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TMI Blog2024 (9) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... ant : Shri R. Vijayaraghavan, Advocate And Shri Saroj Kumar Parida, Advocate For the Respondent : Shri R. Clement Ramesh Kumar, CIT ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order dated 31.03.2024 passed by the ld. Principal Commissioner of Income Tax,Chennai-3, Chennai under section 263 of the Income Tax Act, 1961 [ Act in short] for the assessment year 2018-19. 2. The ld. PCIT initiated proceedings under section 263 of the Act on an examination of books of account, wherein, it was noted that the assessee had debited a sum of ₹.14930,54,85,164/- as VAT expenses and debited the same in the profit and loss account. According to the ld. PCIT, the said VAT expenses in the books of accounts of TASMAC is a levy by the Tamil Nadu State Government on the State Government Undertaking and it perfectly fixing to the clause any other fee of charge , by whatever name called as per section 40(a)(iib) of the Act. Accordingly, he held that the value added tax is a tax on value addition done by each party of the supply chain like supplier, producer, wholesaler, distributor or retailer, etc. which is not in the case of TASMAC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not attract the provisions under section 40(a)(iib) of the Act to the fact. Further, held the said payment is allowable under section 37 r.w.s. 43B of the Act, we find that in order to arrive the said findings, the Tribunal referred to many decisions, which are part of the order at para 6.1, 6.2, 6.3 and 6.4. For ready reference, the relevant portions of the order in para 6 to 6.5 are reproduced herein below: 6. We have heard rival contentions and gone through facts and circumstances of the case. We have gone through the revision order passed by PCIT and noted that the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry (3). The amounts, charged to the licensees in the instant case are, evidently, neither nature of tax nor excise duty. But then, the 'Licence fee' which the State government charged to the licensees through the medium of auctions or the 'Fixed fee' which it charged to the vendors of foreign. liquor holding licences in Forms L-3, L-4 and L- 5 need bear no, quid pro quo to the services rendered to the licencees. The word 'fee' is not used in the Act or the Rules in the technical sense of the expression. By 'licence fee' or 'fixed fee' is meant the price or consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensees. As the State can carry on a trade or business, such a charge is the normal incident of a trading, or business transaction. The Court then held : The argument that in Cooverjee's case the impugned power having been exercised in respect of a centrally administrated area, the power was not fettered by legislative lists loses its relevance in the view we ,:are taking. It is true that in that case it was permissible to the court to find, as in fact it did, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rendering the services. 6.3 Further, the Hon ble Delhi High Court in the case of Dalmia Cement (Bharat) Ltd., vs. CIT, 357 ITR 419, while incorporating the provisions of section 43B of the Act, when it was introduced only the phrase Tax and Duty was introduced and in this context, the Hon ble Delhi High Court held that fee cannot be considered as tax and hence, cannot be disallowed while invoking the provisions of section 43B of the Act. The Hon ble Delhi High Court considered this issue as under:- 27. But, in the present case, the cess and cess surcharge do not fall within the characteristics of a tax. As pointed out in Dewan Chand Builders and Contractors (supra), in the case of a cess there exists a reasonable nexus between the payer of a cess and the services rendered It was further observed in Hingir Rampur Coal Co. Ltd. (supra) that if specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area and is a condition precedent for the said services or in return for them, cess is levied against the said area or the said class of persons or trade or business, the cess is distinguishable from a tax and is described as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been equated with tax have been sought to be relied upon by Mr Sabharwal. However, we reiterate that the Supreme Court was not exactly concerned with the question of whether a cess was a tax or not, in all cases. It was generally concerned with the concept of cess as a part of taxation. We must also keep in mind that the Supreme Court was interpreting the Constitution as distinct from interpreting a provision of a statute. .. 23. So, even if in a particular case, while interpreting the Constitution, the Supreme Court may have regarded cess to be generally a part of taxation, it does not mean that cess would be part of a tax when the said word i.e., 'tax' is used in an Act such as the Income Tax Act which needs to be construed strictly. For this reason also, we feel that the Supreme Court decision in India Cement Ltd. (supra) would not be of any use to the revenue. 6.4 The very fact that taxes are not mentioned in the main section, nor any reference has been made in the memo explaining the introduction of section would go to show that the legislature never intended to disallow taxes under sec 40(a)(iib) of the Act. It is impossible to comprehend that when the legislatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained. The surcharge on sales tax and turnover tax is not a 'fee or charge' coming within the scope of Section 40 (a) (iib) and is not an amount which can be disallowed under the said provision. Therefore the disallowance made in this regard is liable to be set aside. In the result the assessment completed against the appellants with respect to the assessment years 2014-2015, 2015-2016 are hereby set aside. In view of the above, 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) of the Act. 6.5 According to us, the 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. The assessee cannot collect at a rate higher than the specified in the act and the entire amount so c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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