make a contention that exclusivity is lost. Said interpretation runs contrary to the intent of the amendment. 14.3. So far as surcharge on sales tax is concerned, the High Court has held in favour of KSBC and against the revenue. The reasoning of the High Court is that surcharge on sales tax is a tax and Section 40(a) (iib) does not contemplate 'tax' and surcharge on sales tax is not a 'fee' or a 'charge'. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that where in respect of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956 the tax payable by such dealer under the Kerala General Sales Tax Act, 1963 together with the surcharge payable under this subsection, exceeds four per centum of the sale or 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." Section 5(1)(b) of the Kerala General Sales Tax Act, 1963 reads as under : 5. Levy of tax on sale or purchase of goods: (1) Every dealer (other than a casual trader or agent of a nonresident dealer or the Central Government, or Government of Kerala or the Government of any other state or of any Union Territory, or any local authority) whose total turnover for a year is not less than two lakhs rupees and every casual trader or agent of a nonresident dealer, the Central Government, Government of Kerala, the Government of any other state or of any Union Territory, or any local authority whatever be its total turnover for the year in respect of goods included in the Schedule a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(1972) 3 SCC 246 : (1972) 1 SCR 137 : AIR 1971 SC 2377] it must be held that the surcharge on land revenue levied under the Surcharge Act, being an enhancement of the land revenue, is part of the land revenue and has to be treated as such for the purpose of assessing compensation under Section 12 of the Ceiling Act." 14.5. Further, CBDT itself has issued circular in Circular No.3/2018 which is issued, as a measure for reducing litigation, by revision of monetary limits for filing appeals by the Department before the Income-tax Appellate Tribunal, High Courts and SLP/appeals before this Court. In the said circular it is clearly mentioned that for considering tax effect it includes applicable surcharge and cess. Same will also strengthen the stand of the assessee. Thus it is clear that the surcharge which is sought to be levied is nothing but the enhancement of sales tax, which is levied under Section 5(1) of the KGST Act. When the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If the revenue does not consider Section 40(a)(iib) is applicable to the basic sales tax paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f indicates that the surcharge or tax were never intended to be included in the net of amended Section 40(a)(iib)(A) or 40(a)(iib)(B) of the Income-tax Act, 1961. 15. So far as turnover tax is concerned it is submitted by the learned ASG appearing for the revenue that such tax was imposed not only on KSBC in terms of Section 5(1)(b) of KGST Act, but it is imposed on various other retail dealers specified under Section 5(2) of the said Act. Further turnover tax is also a tax. The very same reason which we have assigned above for surcharge, equally apply to the turnover tax also. As such turnover tax is also outside the purview of Section 40(a) (iib)(A) and 40(a)(iib)(B). 16. For the aforesaid reasons, we hold that the gallonage fee, licence fee and shop rental (kist) with respect to FL9 and FL1 licences granted to the appellant will, squarely fall within the purview of Section 40(a)(iib) of the Income-tax Act, 1961. The surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regar ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
