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Issues: (i) whether Gallonage Fee, Licence Fee and Shop Rental (Kist) paid in respect of FL-9 licences were an exclusive levy on the assessee and therefore disallowable under section 40(a)(iib) of the Income-tax Act, 1961; (ii) whether the corresponding amounts paid in respect of FL-1 licences and the surcharge on sales tax and turnover tax were liable to disallowance under section 40(a)(iib).
Issue (i): whether Gallonage Fee, Licence Fee and Shop Rental (Kist) paid in respect of FL-9 licences were an exclusive levy on the assessee and therefore disallowable under section 40(a)(iib) of the Income-tax Act, 1961.
Analysis: The FL-9 licence conferred an exclusive wholesale foreign liquor trading privilege on the assessee. The levies connected with that licence were imposed only in relation to that monopoly trade and were not shared with other similarly placed entities in the same manner. The statutory expression "levied exclusively on" was applied to the nature of the levy and the licensed activity, and the levies linked to FL-9 were treated as falling within the disallowance provision.
Conclusion: The FL-9-related Gallonage Fee, Licence Fee and Shop Rental (Kist) were held disallowable and the finding was against the assessee.
Issue (ii): whether the corresponding amounts paid in respect of FL-1 licences and the surcharge on sales tax and turnover tax were liable to disallowance under section 40(a)(iib).
Analysis: The FL-1 retail licences were not exclusive to the assessee alone, since the retail trade was permitted to more than one State Government undertaking. On that footing, the related licence fee and shop rental did not satisfy the statutory requirement of an exclusive levy on a single State Government undertaking. As to surcharge on sales tax and turnover tax, the surcharge retained the character of a tax and not a fee or charge. The disallowance provision was confined to royalty, licence fee, service fee, privilege fee, service charge, or similar charges, and could not be extended to a tax by treating surcharge as a fee.
Conclusion: The FL-1-related licence fee and shop rental (Kist) were held not disallowable, and the surcharge on sales tax and turnover tax was also held not disallowable, all in favour of the assessee.
Final Conclusion: The controversy was answered partly in favour of the revenue and partly in favour of the assessee, leading to setting aside of the assessments and remand to the Assessing Officer for recomputation in accordance with the conclusions recorded.
Ratio Decidendi: For section 40(a)(iib) to apply, the levy must be a fee or charge exclusively imposed on a State Government undertaking in relation to the relevant licensed activity, and a tax, including surcharge retaining the character of tax, does not fall within that provision.
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