AI Drafter 
TaxTMI 
TaxTMI 
2014 (1) TMI 1777
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....he facts as emanate from records are, the assessee company is sole wholesale distributor of alcoholic products in the State of Andhra Pradesh. While examining the return filed for the impugned assessment year, the Assessing Officer noticed that though the assessee had declared a turnover of Rs. 8348.05 crores for the impugned assessment year, but it has declared nil income under the regular provisions and book profit of Rs. 2,85,642/- u/s 115JB of the Act. He further noted that in the annual report the assessee disclosed loss of Rs. 36,82,862/-. He further noted that on account of prior period adjustment , a profit of Rs. 10,14,478/- was shown for income-tax purposes. The assessee also added back the inadmissibles such as capital expenditure, donation to Chief Minister's Relief Fund and 40a(ia). After claiming certain allowances u/s 43B on payment basis, it disclosed a gross total income of Rs. 1348.27 crores and after claiming deduction u/s 80G the income was brought down to nil. The Assessing Officer for the purpose of understanding the exact nature of activity carried on by the assessee and to ascertain its margin made a query as to how and at what rate it procures its supplies ....
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....for sport promotion Rs. 25.50 crores Total Rs.1415.28 crores. 5. The Assessing Officer asked the assessee to explain under what provision of excise law these payments were made and how it is claimed as deduction in computing income. The assessee in its reply dated 28-1-2010 stated that the basis of claim was as per section 23A of Excise Act 1968. It was stated that no demand was raised under excise act for privilege fee or special privilege fee or special privilege fee for sports. A direction was received from the Government vide GOMS No.391 dated 12-6-2001 to pay a sum of Rs. 25 crores as special privilege fee for sports. The Corporation also received directions of the Government. of A./P. in GO No.242 dated 31-3-2001 to increase the rate of margins by 10% and to pay special privilege fee of Rs. 250 crores. It was submitted by the assessee that sale price is inclusive of excise duty and sales tax. The assessee further stated that privilege fee, special privilege fee and special privilege fee for sports and contribution to Chief Minister's Relief Fund are neither separately indicated in the sale bills nor any separate heads are shown in the sale bills. The ....
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....he following issues arising for consideration. i) Whether income has accrued and arisen to assessee on which assessee is liable to pay tax? ii) Whether the assessee is correct in deducting these sums first and declaring loss avoiding income-tax, through income has accrued and arisen during the previous year? iii) Whether the deduction claimed under the three heads i.e. Privilege fee, special privilege fee and special privilege fee Sports is admissible u/s 23A or not?. iv) Whether the assessee has complied with the provisions of sec. 23A of the Excise Act in order to claim the deductions? v) Whether the assessee company has followed the provisions of Company Law and accounting standards in order to claim these sums as deductions? vi) Whether these sums can be said to have been diverted by overriding title? vii) Whether section 23A of Excise Act amounts to application of income. viii) Decisions on allowance of these deductions. 6. The Assessing Officer relying upon a decision in case of Wallace Brothers and Co. Ltd. V/s. CIT (16 ITR 240) and Kalwa Devadattam V/s. Union of India (49 ITR 165) (SC) noted that lia....
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....e which according to assessee, is the basis of their claim. Had they drawn up the P & L a/c before remitting the margin, they would have deducted the income-tax liability also. However, they have conveniently adopted an alternative method of taking the gross margin as fixed by the government and remitting the same to the government under different heads and declaring loss or nominal income to the income-tax department that too on account of minor adjustments such as adding back of disallowable on account of prior period adjustments. The Assessing Officer therefore was of the view that the deduction claimed on account of privilege fee, special privilege fee, special privilege fee sports etc.,. are not admissible since they are not computed in accordance with section 23A of the Excise Act which is very basis of their claim. Even, according to the company law and accounting standards, the income should have been first arrived at and then the income-tax liability ought to have been deducted and later the margin should have been paid as privilege fee or whatever name called to the Government of Andhra Pradesh. Therefore, even under the company law the assessee is not eligible to claim t....
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..... 9. Thus, the legislature in its wisdom introduced section 23A to enable the Corporation to pay the entire margin to the Government of A.P after deducting the expenses including taxes. However, the assessee Corporation ignoring the legislative intent of section 23A of Excise Act adopted its own method of paying margin thereby avoiding its responsibility to pay income-tax. This observation made by the Assessing Officer was due to the fact that the assessee failed to adopt the method of deducting expenses and drawing up profit and loss account as per company law or otherwise. The Assessing Officer observed that if assessee's contention is accepted then different meaning to section 23A of Excise Act has to be given which would also be repugnant to the state law as well as company law and income-tax law. He further observed that the contention of the assessee that since the money is paid back to the State Government hence no income-tax need be paid, is accepted it would lead to drastic conclusion. In effect it would mean that total margin income of a sole distributor of IMFL for the whole state is exempt from income-tax though it is involved in proper business activity. The Asse....
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....atural for the Government to exercise total control over the operations of the Corporation. The assessee being a Government company has to obey the directions of the Government. Though the auditor also raised various other contentions in support of its claim of deduction of the amount paid to the state Government but the Assessing Officer rejecting the same ultimately completed the assessment by bringing to tax the privilege fee etc amounting to Rs. 1415,28,24,605/-. The Assessing Officer also disallowed an amount of Rs. 30,90,849/- representing outstanding liability towards leave salary payable and pension contribution payable u/s 43B of the Act. Being aggrieved of the assessment order, the assessee preferred an appeal before the CIT (A). The CIT (A) however confirmed the assessment vide order dated 16-1-2012. Against the said order of the first appellate authority, the assessee preferred further appeal before the ITAT. 12. In course of hearing before the ITAT, as appears from facts on record, the departmental representative brought to the notice of the bench certain amendments made to the Excise Act with retrospective effect. The ITAT considering such fact observed that since ....
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..... In such event, the State law is bound to fail as there is repugnancy with central law. In this context the CIT (A) relied upon a decision of Hon'ble Allahabad High Court in the case of UP Jal Nigam Ltd. (202 Taxman 285). The CIT (A) on interpreting section 4C was of the view that it only re-affirms the fact that it is the profit that is sought to be appropriated. It is never the case of the department that the government of AP has no right to receive income from the assessee. The new amendment to the excise act clearly establishes the fact that the entire income of the assessee is not that of State and only the amounts specified as privilege fee is income of the State. The CIT (A) observed that as section 4A does not prescribe method of computing privilege fee, the computation still needs to be made u/s 23A. 14. The CIT (A) was of the view, since income tax is an expense in commercial sense as per AS-22, the assessee's contention that the entire margin after excluding the expenses is the income of the State cannot be accepted. The CIT (A) relying upon the decision of Hon'ble Supreme Court in case of D. Cawasji and Co. (150 ITR 648) held that the amendment having been made to r....
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....tion of India. This provision deals with intoxicating liquors. This is exclusively in the State domain and as per the frame work of the Constitution of India Centre has no power what so ever on this. 4. The appellant submits that it has exclusive rights not just in making laws in respect of intoxicant but also with regard to impost on sale of intoxicants. To substantiate this submission, the appellant invites kind attention of the Hon'ble Tribunal to the decision of Supreme Court in the case of State of UP vs. Sheopat Rai, AIR 1994 SC 813 (Paras 16, 32 and 41) wherein their lordships upheld the ordinance passed by State besides categorically holding that such charge in fact is not a 'fee' falling under Entry 66 of List II which deals with 'excise duty' but it is a consideration received by the Government for parting with its exclusive privilege to deal in intoxicants thereby falling under Entry 8 of list II of Schedule VII to Constitution of India. 5. The appellant further invites kind attention of the Hon'ble Tribunal to the recent decision of Supreme Court in the case of State of Kerala and Others Vs. Kandath Distilleries [Civil Appeal No....
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....oner and the State Government since they are conferred with the power to deal with an article which is inherently injurious to human health. 23. Section 14 of the Act indicates that the Commissioner can exercise his powers to grant licence only with the approval of the State Government because the State has the exclusive priVilege in dealing with liquor. The powers conferred on the Commissioner and the State Government under Section14 as well as Rule, 4 are discretionary in nature, which is discernible from the permissible language used therein. 24. Liquor policy of State is synonymous or always closely associated with the policy of the Statute dealing with liquor or such obnoxious subjects. Monopoly in the trade of liquor is with the State and it is only a priVilege that a licensee has in the matter of manufacturing and vending in liquor, so held, by this Court in State of Maharashtra v. Nagpur Distilleries (2006) 5 SCC 112. Courts are also not expected to express their opinion as to whether at a particular point of time or in a particular situation, any such policy should have been adopted or not. 1998 Policy has life only in that year and if any rights have acc....
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....o be that of the State is not understood in its right perspective. Kind attention of the Hon'ble Tribunal is invited to the provisions of amended Act which is reproduced here under; 1. Levy of Trade margin Privilege fee etc: Sec.4-A: The Government shall from time to time specify the Trade margin, Privilege Fee or any other levy by whatever name called, to be collected by the AP Beverages Corporation Ltd, from the holders of licences. 2. Remittance to the Government: Sec.4-B: The Amount realized under section 4-A being the income of the Government, shall be remitted by the A.P.Beverages Corporation Ltd., to the Government in the manner specified by the Government. 3. Privilege fee etc., u/s.23(l), 23-A and 23-B of the AP.Excise Act to be the income of the Government: Sec.4-C Not Withstanding anything contained in this Act, the AP Excise Act, 1968 and the rules made there under or any order issued by the Government or the Commissioner of Prohibition and Excise, all amounts paid by the Corporation from 211993 to the Commissioner of Prohibition and Excise or the Government as priVilege fee or Special PriVilege fee or any other fee or cess, by whatever name called....
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.... by the learned CIT(A) the facts involved were totally different and the Hon'ble Court was dealing with different subject. In the said case, amendment that was carried out by the State to ratify the collections of Sales Tax was to nullify a judgement of High Court which has held such levy to be invalid. Even in the judgement of HMT that is referred to by the appellant the Apex Court expressed the view that once an issue is considered by High court the same cannot be made good by amendment. Kind attention is invited to State of A.P. vs. HMT (copy of which is placed in paper book at pages 168-175). Whereas in the appellant"s case, those facts does not exist and it is improper and incorrect on part of learned CIT(A) to hold the amendments made by the State to be invalid. Forthe first time the amendment is carried out. The learned CIT(A) has not ever\ tried to find out the reasons for such retrospective amendment before holding it to be invalid. 12. The appellant submits that as per GO Ms.No.614 Dt.6-5-2005, (Copy placed in paper book at page No.223) the State has directed the Director of Distilleries to direct the depot Managers of APBCL to obtain demand drafts in favour ....
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....of the facts or provisions of law before coming to such conclusion. The attention of the learned CIT(A) was drawn to the relevant provision by which the appellant was conferred the right to do whole sale trade. It was submitted that only by virtue of holding the appellant to be an authority acting on behalf of the State for the purposes of Sec.68-A of Excise Act the appellant carried on the trade. The relevant provisions of the law are reproduced here under: "Explanation to Provisions of Sec.4 of AP (Regulation of trade in Indian Liquor, Foreign Liquor) Act, 1993: "Explanation:- For the removal of doubts it is hereby declared that the Andhra Pradesh Beverages Corporation Limited shall, while carrying on the holesale trade and distribution of [Indian Made Foreign Liquor], Foreign Liquor, Wine and Beer under this section shall be deemed to be an authority acting on behalf of the Government for the purposes of Section 68-A of the Andhra Pradesh Excise Act, 1968. " 16. The appellant is also reproducing the provisions of See.68 A of Excise Act which is as under: "68-A: Exemption of the Government from taking out licence or permit for production, manuf....
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....es or public moneys raised or received by the Government of India or the Government of the State, as the case may be, or (b) any court within the territory of India to the credit of any cause, matter, account or persons, shall be paid into the public account of India or the public account of the State, as the case may be" 19. As per the GO Ms.No.614 issued by Govt. of Andhra Pradesh the sale proceeds are remitted to the public deposit account and as per the above constitutional provision cited above, the income belongs to State. Its usage is regulated by the said GO in accordance with article 283 of Constitution of India which is reproduced here under: "283. Custody, etc of Consolidated Funds, Contingency Funds and moneys credited to the public accounts (1) The custody of the Consolidated Fund of India and the Contingency Fund of India, the payment of moneys into such Funds, the withdrawal of moneys therefrom, the custody of public moneys other than those credited to such Funds received by or on behalf of the Government of India, their payment into the public account of India and' the withdrawal of moneys from such account and all other....
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....f Sec.23-A as it stood then or the amended provisions categorically hold that the trade in intoxicants belong to the State, and having being conferred the privilege to carryon such trade by the State, the appellant should remit the margins to the state. Once payments are as per the Statute for conferring the privilege, it amounts diversion by over riding title or business expenditure. In this regard kind attention of the Honourable I.T.A.T., is invited to the decision of this tribunal in the case of M/s.Swarnandhra IJMII Integrated Township Development co, reported in 88 DTR (Hyd)(Trib) 65 wherein it was held that payment of predetermined anticipated profits by the assessee developer to the landowner as a component of land compensation for the land transferred by the latter to the assessee as per the terms of the contractual agreement under which the assessee company came into existence cannot be said to be diversion of profits to the landowner and the same is allowable as business expenditure incurred wholly and exclusively for the purpose of business. 23. In the appellant's case the appellant itself came into existence by virtue of an Act of 1993 which is referred to....
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.... 35, where in their lordships while dealing with an appeal against order ujs.263 sustained by I.T.A.T., has held so. The relevant portion is as under: "The contention of the Revenue that there are no reasons given by the Assessing Officer about the nature of activity of the assessee cannot be accepted because a query was raised by him in the course of the assessment proceedings and was replied by the assessee. Obviously, he was satisfied with the explanation of the assessee and therefore did not think that the issue needs to be specifically mentioned. It is settled law that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers uls. 263 of the Act. It is therefore not correct to say that there was no proper enquiry by the assessing officer". 25. The appellant therefore submits that the finding of the learned C!T(A) that it is appropriation of profits is contrary to accepted principles of judicial discipline. An authority of equal rank has earlier examined this....
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....nsideration of the privilege conferred on the Corporation/ as per the provisions of sections 23(1)/ 23-A and 23-B of the A.P.Excise Act/ 1968 shall be deemed to be and always deemed to have been the income of the Government and due payment for the relevant years in terms of Section 4-B. 28. The appellant submits that reference to Sec.4-B by the learned C!T(A) is absolutely incorrect. This provision is prospective provision and not retrospective provision to apply to the assessment year in question. The relevant provision in the amended Act is SecAC which was reproduced herein above. As per this provision, all the payments that are made as per the earlier provisions Sec.23(1), 23A and 23-B are deemed to have ben and always deemed to have been income of the State and due payment for the relevant years in terms of Sec.4B. Therefore the question of requirement as per Sec.4B for this year does not arise since by a deeming provision it is held to be payment under terms of SecAB. Even otherwise the learned C!T(A) never tried to find out whether any manner is specified in accordance with Section 4 B, since the Government has issued GO specifying how they should be paid. It is only....
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....of Supreme Court in holding that the fee should be fixed though it is brought to the notice of the learned CIT(A) that what is paid towards privilege is not a fee but a consideration as held by Supreme Court in various decisions that are referred to in the decision of Mc Dowels besides the one in the case of Sheopat Rai already referred to supra. The relevant portion of the decision is as under; Mc Dowels reported in 314 ITR 167 where it has held as under: "Business expenditure - disallowance u/s 43B-Bottling fees under excise law- Bottling fees for acquiring a right of bottling of IMFL determined under the Excise Act and rules framed thereunder payable by assessee as consideration for grant of approval by the Government is not tax, duty, cess or fee for the purposes of s. 43B-Expression now used in s. 43B(i)(a) is "tax, duty, cess or fee, by whatever name called"-By application of rule of ejusdem generis, the expression 'by whatever name called' must fall within the genus 'taxation' to which expressions 'tax~ 'duty~ 'cess' or 'fee' as a group of its specie belong by way of compulsory exaction in the exercise of State's ....
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....s only expression that no 'tax' shall be levied and collected except authorized by law. It in its elementary meaning coveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State under Art. 73 by the Union or Art. 162 by the State. Under Art. 366(28) "taxation" has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. "Impost" means compulsory levy. The well known and well settled characteristic of 'tax' in its wider sense includes all imposts. It was the duty of Revenue authorities to ascertain whether the deduction which is to be tested on the touchstone of s. 43B(a) is the amount payable by way of tax or duty or fee or cess. The High Court was justified in holding that the amount does not fall within the purview of s. 43B.-Amar Chandra vs. CCE AIR 1972 SC 1863 and Housing Board of Haryana vs. Haryana AIR 1996 SC 434 relied on; State of Bombay vs. F.N. Balsara AIR 1951 SC 318 and Har Shankar vs. Dy. Excise & Taxation Commr. AIR 1975 SC 1121 applied; CIT vs. Udaipur Dis....
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.... to the following paragraph from that order the same is reproduced here for ready reference: 15. It may be that the statute under which a notification has been issued constituting the appellant corporation may provide expressly or by necessary implication that the income derived by the corporation from its trading activity would be the income of the State. The doctrine of the separate entity or personality of the corporation is always subject to the exceptions which statutes may create, and if there is a statutory provision which clearly indicates that despite the concept of the separate personality of the corporation, the carried on by it belongs to the shareholders who brought the corporation into existence and the income received from the said trade likewise belong~ to them, that would be another matter. It would then be possible to hold that as a result of the specific statutory provisions the income received from the trade carried on by the corporation belongs to the shareholders who have constituted the said corporation, and so, we must look to the Act to determine whether the income in the present case can be said to be the income of the State of Andhra Pradesh 1/. ....
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....ad of confining herself to the amendments that are directed to be considered by the I.T.A.T. 37. The next ground 12 relate to validity of amendments. Submissions are already made in respect of ground no.2. The appellant pray that the same may be considered for this ground also. 38. The next ground 13 also relate to retrospective amendment and submissions are already made on this issue in the earlier ground nO.2. 39. The next ground 14 relate to finding on allowability ujs.37. The appellant submit that submissions are made on this ground also while making submissions in the earlier grounds. 40. The next ground 15 relate application of AS-22 - this issue is covered in submissions made on other grounds and prays the honourable I.T.A.T., to consider them. 41. The next ground relate to not considering the ground against disallowance of provisions for leave encashment of Rs. 30,90,849 in spite of making specific submissions. The appellant submitted that this issue is covered by Delhi High Court decision. This sum represent outstanding leave Salary payable of Rs.l0,71,901 and Pension contribution payable of Rs. 20,18,948. The appellant therefore pray th....
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....ns of Sec.4, the honourable I.T.A.T., may please have a look at the enactment made by the State of A.P., which is being referred to as repugnant. Already submissions are made that there is nothing in the Act that is repugnant. At the cost of repetition, it is submitted that what the provisions state is that the margins paid as Privilege fee, Special privilege etc., by whatever name called is the income of the State and it always remained as income of the State. It is further submitted that if a party charges something and receives it, it is accepted that such a receipt in the hands of that party will be its income. The appellant submits that there cannot be any doubt on this proposition. Therefore the question that should be addressed before considering the issue as to whether State is right in holding so or not, is whether the* State has right to charge and receive such amounts. The appellant by drawing attention of the Hon'ble Tribunal to the decision of Supreme Court in the case of Sheopat Rai dealing with a legislation of UP Govt., demonstrated that the Apex Court held that such charge is nothing but a consideration falling under Entry 8 of List II of Constitution which is ....
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.... taxing provisions of the I.T.Act to prevent the AO from considering the payments under income-tax provisions. The appellant therefore submits that there is no repugnancy even after considering the provisions of section 4 of the IT Act. 7. The appellant with regard to application of income, besides what is submitted already, submits further that, to consider a payment to be application of income, besides deciding whether the income is earned by the appellant on its own, should also examine whether such payment is of that nature that it is not required to be paid otherwise. Only in such circumstances, where certain amount is paid without any requirement then it could be held as application of income. The appellant also invite attention of the Honourable I.T.A.T., to the decision of Delhi High court in the case of D.T.T.D.C.Ltd., reported in 350 ITR 1 wherein the Delhi Government vested the right to sale in retail the country liquor and some other intoxicant and directed the Company to construct fly overs and pedestrian facilities, after retaining 5 paise per bottle and to use remaining sum on constructions. In that case the Assessing Officer has not allowed the amount spent....
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....f the State for the purposes of Sec.68 A of Excise Act 68 and as such the income from such business belong to the State. 2. The appellant never received any amount and that entire sale proceeds are remitted to State PD alc held by Director Distilleries as per GO Ms.No.614. As per article 284 of Constitution, the proceeds belong to State. As per article 283 of Constitution from such proceeds, the Director rylakes payment for purchases, makes payment towards privilege fee, "etc., provides for reimbursement of expenses drawn from an aD alc opene'd for that purposes. As such the question of making provision for income-tax or working out at the end of the day amount payable to State never arose and such observations of the learned CIT(A) is contrary to facts. 3. The enactment that is brought out to 1993 Act or even the provisions of Sec.23 A of Excise Act '68 are enacted as per Entry 8 of List II of Constitution which is held to be within exclusive domain of the State to the exclusion of Central government and the public and therefore is neither repugnant to provisions of Income-tax Act or the provisions of Sec.4C is a valid provision though it is retrospective....
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....ct states that payment made by the Corporation to the state is income of the state but that automatically cannot mean that income of Corporation is income of State. Further, the manner/mode of computation of privilege fee etc., clearly show that it is in the nature of computing net income or profit which is to be passed on to the State. Therefore, the privilege fee in case of the assessee is balancing charge on the P & L account, the intention of the state is to appropriate 100% of profit, but such profit can be arrived only after meeting the expenditure which includes income-tax. In this context, he referred to AS-22 issued by the ICAI. It was submitted that a state legislation which confers income-tax exemption or excludes income of a corporation from chargeability to income-tax runs contrary to the charging section 4 of the Income-tax Act and would therefore be contrary to Article 254 of the Constitution of India, because then the state is in danger of contradicting or enacting a legislation which is in conflict with the powers of the Union as income-tax is in the union list. Rebutting the assessee's contention that it is an agent of the state and also diversion of income before....
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....Tribunal, Hyderabad Bench in case of APHB (supra). The learned DR submitted that the new provisions brought to the Excise Act nowhere prescribe how and on what basis privilege fee is to be determined. That is why one has to go back to section 23A of the Excise Act to infer that this is computed as a balancing figure. It was submitted that unlike corporations in other states which has specified the levy of such fee as a fixed amount under the rules or a specific amount based on the stock quantity and reflected in terms of rupee per litre, there is no specific name or basis for levy of such fee. The learned DR submitted that computation itself shows that the privilege fee etc., is calculated as a remainder i.e. revenue less expenses. The learned DR submitted that considering all these aspects, the CIT (A) was justified in negating the assessee's claim that it was acting on behalf of State hence the income from sale of liquor is the income of the State. It was submitted that the CIT (A) therefore correctly applied the ratio decided by the Hon'ble AP High Court in case of AP State Civil Supplies Corporation and by the Hon'ble Supreme Court in case of APSRTC. So far as the contention th....
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....contention that payments made to the state will not amount to application of income had dropped the proceedings. vii) State is competent to make retrospective amendment. 19. Before deciding the issues raised by the assessee it is necessary to deal with certain basic facts which have a crucial bearing. The assessee was incorporated under the Companies Act, 1956, on 23-7-1986. The objects of the assessee are set out in Article III(A) & (B) of the Memorandum of Association. The main objects of the assessee as per Article III(A) are as under:- 1. To manufacture, purchase, import, export alcohol and all other beverages suitable for human consumption. 2. To undertake bottling/packing of alcohol and other beverages in a suitable manner. 3. To carry on business as sellers, dealers and distributors of alcohol and other beverages either in bulk or in retail. 4. To undertake the manufacture of all machinery and equipment required to attain any of the above objects. 5. To act as stockists, commission agents, manufacturers, representatives or agents selling and purchasing agents, distributors, brokers, trustees, attorneys in connection wi....
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....gn Liquor) Act, 1993 held that sec. 4A has not specified any amount. The amount paid is also not collected from the sellers of IMFL which would be evident from the invoices. The amounts were paid out of the funds of the assessee realised from its sales and as per its own calculation. Similarly, though section 4B provides for remitting to the Government in the manner specified by the Government. However, it has not provided the manner of computation. Therefore, computation still needs to be made u/s 23A of the State Excise Act which specifies that the margins after meeting expenditure shall be paid as privilege fees. The CIT (A) therefore held that the department's stand that income tax is an expense as per AS-22 and in commercial sense remains unassailed. The CIT (A) further held that section 4C of the State Excise Act only reaffirms the fact that it is only the profit that is sought to be appropriated. 21. In the aforesaid context, the only issue which arises for consideration is whether special privilege paid to the government can be allowed as expenditure. It is contention of the assessee that state Government has the exclusive privilege of sale, distribution in IMFL. The Sta....
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.... special privilege fee etc., in consideration of the privilege conferred on the corporation as per the provision of sections 23(1), 23A and 23B of Excise Act shall be deemed to be the income of the Government. Though the assessee has claimed that the Government fixes the sale price but the fact is privilege fee,special privilege fee etc., have not been specified by the Government in terms of sec. 23A of the Excise Act or as per amended sec. 4A of the Act. This is very much evident from the invoices raised by the assessee which did not specify the details of price charged. In other words, the invoice did not specify the privilege fee, special privilege fee etc.., separately though both sections 23A and 4A provide for specifying such fee. Section 23A of the Act which was the provision providing for payment of margin, privilege fee etc., and which was governing the field at the relevant time clearly mentions of remitting such amount to the Govt. after deducting the expenses incurred by the corporation. As per AS-22, a copy of which is at page 60 of the paper book, income tax is to be considered as an expense incurred in earning income. The assessee being a company and having recognise....
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....d sale of IMFL undertook by the assessee corporation as an authority on behalf the State in terms of Explanation to section 4 of the Andhra Pradesh Excise Act, 1968 read with section 68A of the Act, hence the income from sale of IMFL is the income of the State, therefore not taxable as per Article 289(1) of the Act. However, as can be seen from the profit and loss account for the impugned assessment year, the entire sale turnover from IMFL has been treated by the assessee as its income. Similarly, on examination of the sales-tax/VAT return , it is to be noted that the assessee is not only showing the entire turnover from sale of IMFL as its turnover but it is also collecting salestax/ VAT on sales effected to the retailers and paying to the government account. Assessment orders have also been passed by the sales-tax authorities assessing the turnover relating to the sale of IMFL as the assessee's turnover. In such view of the matter, it cannot be said that the income from sale of IMFL is the income of the State, hence not taxable in view of Article 289(1) of the Constitution of India. In fact, in the rejoinder to the submissions made by the learned departmental representative, the ....
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....clear that the quantification of privilege fee and special privilege fee etc., as per section 23A read with the newly inserted section 4A of the Excise Act has not been made. In these circumstances, the assessee's claim that privilege fee and special privilege fee are considerations for conferring a privilege, hence should be allowed as expenditure is not tenable. On the contrary, the aforesaid GOMS gives an impression that the instructions to deposit the sale proceeds in the PD account are only an internal arrangement. The fact that the Corporation is allowed to operate an over-draft account with a limit of Rs. 100 crore per month proves that the deposit of sale proceeds of liquor made in the PD account is again ploughed back to the assessee in the form of overdraft account. That besides the contention of the assessee that sale proceeds never reaches the assessee is also not acceptable as the aforesaid GOMS instructs the depot managers of the assessee corporation to obtain demand drafts in favour of government of A.P. This clearly proves that only after the sale proceeds reach the assessee corporation, demand drafts are to be made in favour of Government of A.P for depositing in t....
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....State under the Constitution of India has the exclusive privilege over trade in liquor. Nobody disputes such right of the State and we respectfully agree with the proposition laid down by the Hon'ble Supreme Court but the issue before us is not whether the state has exclusive privilege or not. The issue before us is taxability of income at the hands of the assessee corporation which is distinct and separate from the state. 26. The learned AR has relied upon the judgment of Hon'ble Supreme Court in case of Government of Andhra Pradesh vs. Hindustan Machine Tools Ltd. (1975 CTR 164) to submit that state government has power to legislate retrospectively. Though there is no dispute to such proposition of law but the facts involved in that case are clearly distinguishable and inapplicable to the facts of the present case, as we have already held, by the time the new provisions of section 4C were inserted to the Act in the year 2012, income has already accrued to the assessee. That besides the said provision also does not say that income of the assessee corporation is the income of the state. The assessee has also relied upon the decision of Hon'ble Delhi High Court in case of DTTDC L....
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....t and therefore the only provision left is Article 289(2) which is applicable to the present case. Though it may be a fact that the assessee corporation is carrying out the wholesale distribution of IMFL as an authority of government or on behalf of government but, that cannot be a reason for claiming immunity from taxation under the provisions of I T ACT in view of Article 289(2) of the Constitution. The contentions raised by the learned AR in the course of hearing as well as in the written submissions in the present appeal have been considered and exhaustively dealt with by the Income-tax Appellate Tribunal, Hyderabad bench in case of AP Housing Board vs. Addl. CIT (ITA Nos. 717, 1216 to 1218/Hyd/2012 & Others) dated 31-5-2013. The Tribunal after hearing almost similar arguments put forward by the assessee held as under:- "33. We have considered the elaborate submissions made by both the parties oral ly at the time of hearing as wel l as through their respective written submissions. We have also perused materials placed on record as wel l as in the paperbooks. We have careful ly applied our mind to the catena of decisions cited before us by both the parties. Before dw....
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.... declaring income under the head 'income from house property' and 'income from other sources' and for the assessment year 2007-08 claimed deduction u/s 80-IB of the IT Act. After the retrospective amendment effected in the year 2010 to the APHB Act by introduction of sub-section (7) of section 58 of the APHB Act, the assessee claimed that the income earned by it is the income of the State. 36. From the aforesaid narration of fact, it is very much clear that, but, for the amendment to the APHB Act made by the state legislature in the year 2010 the assessee al l along had been voluntarily fi ling its return of income by recognizing its income. It is also a fact that the assessee al l along was claiming deduction u/s 80-IB of the Act. Only after the amendment to section 58 of the APHB Act, was made the assessee made a claim that its income is not taxable under the IT Act, by claiming immunity under Article 289(1) of the Constitution of India. The main thrust of the argument of the learned AR of the assessee for claiming immunity from taxation under the IT Act, 1961 are broadly the fol lowing reasons: 1. The APHB is a creature of statute, clothed with statutory powers....
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....alf of the state. In law of agency what is to be seen is whether the profit or loss arising in the course of the dealing of the agent accrues to the principal and not to the agent. 37. The learned counsel for the assessee taking us through various provisions of the APHB Act,1956 had submitted that the State Government exercises pervasive control over the Board. To emphasize such contention he referred to the transfer order of one Shri G. Sai Prasad and appointment of law officer. He submitted that the Board cannot take any decision on its own but every action of the Board has to be with the approval of the Government. In this context the learned counsel referred to the minutes of meeting held in the chamber of the chief minister. He further submitted that Rajiv Gruha Kalpa scheme is a scheme of the State Government and the Board is only implementing it as an agency of the Government. He further submitted that for mobilizing resources by way of sale of land the Board is utilized as a tool. It was submitted that the mode and manner of maintaining the accounts is also as per the direction of the Government. For mortgaging also permission is required. In sum and substance it i....
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....n is concerned. The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." 39. The Hon'ble Supreme Court after analyzing the different clauses of Article 289(1) in the context of the claim made by the assessee held as under: "The main point which we are examining at this stage: is the income derived by the appellant from its trading activity, income of the State under article 289(1) ? In our opinion, the answer to this question must be in the negative. Far from making any provision which would make the income of the corporation the income of the State, all the relevant provisions emphatically bring out the separate personality of the corporation and proceed on the basis that the trading activity is run by the corporation and the profit and loss that would be made as a result of the trading activity would be the profit and loss of the corporation. There is no provision in th....
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....2) of article 289, it can sustain a claim for exemption from Union taxation only if it is shown that the income derived from the said trading activity is the income of the State. That is how ultimately, the crux of the problem is to determine whether the income in question is the income of the State, and on this vital test, the appellant fails." 40. Even though the learned AR has tried to impress upon us that the Assessee Board is nothing but an extended arm of the Government or part of the Government, but, in our view, it is not so. Sub-section (2) of Section 3 of the APHB Act, 1956 reads as under: "The Board shall be a body corporate having perpetual succession and a common seal and may sue and be sued in its corporate name and shall be competent to acquire and hold property both moveable and immoveable and to contract and do all things necessary for the purpose of this Act." 41. A reading of the aforesaid provision makes it clear that the assessee is a body corporate having perpetual succession and a common seal and it can sue and be sued in its corporate name. The said provision also makes it clear that the Board shall be competent to acquire and hold....
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....Board shall vest in consolidated fund of the State of Andhra Pradesh. Section 59 of the Act as it stood earlier provided that al l property, the Board fund and al l other assets vesting in the Board shall be held and applied by it, subject to the provisions and for the purposes of the Act. However, the earlier section 59 was substituted by a new section 59 by Act No. 12 of 2010 with retrospective effect from 01/04/2002. The amended section 59 reads as under: "59. Application of the fund: subject to the provisions contained in sub-section (7) of section 58 all property, the Board fund and all other assets vesting in the Board shall be held and applied by it, subject to the provisions and for the purposes of this Act." Section 81 of the Act empowers the Government to dissolve the Board. 42. On going through the aforesaid provisions it becomes clear that the Board has an independent identity distinct from the State Government. The Board is also constituted for the purpose of carrying out the work as envisaged under the preamble of the Act. The Board certainly cannot be equated with the Government or a department of the Government as it does not perform any of the dut....
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....e that. Under that section all moneys recoverable by the board under the Act or under any agreement are declared to be recoverable as arrears of land revenue and Mr. Thakar urged that this provision showed that the board will have to be regarded as recoveries of the State Government, otherwise these would not have been made recoverable as arrears of land revenue. In our view, it is not possible to accept this submission of Mr. Thakar, for, all that section 32A provides for is merely indicate a mode a recovery and simply because a particular mode of recovery which is generally available to the State Government for making its recoveries has been made available to the board for making its recoveries, it cannot mean that the said recoveries becomes recoveries of the State Government or that the recoveries made by adopting that particular mode become recoveries made by the board for and on behalf of the State Government. Similarly, the provision under which the board has been deemed to be a local authority for the purposes of the Land Acquisition Act could not be suggestive of an inference which would favour or support the petitioner's contention. In fact, the provision contained in....
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....terest thereon to the State Government, for, it is inconceivable that a party would by interest to itself. This provision, in our view, is a clear pointer to the fact that the Board is a distinct entity apart from the State Government and not department or an agent of the State Government. On the other hand, this provision clearly suggests that the board is a separate entity, possesses its own property, assets or funds and undertakes the various activities on its own account. The other provision which, in our view, is of a clinching character is the one to be found in section 40(2) of the Act. That provision indicates as to what should happen to the property and assets of the board upon its dissolution being made by the State Government. Under sub-clause (a) of sub-section (2) of section 40 it is provided that with effect from the date specified in the notification under sub-section (1), all properties, funds and dues which are vested in or realizable by the board shall vest in and be realizable by the State Government. If the board was acting as department of the State Government or was merely as agent undertaking the activities for and on behalf of the State Government, it was ut....
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....) and held as under: 15. In this context it would not be out of place to refer to the judgment of the Supreme Court in the case of Andhra Pradesh State Road Transport Corporation v. Income-tax Officer. In that case a similar question based on the provisions of the article 289(1) of the Constitution was raised and immunity from Union taxation thereunder was claimed by the Andhra Pradesh State Road Transport Corporation, and on an examination of the relevant provisions of the Road Transport Corporation Act, 1950, under which the Andhra Pradesh State Road Transport Corporation was constituted the court came to the conclusion that the trading or business activity that was being carried on by the Andhra Pradesh State Road Transport Corporation was not carried on by that corporation either as department of the State Government or as an agent on behalf of the State Government, but the corporation indulged in concerned trade or business activity on its own and it was held that the immunity claimed by that corporation under article 289(1) of the Constitution was not available to it. In that case there were provisions of that Act which showed that the bulk of the capital necessary f....
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....g any provision for making over surplus receipts to the State Government which was feature which appeared clear under section 30 of the Road Transport Corporations Act, 1950. In the first place, in spite of the aforesaid peculiar features which obtained under the Road Transport Corporations Act, 1950, the Supreme Court took the view that the A. P. State Road Transport Corporation was distinct entity. Secondly, as stated earlier, the distinguishing features mentioned by Mr. Thakar may be relevant on the point of attracting the exemption under section 4(3)(i) and not on the issue which has been raised. The principal question involved both in that decision as well as in the case before us has been whether the income and the property of the board could be regarded as the income and property of the State Government and on that question the provisions of the Madhya Pradesh Housing Board Act, 1950, especially provisions of sections 3, 4, 12 and 14, clinchingly indicate that the petitioner-board cannot be regarded as department or an agent of the State Government and will have to be regarded as separate legal entity distinct from the State Government, and, therefore, the income and propert....
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....of the state Government it cannot be said that the income earned by the assessee is actual ly the income of the state Government. In fact a similar provision u/s 30 of the APSRTC Act, provided for vesting of the surplus fund with the State Govt. In spite of such provision, the Hon'ble Supreme Court held that APSRTC is a distinct statutory corporation and the property and income of APSRTC is not the income of the State. 45. The chargeability of the income to tax is as per the charging section contained u/s 4 of the IT Act, 1961. The retrospective amendment made to the APHB Act by Act 12 of 2010 cannot dilute the effect of the provisions contained under the income-tax Act, which is an Act of the Parliament hence has overriding effect over an Act of the State Legislature. It is a fact on record that the plea taken by the assessee that Board's income is the income of the state Government was not there until introduction of sub-section (7) to section 58 of the APHB Act in 2010. That is the reason the assessee had never taken this stand all these years. In fact the assessee had all along filed returns declaring income and claiming deduction u/s 80-IB of the Act. Deduction u/s 80....
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.... of India. Therefore, though there is no dispute with regard to the ratio laid down in those decisions, however, they are not applicable to the facts of the case of the assessee. It will be pertinent to mention here that the learned AR placed strong reliance upon the judgment of Hon'ble Supreme Court in case of Housing Board of Haryana Vs. Haryana Housing Board Employees Union and Others [1996] 1 SCC 95. In this context, the learned AR drawing a parallel between the provisions of Haryana Housing Board Act, 1971 and APHB Act, 1956 submitted that the Hon'ble Supreme Court on considering the provisions of Haryana Housing Board Act has held that the control of the Government is so pervasive that the Board does not have even a semblance of independence. It was submitted that in assessee's case also due to the control of the State Government the assessee does not have any independent existence. The aforesaid decision of the Hon'ble Apex Court is not applicable to the assessee firstly because the observation made by the Hon'ble Supreme Court was in the context of whether Haryana Housing Board is a local authority and secondly the Hon'ble Supreme Court was not considering the issue whether....
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....ntrol Order, 1972, one third of the sale price of molasses was required to be set apart from construction of storage tanks. The amount was claimed by the assessee as not taxable having been diverted by overriding title under the authority of the law. The High Court found that the assessee had no control over the fund, and the same was diverted from the source and did not reach it. Therefore, it was not taxable. Similar view was taken in the following cases: * SomaiyaOrgeno-Chemicals Ltd. vs. CIT (1995) 216 ITR 291 * CIT vs. New Horizon Sugar Mills (P) Ltd. (2003) 128 Taxman 300 (Mad) : (2000) 244 ITR 738 (Mad) Commissioner of' Incometax vs. PandavapuraSahakaraSakkareKharkane Ltd, (1992) 198 ITR 690 (Kar.) In CIT vs. New Horizon Sugar Mi lls P. Ltd., (2004) 269 ITR 397 (SC) and CIT vs. Ambur Co-op. Sugar Mills Ltd., (2004) 269 ITR 398 (SC), the Supreme Court has dismissed civil appeals by the Revenue on this issue. It should be noted that in all these cases, there was no plea the amount was taxable on the ground that Income Tax Act will prevail over the Molasses Control Order. Income tax law applies to income recognised by the above p....
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....surplus revenue shall be transferred to the state Government of AP on quarterly basis as per the instruction or advice of the Government. Therefore, so far as the accrual of income is concerned, there is no dispute to the fact that the income has already accrued to the assessee. Only after the accrual of income to the assessee the surplus has been diverted to the Government account. The Hon'ble Supreme Court in case of CIT V/s. Sri Sitaldas Tirathdas, 41 ITR 367 (SC) held as follows: "There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in wh....
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....ed government body an organization with profit motive. This aspect has also been explained in detail in the rejoinder on the remand report of A.O. with supportive case laws. Funding of the infrastructure created by the A.P. State Housing Corporation at the behest of State Government is incidental to the main activity of the appellant. It did directly benefit from this expenditure as such infrastructure was meant for the houses sold by it. Its existence and purpose are served as long as it plays direct or indirect role in dealing with and satisfying the need of housing accommodation in the State. The expenditure in question is in course of its normal business operation which, though, had not taken place previously. The appellant is working in a dynamic socio-economic environment and keeping in view the changing need the necessity of such expenditure had arisen. In the earlier proceedings, the A.O. and CIT(A) have wrongly concluded that the amount paid to A.P. State Housing Corporation under the order of the State Government was capital expenditure. Development of housing facility is the purpose for which the appellant has been constituted. The State Government has set up se....
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....ory for its workmen and movement of goods. The High Court held that the assessee did not acquire any ownership over the bridge and there was no addition to the value of the assets owned by it. Therefore, the payment made to the Government was revenue expenditure. In Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj.), the assessee discharged an effluent causing health hazard, which was protested by the citizens of the area. Apprehending a spate of suits therefrom, and in view of the Municipality being unable to remedy the situation, and prevent litigation, the assessee made contribution to the Municipality for providing underground pipeline through the municipal land for disposal of effluents. It was argued that the purpose of this expenditure was to avoid losing market, customers and goodwill. The High Court accepted this and held that the expenditure was allowable under section 37 the LT. Act. In Joint Commissioner of Income Tax vs. Deverson Industries Ltd. (2007) 290ITR (A.T.) 287 (ITAT - Ahm), the assessee had paid an amount to the State Government to help villagers affected by effluent discharged from the assessee's factories and such amounts were paid to Municipa....
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....39; regulation 33 of the Regulations is statutory in character, the directions issued by the State of Gujarat in exercise of its statutory powers under S.82 cannot be said to be in any way inconsistent with this regulation. The second reason is that under S.82 of the Act, the State of Gujarat is entitled to give directions to the Housing Board for the purposes of the Act and if these directions are not found to be arbitrary or illegal, they are binding on the Housing Board and they would supersede any of the earlier contrary decisions of the Housing Board and impose a special obligation on the Housing Board to comply with such directions. As seen earlier, by S.24 of the Act, it is the duty of the Housing Board to incur expenditure and undertake works of such housing schemes as it may consider necessary from time to time, subject to the control of the State Government. Thus, control of the State Government is all pervasive in connection with any of the housing schemes undertaken by the Board. Thus, the payment to A.P. State Housing Corporation was done in the manner prescribed in the A.P. Housing Board Act, under which the appellant has been constituted. Therefore,....
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....ssed on 30.10.2009 of the CIT(A) cannot be expected to take into account the submissions made and rulings relied upon by the appellant in the present proceeding. In this process, some errors have crept into the appeal order: i. At paragraph 6.17 of the appeal order for A.Y.2008-09, the CIT(A) has, mentioned that Government orders quoted by the appellant does not in any way indicate that any money is to be paid to the State Government in lieu of lands provided. But the CIT(A) has missed out the content of the letter dated 23.12.2005 from the Government of Andhra Pradesh, extracted by him at page 39 of his order. The heading of this letter states" Utilisation of an amount to the extent of value of Government lands to be paid to the Government by the APHB for infrastructure development of Rajiv GruhaKalpa". At paragraph 3 in this letter, it is stated that infrastructure cost up to the extent of value of land to be paid to the Government by the APHB will be utilised for infrastructure development under Rajiv GruhaKalpa scheme. In the event of shortfall, the Government will allot additional land to APHB. Further, in the Minutes of Meeting held in chamber of Hon 'ble Chief M....
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....roviso as Rs. 3,0001- till the amendment of the Act in 2010. The CIT(A) has given the finding that APHB is controlling its own affairs and is independent in entering into contracts and taking loans. Therefore, in paragraph 5.8.1 and 5.8.2, he has argued that APHB is not functioning as an agent of the State Government. He has not referred to section 21 of the APHB Act, which clearly states that subject to the control of the Government, Board may incur expenditure and undertake works for framing and execution of housing schemes. Section 60 allows APHB the freedom to incur expenditure not exceeding Rs. 10,0001- in extreme urgency, which is not included in the annual programme sanctioned by the Government. Section 62(1) permits APHB from time to time, with the previous sanction of the Government and subject to the provisions of the APHB Act and to such conditions as may be prescribed in this behalf, burrow any sum required for the purpose of the Act. Section 79 empowers the State Government to give direction to APHB and overrule any decision or order of it. These provisions, severely restricting the freedom to operate, spend, enter into contracts and borrow money have not been referred....
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....siness. The decisions relied upon by the learned AR are factually distinguishable as in those cases there was nexus between the expenditure incurred and the business of the assessee. Therefore, in our view the revenue authorities were correct in disallowing such expenditure. " 27. Though the learned AR had submitted that the ratio laid down in case of APHB(supra) would not be applicable to the facts of assessee's case in view of factual difference, but on deeper examination, we are of the view that principles decided therein would also apply to the facts of the present case. In aforesaid view of the matter, all the contentions of the assessee with regard to non taxability of the amount paid towards privilege fee and special privilege fee etc., fails. The assessee has also assailed the order passed by the CIT (A) by contending that since the Tribunal had directed the CIT (A) only to consider the amendment she was not competent to the validity of amendment. However, such contention of the learned AR is not acceptable. Even if we accept that the CIT (A) is not competent to go into the validity of the amendment but it has no direct bearing on the ultimate conclusion reached by her. ....