VAT as tax outside section 40(a)(iib) disallowance for state-owned liquor wholesaler

VAT paid by a State-owned liquor wholesaler was held not to fall within the disallowance in section 40(a)(iib) because the provision applies to specified fees and charges, not to tax. VAT under the Chhattisgarh Value Added Sales Tax Act, 2003 was treated as a tax and therefore outside the scope of the section. The Tribunal also followed its coordinate-bench view in the assessee's earlier years and found no basis to depart from that position. On that reasoning, the disallowance was unsustainable.

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Issues: Whether VAT expenses paid by a State-owned liquor wholesaler were disallowable under section 40(a)(iib) of the Income-tax Act, 1961.

Analysis: The issue was treated as covered by the Supreme Court's ruling that section 40(a)(iib) applies to specified fees and charges, but not to tax. VAT under the Chhattisgarh Value Added Sales Tax Act, 2003 was treated as a tax, and therefore outside the scope of the disallowance provision. The Tribunal followed its own coordinate-bench view in the assessee's earlier years and found no reason to depart from that position.

Conclusion: The VAT payment was not hit by section 40(a)(iib), and the disallowance was unsustainable.

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