Full Judgment Text
C.A.@S.L.P.(C)No.12859 of 2020 etc.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 11 OF 20 22
[Arising out of S.L.P.(C) No.12859 of 2020]
Kerala State Beverages Manufacturing &
Marketing Corporation Ltd. ...Appellant
v.
The Assistant Commissioner of Income Tax
Circle 1(1) ...Respondent
W I T H
CIVIL APPEAL NO. 12 OF 20 22
[Arising out of S.L.P.(C) No.12162 of 2020]
CIVIL APPEAL NO. 13 OF 20 22
[Arising out of S.L.P.(C) No.12768 of 2020]
AND
CIVIL APPEAL NO. 14 OF 20 22
[Arising out of S.L.P.(C) No.14150 of 2020]
J U D G M E N T
.
R. SUBHASH REDDY, J
Leave granted.
1.
Signature Not Verified
Digitally signed by
Rajni Mukhi
Date: 2022.01.03
16:37:04 IST
Reason:
These appeals are preferred, by the Stateowned Undertaking,
2.
Kerala State Beverages Manufacturing & Marketing Corporation Ltd., a
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company registered under the Companies Act, 1956, engaged in the
wholesale and retail trade of beverages, aggrieved by the common
judgment and order dated 30.04.2020 passed in I.T.A. No.135; 146 and
313 of 2019 by the High Court of Kerala at Ernakulam. The Civil
Appeal arising out of S.L.P.(C)No.12859 of 2020 is filed by the assessee
and other three appeals are preferred by the revenue.
3. For the assessment year 20142015, the Deputy Commissioner
of Income Tax, Circle2(1), Thiruvananthapuram finalised the
assessment of income of the appellant under Section 143(3) of the
Incometax Act, 1961 (in short, ‘the Act’) vide Assessment Order dated
14.12.2016. The Principal Commissioner of Income Tax,
Thiruvananthapuram has exercised power of revision as contemplated
under Section 263 of the Act and set aside order of assessment on the
ground that same is erroneous and is prejudicial to the interest of the
revenue, to the extent it failed to disallow the debits made in the Profit
& Loss Account of the assessee, with respect to the amount of
surcharge on sales tax and turnover tax paid to the State Government,
which ought to have been disallowed under Section 40(a)(iib) of the Act.
Against order of the Principal Commissioner, Income Tax, dated
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25.09.2018, the appellant herein filed appeal before the Income Tax
Appellate Tribunal (in short, ‘the Tribunal’) in ITA No.536/Coch/2018.
4. With respect to Assessment Year 20152016 assessment
against the appellant was completed under Section 143(3) of the Act by
the Assistant Commissioner of Income Tax, Circle1(1),
Thiruvananthapuram vide order of assessment dated 28.12.2017.
Debits contained in the Profit & Loss Account of the appellant with
respect to payment of gallonage fee, licence fee, shop rental ( ) and
kist
surcharge on sales tax, amounting to a total sum of
Rs.811,90,88,115/ were disallowed under Section 40(a)(iib) of the Act.
Aggrieved by the said order, appellant herein has filed appeal before the
Commissioner of Income Tax (Appeals), Thiruvananthapuram and the
same was dismissed. The appellant carried the matter by way of
second appeal before the Tribunal in ITA No.537/Coch/2018.
The Tribunal has dismissed the ITA Nos.536537/Coch/2018 by a
common order dated 12.03.2019. The appellant herein thereafter has
filed miscellaneous application in MP No.47/Coch/2019 on the ground
that the Tribunal had failed to consider the issue agitated against the
disallowance of the surcharge on 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
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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 granted in favour of the
appellant, with respect to the retail business in foreign
liquor, is not an exclusive levy on the appellant, which is
a state government undertaking. Therefore the
disallowance made with respect to those amounts cannot
be 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.
24. In the result the assessment completed against the
appellants with respect to the assessment years 2014
2015, 20152016 are hereby set aside. The matter is
remitted to the Assessing Officer to pass revised orders,
after computing the I.T. Appeal Nos. 135, 146 &
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313/2019 32 liability in accordance with the position
settled hereinabove, on affording an opportunity of
hearing to the appellant. The needful steps in this regard
shall be completed at the earliest, at any rate, within
three months from the date of receipt of a copy of this
judgment.”
5. For the purpose of disposal, we refer to the parties, as arrayed
in the appeal filed by Kerala State Beverages Manufacturing &
Marketing Corporation Ltd. (KSBC).
6. We have heard Sri S. Ganesh, learned senior advocate for the
appellant and Sri N. Venkataraman, learned Additional Solicitor
General appearing for the respondent.
7. Section 40 of the Incometax Act, 1961 is the provision dealing
with ‘amounts not deductible’. The amounts as detailed in the Section
are not deductible, in computing the income chargeable under the head
“Profits and gains of business or profession”. By the Finance Act, 2013
(Act 17 of 2013), Section 40 of the Act is amended by inserting Section
40(a)(iib), which has come into force from 01.04.2014. The said
provision under Section 40(a)(iib) reads as under :
“ 40. Amounts not deductible. Notwithstanding any
thing contrary in sections 30 to 38, the following
amounts shall not be deducted in computing the income
chargeable under the head “Profits and gains of business
or profession”,
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(a) in the case of any assessee
(i) … … … …
… … … …
(iib) any amount
(A) paid by way of royalty, licence fee, service fee,
privilege fee, service charge or any other fee or
charge, 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 Gov
ernment.
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 en
tity referred to in clause (i) or clause (ii) (whether
singly or taken together);
(iv) a company or corporation in which the State Gov
ernment 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;
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(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 case of the assessee/appellant that the
gallonage fees, licence fee and shop rental ( kist ) for FL9 licence and FL
1 licence, the surcharge on sales tax and turnover tax do not fall within
the purview of the abovesaid amended Section, the case of the revenue
is that all the aforesaid amounts are covered under Section 40(a)(iib) as
such, such amounts are not deductible for the purpose of computation
of income, for the assessment years 20142015 and 20152016.
9. During the assessment years 20142015 and 20152016 the
appellant was holding FL9 and FL1 licences to deal in wholesale and
retail of, Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign
Liquor (FMFL) granted by the Excise Department. FL9 licence was
issued to deal in wholesale liquor, which they were selling to FL1, FL
3, FL4, 4A, FL11, FL12 licence holders. The FL1 licence was for sale
of foreign liquor in sealed bottles, without privilege of consumption
within the premises. The gallonage fee is payable as per Section 18A of
the Kerala Abkari Act and Rule 15A of the Foreign Liquor Rules. The
appellant was the only licence holder for the relevant years so far as FL
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9 licence to deal in wholesale, and so far as FL1 licences are
concerned, it was also granted to one other State owned Undertaking,
i.e., Kerala State Cooperatives Consumers’ Federation Ltd.. By
interpreting the word ‘exclusively’ as worded in Section 40(a)(iib)(A) of
the Act, High Court in the impugned order has held that the levy of
gallonage fee, licence fee and shop rental ( ) with respect to FL9
kist
licences granted to the appellant will clearly fall within the purview of
Section 40(a)(iib) of the Act and the amounts paid in this regard is
liable to be disallowed. At the same time the amount of gallonage fee,
licence fee and shop rental ( kist ) paid with respect to FL1 licences
granted in favour of the appellant for retail business, the High Court
has held that it is not an exclusive levy, as such disallowance made
with respect to the same cannot be sustained. With regard to
surcharge on sales tax and turnover tax, it is held that same is not a
‘fee’ or ‘charge’ within the meaning of Section 40(a)(iib) as such same is
not an amount which can be disallowed under the said provision.
10. Sri Ganesh, learned senior counsel appearing for the appellant
by 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
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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 in favour of appellant, by the High Court. With
regard to surcharge on sales tax and turnover tax, it is submitted that
taxes levied, are completely outside the ambit of Section 40(a)(iib) of the
Act. It is submitted that the Kerala Surcharge on Taxes Act, 1957 (for
short, ‘KST Act’) is enacted only to increase the taxes, inter alia , on the
sale or purchase of goods, as such it is nothing but an increment to the
basic sales tax levied under Section 5(1) of Kerala General Sales Tax
Act, 1963 (for short, ‘KGST Act’). It is submitted that surcharge on
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sales tax is nothing but an enhancement of tax itself. In support of the
said submission, the learned counsel has placed reliance on the
1
judgments of this Court in the case of C.I.T. v. K. Srinivasan and in
2
the case of Sarojini Tea Co. Ltd. v. Collector, Dibrugarh . Reference
is also made on the CBDT Circular No.3/2018 dated 11.07.2018, to
buttress the said submission. Learned counsel, by drawing our
attention to the distinction between ‘fee’ and ‘taxes’ which is
maintained throughout the scheme under Section 40(a) has submitted
that, the sales tax and turnover tax is outside the scope of Section 40(a)
(iib) of the Act. Lastly it is submitted that for the assessment year
20142015, the assessing officer has allowed deductions in respect of
surcharge on sales tax and turnover tax, the Commissioner interfered,
in exercise of power of revision under Section 263 of the Act. It is
submitted that the view taken by the assessing officer was a possible
view, as such the very invocation of revisional power was not
permissible, to interfere with the order of the assessing officer.
With the aforesaid submissions, learned counsel has submitted to
allow the appeal filed by the assessee and dismiss the appeals filed by
the revenue.
1
(1972(4) SCC 526
2
(1992) 2 SCC 156
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11. Sri Venkataraman, learned ASG appearing for the revenue, by
drawing our attention to the provisions under Articles 285 and 289 of
the Constitution of India, has explained the intent behind the
amendment to Section 40 of the Incometax Act, 1961, by Act 17 of
2013. It is submitted that in terms of Article 289 of the Constitution,
the property and income of a State is exempted from Union taxation.
The constitutional protection under Article 289 had led the States in
shifting income/profits from the State Government Undertakings into
Consolidated Fund of 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
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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 of which, these
amounts could neither be taxed in the hands of the State Government
Undertakings nor in the hands of the respective States. Precisely the
underlined spirit in bringing out the said amendment by inserting
Section 40(a)(iib), is to plug the possible diversion or shifting of profits
from these undertakings into State’s treasury. Learned counsel also
referred to the Memorandum attached to the Finance Bill of 2013 which
explains the provisions relating to direct taxes. The relevant portion of
the Memorandum reads as under :
“ Disallowance of certain fee, charge, etc. in the case of
State Government Undertakings
The existing provisions of section 40 specifies the
amounts which shall not be deducted in computing the
income chargeable under the head “Profits and gains of
business or profession”. The nondeductible expense
under the said section also includes statutory dues like
fringe benefit tax, incometax, wealthtax, etc.
Disputes have arisen in respect of incometax assessment
of some State Government undertakings as to whether
any sum paid by way of privilege fee, license fee, royalty,
etc. levied or charged by the State Government exclusively
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on its undertakings are deductible or not for the purposes
of computation of income of such undertakings. In some
cases, orders have been issued to the effect 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 and are liable to
incometax.
In order to protect the tax base of State Government
undertakings visàvis exclusive levy of fee, charge, etc. or
appropriation of amount by the State Governments from
its undertakings, it is proposed to amend section 40 of the
Incometax Act 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 purposes of
computation of income of such undertakings under the
head “Profits and gains of business or profession”. It is
also proposed to define the expression “State Government
Undertaking” for this purpose.
This amendment 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
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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 Section 40(a)(iib) of the Act and makes
the said provision redundant and otiose . It is the case of the revenue
that the aspect of exclusivity used under Section 40(a)(iib) of the Act,
has to be viewed from the nature of undertaking on which levy is
imposed and not on the number of undertakings on which levy is
imposed. It is further submitted that the KSBC and the Kerala State
Cooperatives Consumers’ Federation Ltd. are undertakings of the State
of Kerala, therefore, the levy is an exclusive levy on such State
Government Undertakings which are licensees.
11.2. So far as surcharge on sales tax is concerned, again it is
submitted that such a levy is an exclusive levy on KSBC alone,
therefore, attracts Section 40(a)(iib)(A) itself. Alternatively, it is further
submitted that even assuming that such tax is not attracted by Section
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40(a)(iib)(A), it would fall under Section 40(a)(iib)(B) for the reason that
surcharge on sales tax is a ‘tax’ and tax is a form of appropriation by
the State from KSBC. It is submitted that the surcharge levied under
Section 3(1) of the KST Act is on the tax payable by a dealer in foreign
liquor under Section 5(1) of the KGST Act. It is the contention of the
learned counsel that, the cumulative reading of Section 3(1) of the KST
Act and Section 5(1)(b) of the KGST Act would reveal that surcharge is
levied on the tax payable by a dealer in foreign liquor under Section 5(1)
of KGST Act. It is submitted that Section 3(1) does not deal with any
other category and specifically pertain only to a dealer in foreign liquor.
It is submitted that as much as Section 5(1)(b) of the KGST Act refers to
trade in foreign liquor and it applies specifically and exclusively to
KSBC and further surcharge levied under Section 3(1) of KST Act is on
the sales tax, exclusively payable by KSBC under Section 5(1)(b) of
KGST Act. As such, the inevitable conclusion, therefore is that it
qualifies as an exclusive levy attracting Section 40(a)(iib) of the Act. To
show that the distinction between a ‘tax’ and a ‘fee’ has substantially
been effaced in the development of constitutional jurisprudence,
learned counsel, has placed reliance on a recent judgment of this Court
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in the case of Jalkal Vibhag Nagar Nigam & Ors. v Pradeshiya
3
Industrial and Investment Corporation and Another .
11.3. With regard to turnover tax, it is submitted that unlike
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.
Having heard the learned counsels on both sides we have
12.
perused the impugned order and other material placed on record.
Section 40 of the Incometax Act, 1961 is a provision which
13.
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
3
2021 SCC OnLine SC 960
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India, the property and income of a State shall be exempt from Union
taxation. Therefore, in terms of Article 289, the Union is prevented
from taxing the States on its income and property. It is the
constitutional protection granted to the States in terms of the abovesaid
Article. This protection has led the States in shifting income/ profits
from the State Government Undertakings into Consolidated Fund of the
respective States to have a protection under Article 289. In the instant
case the KSBC, a State Government Undertaking, is a company like
any other commercial entity, which is engaged in the business and
trade like any other business entity for the purpose of wholesale and
retail business in liquor. As much as these kind of undertakings are
under the control of the States as the total shareholding or in some
cases majority of shareholding, is held by States. As such they exercise
control over it and shift the profits by appropriating whole of the
surplus or a part of it to the Government by way of fees, taxes or
similar such appropriations. From the relevant Memorandum to the
Finance Act, 2013 and underlying object for amendment of Incometax
Act by Act 17 of 2013, by which Section 40(a)(iib)(A)(B) is inserted, it is
clear that the said amendment is made to plug the possible diversion or
shifting of profits from these undertakings into State’s treasury. In
view of Section 40(a)(iib) of the Act any amount, as indicated, which is
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levied exclusively on the State owned undertaking (KSBC in the instant
case), cannot be claimed as a deduction in the books of State owned
undertaking, thus same is liable to income tax.
14. In the instant case the gallonage fee, licence fee, shop rental
( kist ), surcharge and turnover tax are the amounts of which assessee
claims that they are not attracted by Section 40(a)(iib) of the Act. On
the other hand it is the case of the respondent/revenue that all the said
components attract the ingredients of Section 40(a)(iib)(A) or Section
40(a)(iib)(B), as such they are not deductible. Broadly these levies can
be divided into three categories. Gallonage fee, licence fee and shop
rental ( kist ) are in the nature of fee imposed under the Abkari Act of
1902. These are the fees payable for the licences issued under FL9
and FL1. In the impugned order, the High Court has held that the
gallonage fee, licence fee and shop rental ( kist ) with respect to FL9
licence are not deductible, as it is an 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’
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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 State Cooperatives Consumers’ Federation Ltd.
which is also granted licence under FL1. The aspect of ‘exclusivity’
under Section 40(a)(iib) has to be viewed from the nature of
undertaking on which levy is imposed and not on the number of
undertakings on which the levy is imposed. If this aspect of exclusivity
is viewed from the nature of undertaking, in this particular case, both
KSBC and Kerala State Cooperatives Consumers’ Federation Ltd. are
undertakings of the State of Kerala, therefore, levy is an exclusive levy
on the State Government Undertakings. Therefore, we are of the
considered view that any other interpretation would defeat the very
object behind the amendment to Incometax Act, 1961.
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14.1. It is fairly well settled that the interpretation is to be in the
manner which will subserve and promote the object and intention
behind the legislation. If it is not interpreted in the manner as
aforesaid it would defeat the very intention of the legislation. To defeat
the said provision, the State Governments may issue licences to more
than one State owned undertakings and may ultimately say it is not an
exclusive undertaking and therefore Section 40(a)(iib) is not attracted.
The submission of Sri Ganesh, learned senior counsel for the appellant
is that the gallonage fee, licence fee and the shop rental ( kist ) are the
levies under the Abkari Act on all the licence holders, as such it cannot
be said that same is an exclusive levy on the appellant/KSBC. It is
submitted that because of the Abkari Policy in particular year, licences
are issued in favour of the appellant – State owned Undertaking, as
such it cannot be said that the statutory levies under the Abkari Act
are on the State Government Undertaking and such levies are only on
the licensees but not on the Stateowned Undertakings like KSBC. The
said submission cannot be accepted for the reason that by virtue of
licence which is granted in favour of Stateowned Undertaking, the
statutory fees etc., viz., gallonage fees, licence fee and shop rental ( kist )
are payable by the appellantUndertaking, i.e., KSBC. Once the State
Government Undertaking takes licence, the statutory levies referred
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above are on the Government Undertaking because it is granted
licences. Therefore, we are of the view that the finding of the High
Court that gallonage fee, licence fee and shop rental ( kist ) 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.
So far as surcharge on sales tax is concerned, the High Court
14.3.
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’
21
C.A.@S.L.P.(C)No.12859 of 2020 etc.
or a ‘charge’. Therefore, High Court was of the view that surcharge
levied on KSBC does not attract Section 40(a)(iib) of the Act. The
submission of Sri Venkataraman, learned ASG with regard to surcharge
on sales tax is twofold. One is that the levy of surcharge on sales tax
is also an exclusive levy on KSBC, therefore, attracts Section 40(a)(iib)
(A) itself. Secondly, it is submitted, as an alternative submission that if
the same is not covered by Section 40(a)(iib)(A) it would fall under
Section 40(a)(iib)(B) of the Act, for the reason that the surcharge on
sales tax is a tax and tax is a form of appropriation by the State from
KSBC. The learned counsel placed reliance on a recent judgment of
| Jalkal Vibhag Nagar Nigam and Others | 3 | . On |
|---|
the other hand it is the case of the appellant/assessee that the sales
tax is outside the scope of Section 40(a)(iib) and the surcharge is
nothing but is an enhancement of the tax. By referring to words used
in Section 40(a)(iib), learned counsel Sri Ganesh has submitted that the
| said provision is to be interpreted by applying the doctrine of | ejusdem |
|---|
| generis | . It is submitted that the words ‘any other fee or charge’ |
|---|
immediately following the words ‘royalty, licence fee, service fee,
privilege fee, service charge’ relate to such similar charges and none of
the terms can possibly cover a tax, like sales tax or surcharge on sales
tax. With regard to surcharge on sales tax, we are in agreement with
22
C.A.@S.L.P.(C)No.12859 of 2020 etc.
the submission of Sri Ganesh, learned senior counsel appearing for
appellant. The ‘fee’ or ‘charge’ as mentioned in Section 40(a)(iib) is
clear in terms and that will take in only ‘fee’ or ‘charge’ as mentioned
therein or any fee or charge by whatever name called, but cannot cover
tax or surcharge on tax and such taxes are outside the scope and ambit
of Section 40(a)(iib)(A) and Section 40(a)(iib)(B) of the Act. The
surcharge which is imposed on KSBC is under Section 3(1) of the KST
Act which reads as under :
| 3. Levy of surcharge on sales and purchase taxes. | – |
|---|
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 :
23
C.A.@S.L.P.(C)No.12859 of 2020 etc.
5. Levy of tax on sale or purchase of goods : (1) Every
dealer (other than a casual trader or agent of a non
resident 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 at the rate mentioned against such goods,
(a) … … … …
(b) in respect of Foreign liquor, at the point of sale by the
Kerala State Beverages (Manufacturing and Marketing)
Corporation Limited and at the point of first sale in the
State by a dealer liable to tax under this section except
where the sale is to the Kerala State Beverages
(Manufacturing and Marketing) Corporation Limited.
(c) … … … …”
A reading of preamble and Section 3(1) of the KST Act, make it
14.4.
abundantly clear that the surcharge on sales tax levied by the said Act
is nothing but an increase of the basic sales tax levied under Section
5(1) of the KGST Act, as such the surcharge is nothing but a sales tax.
It is also settled legal position that a surcharge on a tax is nothing but
the enhancement of the tax. In this regard, in support the said view,
ready reference can be made to the judgments of this Court in the case
24
C.A.@S.L.P.(C)No.12859 of 2020 etc.
1 2
of K. Srinivasan and Sarojini Tea Co. Ltd. . Para 7 of the judgment
1
in the case of K. Srinivasan reads as under :
“ 7. The above legislative history of the Finance Acts, as
also the practice, would appear to indicate that the term
“Income tax” as employed in Section 2 includes sur
charge as also the special and the additional surcharge
whenever provided which are also surcharges within the
meaning of Article 271 of the Constitution. The phraseol
ogy employed in the Finance Acts of 1940 and 1941
showed that only the rates of income tax and supertax
were to be increased by a surcharge for the purpose of
the Central Government. In the Finance Act of 1958 the
language used showed that income tax which was to be
charged was to be increased by a surcharge for the pur
pose of the Union. The word “surcharge” has thus been
used to either increase the rates of income tax and super
tax or to increase these taxes. The scheme of the Finance
Act of 1971 appears to leave no room for doubt that the
term “Income tax” as used in Section 2 includes sur
charge.”
2
Para 20 of the judgment in the case of Sarojini Tea Co. Ltd. reads as
under :
“ 20. For the reasons aforesaid, we are unable to endorse
the view of the High Court that surcharge on land rev
enue payable under the Surcharge Act is not land rev
enue but a levy which is distinct from land revenue. In
consonance with the law laid down by this Court in Vish
wesha Thirtha Swamiar case [(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
25
C.A.@S.L.P.(C)No.12859 of 2020 etc.
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 by KSBC under Section 5(1)(b) of the KGST Act,
it is not known how the surcharge on sales tax, which is nothing but
the sales tax, can be brought in the net of Section 40(a)(iib)(A) or 40(a)
(iib)(B) of the Act. Further a clear distinction between ‘fee’ and ‘tax’ is
carefully maintained throughout the scheme under Section 40(a) of the
Act itself. Wherever the Parliament intended to cover the tax it
specifically mentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically
26
C.A.@S.L.P.(C)No.12859 of 2020 etc.
relate to tax related items. Section 40(a)(ic) refers to a sum paid on
account of fringe benefit tax. At the same time, Section 40(a)(iib) refers
to royalty, licence fee, service fee, privilege fee or any other fee or
charge. If these words are considered to include a tax or surcharge like
sales tax, the distinction so carefully spelt out in Section 40 between a
tax and a fee will be obliterated and rendered meaningless. It is settled
principle of interpretation that where the same Statute, uses different
terms and expressions, then it is clear that Legislature is referring to
distinct and different things. To support the said view ready reference
can be made to judgments of this Court in the case of DLF Qutab
Enclave Complex Educational Charitable Trust v. State of Haryana
4
& Ors. ; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial &
5
Investment Corporation of U.P. Ltd. & Anr. ; and Shri Ishar Alloy
6
Steels Ltd. v. Jayaswals Neco Ltd. . The judgment relied on by the
| Jalkal Vibhag Nagar Nigam and Others | 3 |
|---|
would not render any assistance to support the case of the revenue.
The said judgment only considers whether the levy of water tax under
Section 52A of the U.P. Water Supply and Sewerage Act is a fee or
whether it is a tax covered by Entry 49 of List II of the seventh schedule
4
(2003) 5 SCC 622
5
(2003) 4 SCC 305
6
(2001) 3 SCC 609
27
C.A.@S.L.P.(C)No.12859 of 2020 etc.
to the Constitution. The said judgment in fact maintains and does not
take away the basic constitutional distinction between ‘fee’ and ‘tax’.
Having regard to language used in Section 40(a)(iib), we are of the view
that the aforesaid judgment does not support the case of the revenue.
Even the other alternative submission of the learned counsel that it
may attract Section 40(a)(iib)(B) also cannot be accepted for the reason
that wherever the Parliament intended to include tax, referred clearly to
taxes clearly in the very Section 40. That itself 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 Incometax Act,
1961.
So far as turnover tax is concerned it is submitted by the
15.
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).
For the aforesaid reasons, we hold that the gallonage fee,
16.
licence fee and shop rental ( kist ) with respect to FL9 and FL1 licences
28
C.A.@S.L.P.(C)No.12859 of 2020 etc.
granted to the appellant will, squarely fall within the purview of Section
40(a)(iib) of the Incometax 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
regard is rightly set aside by the High Court.
17. Accordingly, the civil appeal filed by the assessee is dismissed
and the civil appeals filed by the revenue are partly allowed to the
extent indicated above. In result, the assessments completed against
the assessee with respect to assessment years 20142015 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 20142015 and
20152016, the assessing officer shall pass appropriate orders, within a
period of two months from the date of receipt of this judgment.
………………………………J.
[R. Subhash Reddy]
………………………………J.
[Hrishikesh Roy]
New Delhi.
January 03, 2022.
29