TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1777
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....sessee 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 and at what rate it sold the goods. He furth....
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....p; 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 Assessing Officer noticed that though the assessee had claimed the aforesaid three....
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.... 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 liability to pay income-tax arises on the accrual of income and not from the computation made by the taxing authorities in the course of assessment pr....
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....ome-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 these deductions prior to payment of income-tax. So far as the contention of the assessee that no income accrued to the assessee as it was diverted to the....
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....g 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 Assessing Officer referring to the contents downloaded from the website of the assessee Corporation which provided the methodology of fixation of prices and margin....
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.... 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 the CIT (A) had no occasion to consider the amendments effected to the Excise Act on 16-4-2012 directed the CIT (A) to decide the issue de novo after examining the sai....
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....rt 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 ratify the payment only with a view to avoid income-tax, such amendment is illegal and cannot be applied retrospectively. The CIT (A) further held that even the amendment d....
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....ver 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. 1642 of 2013 arising out of SLP (CiVil) No. 9098 of 2009] a copy of which is placed in paper book at pages 155 to 167. The relevant portion is extracted here under: "20. We may, before examining th....
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....cence 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 accrued to any party, that have to be adjudicated then and there." 6. The appellant would also invite kind attention of the Hon'ble Tribunal to the decision of Supreme Court in the case of APSRTC reported in 52 ITR 524 relevant portion of which is....
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.... 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, in consideration 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-....
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.... 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 of Government of A.P.Director of Distilleries and Breweries for the sale proceeds of liquor and deposit with concerned treasury under specified account. Subsequently, the provision in Excise Act 1968 also is amended by inserting Sec.23-A to state that in lieu of conferring the privilege for wholesale trade, entire margin shou....
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....-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, manufacture, etc., of any intoxicant:- Notwithstanding anything in this Act, it shall not be necessary for the Government or any authority or officer acting on their behalf to take out a licence or permit under this Act for the production, manufacture, possession, import, export, ransport, sale or purchase of any intoxicant." 17. The appellant submits that as per the above, ....
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....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 matters connected with or ancillary to matters aforesaid shall be regulated by law made by Parliament, and, until provision in that behalf is so made, shall be regulated by rules made by the President (2) The custody of the Consolidated Fund of a State and the Contingency Fund of a State, 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....
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....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 above. While bringing into existence the appellant company, the statute inserted explanation to the effect that the appellant shall act as an authority on behalf of the State. The State by virtue of GO MS 614 has directed the appellant to remit entire sale proceeds to the State Treasury. The provisions of Sec.23-A as it existed then, categorically states that in lieu of conferring the privilege of whole Sale trade entire margin shall be remitted to the State. All these read together....
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....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 issue and held it to be not so. Now the C!T(A) is not expected to take a different stand unless there is change in facts or law. In the appellant's case admittedly there is no such change in facts or law. 26. The next ground relate to the finding of the learned CIT(A) which is as under; "4.10. As per new section 4B, the amount of privilege fee needs to be remitted to Government in the manner specified by the government. However, the manner of computation is not specified ujs.4B. Therefore, the c....
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....n 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 the head of account. Further Sec.4A categorically states that the margins etc., are fixed by State from time to time and 4 B only specifies that such margins fixed from time to time to be paid in the manner specified to mean the head of account to which it should be paid and does not require any computation as imagined by the learned C!T(A). 29. For another reason the above cited findings of the learned CIT(A) are factually incorrect. The learned CIT(A) observed that the payment of fee in the appellant's case is not fixed an....
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....ring 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 power of taxation-Where levy and collection is duly authorised by law as distinct from amount chargeable on principle as consideration payable under contract High Court was justified in holding that the amount does not fall within the purview of s. 43B See. 43B after amendment w.e.f. 1st April, 1989 refers to any sum payable by assessee by way of tax, duty or fee by whatever name called under any law for the time being in force. The basic requirement, therefore, is that the amount payable must be by way of tax, duty and cess under any law for the time being in force. The....
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....tled 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 Distillerv Co. Ltd. (2004) 186 CTR (Raj) 1 affirmed. Bottling fees for acquiring a right of bottling of IMFL determined under the Excise Act and rules framed there under 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." 32. The appellant therefore submits that the conclusion of the learned C!T(A) that 'the privilege fee paid is not allowable in view of AS 22 and not providing for income-tax', has no basis and is not tenable at all. Even as per AS 22 income on which tax is to be provided i....
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....y 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/. 34. The appellant submits that the learned CIT(A) has not considered this submission at all while considering the decision of the AP.High Court in the case of A.P.State Civil Supplies Corporation. The appellant while making submissions on other grounds has already demonstrated as to how the income belong to the State which is supported by a decision of Supreme court in the case of Sheopat Rai referred supra. As submitted earlier entire sale proceeds are remitted to the State P.o.a/c and as per Article 284 of Constitution of India and the remittances to PO a/c become the revenues of the State. The Apex Cou....
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....plication 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 this Honourable I.T.A.T., to direct the AO to allow this deduction. These are amounts deducted from Salary of those employees who come on deputation. These amounts have to be transferred to the respective departments which are government departments. The Corporation for the period the employee worked with them, deducts from Salary and has to make payments to such departments. It is shown as provision in the balance sheet. Therefore they do not fall under the provisions of Sec.43 B, since they are not provision for its own employees. In continuation to the aforesaid written submissions the assessee filed further submissions contending as under:- 1. Durin....
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....uestion 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 within exclusive domain of the State. Therefore the action of the State in making such legislation is not questionable in any manner.~ 5. In a recent decision, Hon'ble Mumbai Tribunal in the case of City & Industrial Corporation of Maharashtra Ltd. Vs. ACIT (90 DTR 406) while dealing with a similar issue held as follows: "Income- Chargeability- Immunity under Article 289 vis-iI-vis State Government undertaking- Assessee is a company, wholly owned by the Government of Maharashtra engaged in construction of residential and commercial structures as well as development of infrastructures and towns - All financial dealings have to be routed through authorizations by the Government- Activity so perfor....
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....ention 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 by the Company as deduction on the ground that it is Capital expenditure. The High Court ultimately held them to be revenue expenditure. Important observations of the Honourable High Court is that mere realization of amount during trading is not determinative as to whether it the amount received is income. This demonstrates that the view of the AO confirmed by the learned CITCA) that amounts received by the appellant is its income before remitting them to the State is incorrect. This submission is without prejudice to the fact that the appellant never received such sums and were paid directly to the State P.D.A/c. 8. The appellant already drew attention to the then existing provisions of Sec.23A of excise Act and also the amended prov....
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....s. 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 in view of right conferred by Constitution of India as already referred to during submissions and supported by the decision in the case of HMT Ltd. 4. The levies made either under the then existing provisions of Sec.23A or the amended provisions of Sec. 4C read with SecAB are not fee or tax but are consideration for conferring the right to carryon the business as held by the Supreme Court in the case of Sheopat Rai, and hence they rightfully belong to the State and are allowing business expenditure. 5. The observations of Supreme Court in the case of APSRTC at para 15 whose extract is already submitted applies squarely to the appellant's case since the levy collected u/s.23A is held to be under entry 8 of list II of Constitution and which is income of the State a....
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....ng 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 it reaches the assessee as per its GO No.614, the learned DR submitted that the power to legislate on a subject in seventh schedule list I of Constitution is different from claiming that income derived from an activity carried out in respect of a subject in this schedule is exempt from income-tax. Thus, while the amendments and statement of objects and reasons of the excise act specify what comes to the government of A.P, it can never be interpreted to mean that these receipts flowing to the government of A.P by whatever name called are exempt from income-tax. While a person can define what its income is but has no authority to imply that this income is also exempt from income-tax. Exclusion from the purview of the income-tax is governed either by constitution itself or by the Income-tax Act itself. The lea....
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....stified 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 that the CIT has dropped the proceedings initiated under 263 of the Act on identical issue, the learned DR submitted that the principles of res judicata will not apply to income-tax proceedings. The learned DR submitted that the decisions on which the assessee relied upon are factually distinguishable hence, would not apply to the facts of the instant case. 18. We have heard the parties and taken note of written submissions, additional written submissions, counters, rejoinder filed by both the sides before us. We have also painstakingly gone through all the materials placed on record including the orders passed by the Revenue authorities. We have also carefully applied our mind to the decisions relied upon by the parties. From contentions raised by the learned AR, it is to be noted that the assessee's claim tha....
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....l. 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 with attainment of the main objects of the Corporation. 20. On a reading of main objects and ancillary objects would make it clear that the assessee is a purely business venture for carrying on the activity of manufacture, purchase import, export of alcohol and other beverages as sellers, dealers and distributors either in bulk or in retail. Articles of association of the assessee corporation mentions it as a private company within the meaning of sec. 3(1)(iii) of the Companies Act and further says that the regulations contained in table A of the first schedule to the companies Act, 1956 in so far as they are applicable to a private company shall apply to assessee to the extent they are not expressly or impliedly excluded by the Articles of association. The article of association further provides that the Board of directors shall manage the affairs of the company. From the memorandum and Article of ....
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....ed. 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 State has appointed the assessee corporation to act as an authority on behalf of the State by vesting such exclusive privilege. Therefore, the assessee having acted as an authority on behalf of the State or as an agent of the state as per sec. 68A of the State Excise Act, the income forms ale of IMFL is the income of the State, hence, cannot be subjected to income-tax in view of restrictions imposed under Article 289(1) of the Constitution of India. It is also the claim of the assessee that privilege fee is nothing but a consideration paid to the Government for conferring a right. In this context, let us examine some of the relevant provisions under the State Excise Law. Sec. 23 of Excise Act provides that instead of any excise duty or fees leviable the government will prescribe privilege fee for grant of exclusive privilege in respect of liquor or any other intoxicant. Section 23A of the Excise Act provi....
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....ons 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 recognised that the provisions of Companies Act, 1956 as applicable to private companies will be applicable to it, the P & L account balance sheet etc., has to be drawn up as per the provisions of the Companies Act, 1956 as well as guidelines of the ICAI in accounting standards. Therefore, it would be logical to conclude that the assessee should have remitted its margin, privilege fee etc., after deducting expenses which also included income tax. Furthermore, when no mechanism has been provided for computing the privilege fee, special privilege fee etc., and admittedly the assessee having not collected privilege fee, special privilege fee etc., separately in the bills, the quantification of such fee is also not possible. In these circumstances, it cannot be claimed as expenditure. 22. The assessee has also claimed that as per sec. 4C of the Excise Act the entire sale proceeds from IMFL is the income of the Gov....
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.... 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 assessee admits that it is not an instrumentality of State and it is distinct from State. If that is the case, then it cannot claim immunity u/s 289(1) of Constitution of India by treating the income of whole sale trade in IMFL as the income of State. It is also a contention of the assessee that the entire sale proceeds goes to the PD account of the State Government before it reaches the assessee, therefore, it cannot be held to be an application of income. In this context, the learned AR has placed reliance on the GOMS No. 614 dated 6-5-2005. A perusal of the aforesaid GOMS, a copy of which is placed at page 153 of the paper book, would show that as per the GOMS, the PD account is to be opened in the name of Director of Distilleries and Breweries of Hyderabad for depositing the sale proceeds of liquor by APBCL. It further states that the Director of Distilleries and Breweries shall issue instructions to a....
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.... 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 the P D Account. In this view of the matter, there cannot be any diversion of income by overriding title. For the same reason, the payment of surplus/margin /privilege fee etc., by whatever name called is only parting of the profit of the assessee corporation to the State. In the circumstances, it cannot be anything else but application of income and therefore not allowable as an expenditure. 25. The learned AR has advanced elaborate arguments with regard to the scope and purport of Article 283 and 284 of the Constitution of India to impress upon the fact that though PD account is also a part of consolidated fund of State but article 284 of the Constitution makes a distinction between the deposits of funds into PD account not to be in nature of revenues and Article 283 of the Constitution governs utilisation of such funds into PD account. The assessee has relied upon the decision of Hon'ble Supreme Court in ....
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....t 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 Ltd. (350 ITR 1) and decision of Income-tax Appellate Tribunal, Chennai Bench in case of Tamilnadu State Marketing Corporation vs. ACIT in ITA 962/Mds/2010 dated 18-9-2012. Though we have gone through the decisions carefully but we do not feel it necessary to deal with them exhaustively in this order as we found them to be factually distinguishable. It is a fact that section 23A and 23B of the Excise Act which were governing the field during the relevant period never said that the privilege fee and special privilege etc., to be remitted to the government is the income of the government. Section 4C introduced to the Excise Act by way of an amendment in the year 2012 provides that the privilege fee and special privilege fee etc., paid to the government account since 1993 should be deemed to be income of the State. However, by the time this amended provision came to the statute, income has already accrued to the ass....
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....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 dwel ling upon the merits of the contention of the parties we consider it necessary to narrate certain facts. 34.The assessee, APHB was formed under the AP Housing Board Act, 1956 of the state legislature. The main object of formation of the APHB as set out in the preamble of the APHB Act, 1956 is to take such measures, to make such schemes, and to carry out such works as are necessary for the purpose of deal ing with and satisfying the need of housing accommodation. The activity of the assessee is to construct housing projects on land provided by the state Government or acquired by it and sale it to people belonging to different income groups. The assessee recognises income generated from the activity of sale of houses and also maintains regular books of account wherein such transactions are recorded. The assessee's accounts are also subject to statutory audit under the provisions of the IT Act. It is also a fact that f....
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.... 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 and functions under supervision, control and direction of the state Government. It is an instrumental ity of the state for carrying out Government functions and as such is an extended arm of the Government and not a separate independent entity which can be subjected to tax. 2. The state Government exercises pervasive control over the Board under the terms of the statute, hence, it cannot be regarded as an independent and autonomous body. 3. The Board is empowered with statutory power to acquire land, evict any person from the premises, fol lowing the procedure laid down in the Act, and recover rent or damages from such person. Exercise of such statutory power is indicative of the fact that the Board is discharging sovereign function which is inconsistent with profit making venture in the nature of trade or business. 4. The assessee is used as an instrument by the state for resource mobilization for which land is allotted for exploiting comme....
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....s 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 is the contention of the learned counsel that the state Government exercises pervasive control and the Board as such is not an independent autonomous body but is an extended arm of the state Government. It is the submission of the learned counsel that the income of the Board therefore, in effect, is the income of the State Government, hence, for that reason immune from taxation under Article 289(1) of the Constitution of India. 38. All the aforesaid contentions raised by the learned counsel has been dealt with and answered by the Hon'ble Supreme Court in case of APSRTC V/s. ITO, 52 ITR 524. The Hon'ble Supreme Court while affirming the decision of the Hon'ble AP High Court examined the provisions of APSRTC Act vis-à-vis Article 289 of the Constitution of India and held that the income of the APSRTC cannot be held to be the income of the State Government as APSRTC has its own identity and distinct from the Government. The Hon'ble Supreme Court anlaysing the three clauses of Article 289 of Constit....
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....nd 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 the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the from which the organization has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. Section 28 which provides for the payment of interest clearly brings out the dualty between the corporation on the one hand and the State and Central Governments on the other. Take, for instance, the case of supersession of the corporation authorized by section 38. Section 38(2)(c) emphatically brings out the fact that the property really vests in the corporation, because it provides that during the period of supersession, it shall vest in the State Government. Similarly, section 39(2) which deals with the distribution of assets in case of liquidation, brings out the same feature. It has been urged before us by the Advocate-General that section 30 contemplates that after provisions is made as required by section 28 and 29 and funds are utilized as prescribed b....
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....n 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 property both movable and immovable and to contract and do all things necessary for the purposes of the Act. Sub-section (3) of section 3 of the Act provides that the Board shall be deemed to be a local authority for the purposes of Land Acquisition Act, 1894. The Constitution of the Board shall be as per section 4 of the APHB Act. As per the aforesaid provision, the Board shall be constituted of members, who are not only Government officials but also representative of the financial institution providing financial assistance to the Board. Sections 5 to 12 deal with the terms of office and conditions of service of the members, fi ling up vacancies, appointment of committees, meeting of the board etc. Section 13 of the Act empowers the Board to enter into and perform al l such contracts as it may consider necessary or expedient for carrying out any of the purposes of the Act. Section 14 of the Act provides that every contract shall be made on behalf of the Board by the Vice Chairman and Housing Commission. However, amendment was made by Act No. 12 of 2....
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....certainly cannot be equated with the Government or a department of the Government as it does not perform any of the duties of the Government or a Government department. It is quite obvious that the Board is a statutory body performing statutory functions distinct from the state Government. It may be a fact that the state Government exercises some amount of control over the functioning of the Board similar to control exercised over all other government corporation and public sector undertakings but that does not take away the independent identity or character of the Board. Therefore, it cannot be said that the income of the assessee Board is the income of the state Government. In case of Vidarbha Housing Board V/s. ITO (supra), the Hon'ble Bombay High Court after interpreting the provisions of the MP Housing Board Act, 1950, which are akin to the provisions in APHB Act, vis-à-vis the assessee's claim of immunity under Article 289(1) of the Constitution of India held as under: "13. In our view, though it is true that the State has undoubtedly an obligation to promote the welfare of its citizens and providing housing accommodation would be one of the welfare activities of the....
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.... an inference which would favour or support the petitioner's contention. In fact, the provision contained in section 3(3) is a deeming provision which implies that but for the said provision the board would be not a local authority, and what is more, it has been declared local authority for the purposes of certain enactment, namely, the Land Acquisition Act, which only facilitates acquisition of properties for the board. The features that the board as a corporate body has no power to raise share capital or that its activities are not of trading or commercial nature or that the element of profit-making is absent may have some relevance on the point whether its income will attract exemption under section 4(3)(i) of the 1922 Act, but from these features no inference could be drawn that the board is a mere department of the State Government or its agent. It is true that under the Act the board while discharging its functions does so under the general supervision and control of the State Government but that by itself cannot lead to the necessary inference that the board is a department or agent of the State Government. As against this, there are several provisions in the Act which s....
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....nt or was merely as agent undertaking the activities for and on behalf of the State Government, it was utterly unnecessary to make the provision of the type indicated above. The very fact that provision has been made in section 40(2)(a) that upon the dissolution of the board all properties funds and dues recoverable by the board shall vest in the Government clearly shows that the board is a distinct entity and is not an agent or a department of the State Government. Similarly, section 40(2)(b) is further indication in the same direction. It provides that all liabilities enforceable against the board shall be enforceable against the State Government but only to the extent of the properties, funds and dues vested in and realised by the State Government. In other words, upon the dissolution of the board if the board is found to have created liability in excess of its assets or properties and funds which shall vest in the State Government, then the State Government is not responsible for such excess liabilities incurred by the board. If the board were merely acting as a department of the State Government or as an agent of the State Government, then the State Government would have been ....
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....ase there were provisions of that Act which showed that the bulk of the capital necessary for the establishment of the corporation had been contributed by the State Government, a small portion by the Central Government and a few shares were held by some individuals; the provisions of the Act also indicated that the activity of the corporation was controlled by the State and in particular there was a provision to be found in section 30 of the Act for making over surplus receipts to the State Government after disbursements indicated in sections 28 and 29 had been made and, notwithstanding these features, which emerged from the provisions of the Road Transport Corporations Act, 1950, the Supreme Court took the view that the other features emerging from the examination of the other provisions of the Act showed that the Andhra Pradesh State Road Transport Corporation was a distinct statutory corporation and the property and income thereof were not the property and the income of the State Government and as such the immunity from Union taxation under article 289(1) of the Constitution could not be claimed by that corporation. It is true that some distinguishing features would be noticed i....
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....ate legal entity distinct from the State Government, and, therefore, the income and property of the board could not be regarded as the income and the property of the State Government. In other words, the relevant provisions concerning a particular entity established under a particular enactment would have to be considered for deciding the question and, in our view, as stated earlier, the provisions of the Madhya Pradesh Housing Board Act, 1950, clearly indicate that the board, its property and income cannot be regarded as property and income of the State Government. In this view of the matter, we feel that the principle enunciated in the Supreme Court's decision in the case of Andhra Pradesh State Road Transport Corporation, would be applicable to the instant case before us and on an analysis of the provisions of the concerned Act before us, we have come to the conclusion that the property and income of the board is not the property and income of the State Government. Mr. Thakar's contention, therefore, must fail." 44. Facts being identical, the ratio laid down as above clearly applies to the assessee. The assessee's contention that the income of the Board cannot be subje....
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....eclaring income and claiming deduction u/s 80-IB of the Act. Deduction u/s 80-IB can only be claimed by an assessee who is an industrial undertaking having income from profits and gains from business specified therein. Therefore, assessee's own conduct goes to show that the income from housing projects were treated as business by the assessee. The assessee has not revised this stand by filing any revised return. Only after the amendment was made to the APHB Act in the year 2010, the assessee came forward with a claim that its income is the income of the state Government therefore immune from income-tax Act in view of the Article 289(1) of the Constitution of India. As has been held by the Hon'ble Supreme Court in case of APSRTC V/s. ITO (supra) which was subsequently approved by the Constitution Bench decision of the Hon'ble Supreme Court in case of New Delhi Municipal Council V/s. State of Punjab [1997] 7 SCC 339 and followed by the Hon'ble Bombay High Court in case of Vidarbha Housing Board V/s. ITO (supra), immunity under Article 289 of the Constitution is subject to fulfillment of the conditions laid down in sub-clauses (1), (2) & (3) of Article 289 which are interrelated. As....
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....the Hon'ble Supreme Court was not considering the issue whether income of the Board is the income of the State Government. On the other hand, the decision of the Hon'ble Supreme Court in case of APSRTC Vs. ITO (supra) and of the Hon'ble Bombay High Court in case of Vidarbha Housing Board Vs. ITO (supra) are directly on the issue. In aforesaid view of the matter, we hold that assessee's income cannot be held to be the income of the state and as such cannot be exempt from taxation under Article 289 of the Constitution of India. As a corollary the income earned is the income of the assessee board and as such is assessable at its hands only. 47. Diversion of Income by Overriding Title The assessee in his written submissions has also taken the plea that there being diversion of income by overriding title the income cannot be taxed at the hands of the assessee. In this regard, the assessee has submitted as under: "In the written submission of the original grounds, as also in the written submissions in the additional grounds, the appellant had argued that the income of APHB is diverted to the government of Andhra Pradesh by overriding title and is never a part of its taxable income. T....
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....by the above principle considered by the court. The CIT(A) should not have ignored the importance of these rulings on the plea taken by the appellant on the issue of diversion of income by overriding title." 48. The learned Departmental Representative has submitted that there is no diversion of income by overriding title as the income has already accrued to the assessee board and after meeting its expenditure whatever surplus revenue remains is transferred to consolidated fund of the State Government of AP. Therefore, it is only an application of income after its accrual to the assessee. 49. We have considered the submissions of both the parties on this issue. From the facts on record, it is quite obvious that the income accrues to the assessee. Section 58(4) of APHB Act is very clear on this aspect, which reads as under: "All moneys received by or on behalf of the Board by virtue of this Act, all proceeds of land or any other kind of property sold by the Board, all rents, betterment charges and all interest, profits and other moneys accruing to the Board shall constitute the fund of the Board." 50. It may be a fact that by the operation of section 58(7) or by way of Govern....
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....sessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." 52. The same principle has also been reiterated in other decisions relied upon by the assessee. Therefore, considering the principles laid down in the aforesaid decision the assessee having diverted a part of the income after it has accrued to it the diversion of such income can only be considered to be an application of income and not diversion of income by overriding title. Therefore, we are unable to accept the contention of the assessee, which is accordingly rejected. In the result, this issue is decided against the assessee. 53. The next issue is with regard to disallowance of infrastructure expenditure amounting to Rs. 1180 crores. This issue is common to assessment years 2006-07 and 2008-09. 54. The assessee in its written submissions has submitted as under: "The CIT(A) was not justified in holding that the expenditure in question was not an allowable business expenditure. Under Govt. order, APHB had remitted Rs. 1180 crores to A.P. State Housing Corporation who was to provide infrastructure facilities on the land assigned to the ....
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....infrastructure. It is the ultimate decision making authority as to which agency is to execute which work for this purpose. The State Government, in its wisdom, had decided that certain housing infrastructure facilities are to be developed by A.P. State Housing Corporation, and that the appellant would transfer the stipulated amount to the Corporation for this purpose. Therefore, the purpose for which the amount is to be spent is very much connected with the activities undertaken by the appellant. In Lakshmiji Sugar Mills Co. P. Ltd. vs. CIT (1971) 82 ITR 376 (SC), the assessee was a private company, carrying on the business of manufacturing and sale of sugar, paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugarcane producing centres and the sugar factories of the assessee. This expenditure was incurred under an obligation to make the aforesaid contribution under the provisions of U'P. Sugarcane Regulation of Supply and Purchase Act, 1953. The roads remained the property of the Government and there was no finding that the assessee would get an enduring benefit from those roads. The S....
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....s laid out to protect its business as an ongoing entity and to avoid possible protracted litigation. The Tribunal held that the assessee had business reasons to participate in a scheme framed by the High Court to make contributions for this social cause. Therefore, the entire expenditure incurred was deductible. In view of these rulings, the appellant would submit that the amount paid to A.P. State Housing Corporation was not capital, but revenue expenditure. The CIT(A) had observed that the amount paid to A.P. State Housing Corporation was application of income and the order of the State Government was not a legal charge. The appellant would submit that section 79(1) of the A.P. Housing Board Act provides that the Government may give the appellant such direction as and when necessary or expedient for carrying on the purposes of this Act. Therefore, such direction had statutory force. The appellant would not have been able to continue its activities lawfully without obeying the order of the State Government to pay the amount to A.P. State Housing Corporation. In this context, the appellant would cite the following observation of the Gujarat High Court in U.K. Acharya vs. State ....
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....holly for the purpose of its business under section 37 of l.T. Act. This expenditure is definitely a charge on income and not an application of income as held by the CIT(A). In case of application of income, there is discretion with the person making the payment as to pay it or otherwise, whereas in case of obligatory or compulsory payment the same has to be charge on income. In the instant case, the payment by the appellant to A.P. State Housing Corporation as per the order of Government was nothing but statutory obligation in nature flowing from section 79(1) of A.P.H.B. Act. This expenditure is also in the nature of diversion of income by overriding title. The Government of A.P. through its Govt. Order required the appellant to treat the amount paid to A.P. State Housing Corporation as its expenditure. This further shows that the appellant had no discretion in retaining the amount and there was legal compulsion in diverting the amount to A.P. State Housing Corporation. The infrastructure expenditure incurred by the appellant is clearly an allowable expenditure on two grounds; one is on commercial expediency and second being of legal impost by virtue of Govt. order. The Hon&#....
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.... Rs. 400 crore in December by leveraging land allotted to it. At page 55-56 of the appeal order, the CIT(A) has extracted GORT No.432 of Government of Andhra Pradesh. At paragraph 2 to 4 in this, it is mentioned that land has been allotted to APHB for which it has to pay the land value to the Government, which will bear the cost of infrastructure. In the event of shortfall, the Government will allot additional land. The significance of these have been missed out by the CIT(A) for the simple reason that his discussion and conclusion have been copied from an order passed in 2009. ii. At paragraph 6.20, the CIT(A) has stated that the appellant had argued that it is a local authority. In the submissions made by the appellant for the A.Y. 2008-09, there was no such pleading. This observation and elaborate discussion along with citations of rulings on what constitutes a local authority by the CIT(A) have found place in the order only because several paragraphs have been copied from the earlier order dated 30.10.2009 of the CIT(A) for the A.Y. 2006-07. iii. The appellant has made submissions on allowability of deduction under section 80-1B. Without considering the same, the CIT(A) has....
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....is to be examined whether there is any nexus between the main activity of the assessee and the expenditure in question. It was further held by the CIT(A) referring to various govt orders, as per which according to the claim of the assessee an amount of Rs. 1180 crores was transferred to AP State Housing Corporation, that the main objective of the APHB to make and implement schemes for providing of housing accommodation is by selling the houses to prospective buyers at the market rate. For this purpose, it acquires lands, develops and sales houses build on those lands. The govt. orders directing transfer of funds to AP State Housing Corporation is only an administrative instruction and no legal charge is created. Therefore, the amount transferred since does not fall within the category of taxes, cess, or legal charges they cannot be considered as expenditure. It was further held by the CIT(A) that there is no nexus between the amount paid by the assessee to the state govt and the actual activity of the assessee. It was further observed that the assessee has also not proved that the payment has been for business expediency. 56. On considering the submissions of the parties in the l....
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....ment for the impugned assessment year. This contention of the assessee is not acceptable as principles of res judicata do not strictly apply to the income-tax proceedings. Even otherwise also as can be seen from facts on record, the CIT has revised the assessment order by invoking his powers u/s 263 of the Act for the assessment year 2006-07. Therefore, the assessee's contention that proceedings initiated u/s 263 for the assessment year 2001-02 having been dropped, different view can be taken is not acceptable. It was also contended by the learned AR that the Tribunal had remitted the matter back to the CIT (A) for a limited purpose of examining the amendments made to Excise Act by inserting new provisions 4A, 4B and 4C. therefore the CIT (A) is not competent to go into the other aspects of application of income and disallowance of expenditure as the Tribunal has rejected such findings of CIT (A). On a perusal of the order passed by the Tribunal while remanding the matter back to the CIT (A), it is to be noted that the Tribunal has directed the CIT (A) to decide the matter de novo after taking into consideration the amendments made to the Excise Act. Nowhere the Tribunal has made a....