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Issues: (i) Whether gallonage fee, licence fee and shop rental (kist) paid in relation to FL-9 and FL-1 licences granted to a State Government undertaking fall within the disallowance under section 40(a)(iib) of the Income-tax Act, 1961. (ii) Whether surcharge on sales tax and turnover tax constitute a fee or charge within section 40(a)(iib) of the Income-tax Act, 1961 and are therefore disallowable.
Issue (i): Whether gallonage fee, licence fee and shop rental (kist) paid in relation to FL-9 and FL-1 licences granted to a State Government undertaking fall within the disallowance under section 40(a)(iib) of the Income-tax Act, 1961.
Analysis: Section 40(a)(iib) was inserted to prevent diversion of profits from State Government undertakings through exclusive levies or appropriations by the State. The expression "levied exclusively on" is to be understood with reference to the State undertaking and the nature of the licence or levy, not by counting how many State undertakings hold similar licences. Once the undertaking holds the licence, the statutory fees attached to that licence are paid by the State undertaking itself and answer the description of exclusive levies. A narrow construction that excludes FL-1 merely because another State undertaking also holds such a licence would defeat the object of the amendment.
Conclusion: The gallonage fee, licence fee and shop rental (kist) payable in relation to both FL-9 and FL-1 licences are disallowable under section 40(a)(iib); the challenge by the assessee fails on this issue and the revenue succeeds.
Issue (ii): Whether surcharge on sales tax and turnover tax constitute a fee or charge within section 40(a)(iib) of the Income-tax Act, 1961 and are therefore disallowable.
Analysis: The statutory language of section 40(a)(iib) refers to royalty, licence fee, service fee, privilege fee, service charge, and similar fee or charge, and does not extend to tax or surcharge on tax. Surcharge on sales tax is an enhancement of the underlying tax and remains in the nature of tax, not a fee or charge. The same principle applies to turnover tax. The deliberate statutory distinction between tax and fee in section 40 supports this construction, and the provision cannot be expanded to include taxes by implication.
Conclusion: Surcharge on sales tax and turnover tax do not fall within section 40(a)(iib) and are not disallowable under that provision; the assessee succeeds on this issue and the revenue fails.
Final Conclusion: The decision upholds disallowance of the licence-related levies for both categories of licences, but excludes surcharge on sales tax and turnover tax from the disallowance provision, resulting in only partial relief to the assessee.
Ratio Decidendi: For purposes of section 40(a)(iib), "levied exclusively on" is construed in light of the State undertaking and legislative purpose, while tax or surcharge on tax cannot be treated as a fee or charge within that provision absent express statutory language.
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