TaxTMI 
TaxTMI 
2019 (10) TMI 1067
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....follows: "In the above appeal pending before the Income Tax Appellate Tribunal, one of the issues is disallowance of surcharge on sales tax under section 40(a)(iib). Among other arguments, the Appellant had submitted that levy of surcharge has not been levied exclusively on the Appellant as is required u/s. 40(a)(iib). In the course of appeal hearings, the Tribunal directed the Appellant to file evidence to show that other Assessees dealing in liquor have also paid Surcharge on Sales Tax. In that connection. the Appellant would like to submit the following documents evidencing payment of Surcharge on Sales Tax under Kerala Surcharge on Taxes Act, 1957 and Turnover Tax u/s. 5(2)(b) of the Kerala General Sales Tax Act, 1963. Sl. No. Name of Assessee Page No. 1. Muthoot Hotels Pvt. Ltd., Vivanta by Taj 1-11 2. M/s. Hotel Vivanta by Taj Vazhuthacaud 12-22 3. Vivanta By Taj Green Cove, Kovalam 23-26 4. MPD Hotels and Infrastructures Pvt. Ltd. 27-28 5. Malayalam Industries, Vytilla 29-31 6. M/s. Vivanta by Taj, Taj Malabar 32-33 As this goes to the root of the matter, it is prayed that the Income Tax Appella....
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....taining some benefits or rights or license by the State Government in connection with conduct of business. For example, Royalty for grant of mining rights, Privilege Fees for grant of license for distribution of Liquor etc. Therefore, it was submitted that the expenditure contemplated in section 40(a)(iib) are payments/expenditure incurred in connection with rights granted or parted with by the Government in favour of the assessee for the purpose of the asessee carrying on his business i.e in exchange for some benefits accruing specifically for the assessee and there is an element of Quid Pro Quo in payments. 4.2 The Ld. AR submitted that AO and CIT(A) had extended the type of expenditure mentioned in sec. 40(a)(iib) to cover Surcharge on Sales Tax also, on account of the phrase "by whatever name called" used in the section. According to them, Surcharge on Tax is also to be categorized along with and treated on par with royalty, license fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called. It was submitted that for extending the meaning to expenditure other than those specified in the section on the basis of the phrase "by any oth....
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....viduals by some governmental agency. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is a payment for a special benefit or privilege." 4.4 Thus, it was submitted that tax is a compulsory payment levied by the government on its citizens and various business firms. As payment of tax is compulsory, refusal to pay tax invites punishment. There is no direct quid pro quo relationship between the taxpayer and the tax-levying authority. A taxpayer cannot demand any reciprocal benefits for paying taxes. According to the Ld. AR, a fee is a voluntary payment to the government for the special services rendered by it in the public interest, but conferring a specific advantage on the person paying it and fee is payable only when a benefit is conferred/ agreed to be conferred, on the payer. It was submitted that the provisions of sec 40(a)(iib), which refer to various fees payable in connection with rights granted/parted with by the Government cannot be extended by applying the principle of ejusdem Generis to taxes. They are totally different in nature, character and application and source of the right to ....
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....fied in the Schedules. Apart from the assessee, there are other entities which retail IMFL and which pay surcharge on sale of liquor to their clients/ members, under the Kerala Surcharges Act. Thus, it was submitted that surcharge on sales tax and turnover tax is part of the KGST (Sec. 5(2). Surcharge and turnover tax cannot therefore be considered as a levy specifically on State Government Undertakings as others also pay sales tax, surcharge on sales tax and turnover tax under the respective Acts. 4.7 It was submitted that as directed by the Tribunal, sample returns of some of the hotels which are dealing in liquor which is liable to pay turnover tax and surcharge on sales tax, have been submitted which show that surcharge and turnover tax have been levied and paid by them in connection with sale of liquor (items in Sch IV of the VAT Act, which are excluded from VAT and included in KGST which clearly shows that surcharge and turnover tax are not levied exclusively on the assessee alone but are levied on other persons who are dealing in liquor to whom sec 5(1) of KGST applies. It was submitted that the character of Surcharge on Sales Tax would not change merely because it is ....
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....vy is on the different types of License holders without reference to whom or how many persons, may have been granted that type of License. Individual holders of the license may vary, but the levy is constant for all such License holders and such a common levy on sale of goods applicable to all sellers cannot be considered as an appropriation in the case of assessee alone. Surcharge on sales Tax is part of the sales tax and when sales tax is not disallowed under this section, surcharge on sales tax cannot be considered as appropriation to be disallowed under this section. The Ld. AR submitted that when surcharge on sales tax is considered as part of sales tax and allowed as a charge (deduction) against profits in all other cases of sellers dealing in foreign liquor, the same cannot be considered as an appropriation in the case of State Government Undertakings. Character of levy, which is applicable to all sellers as a deduction against profits, does not change to one seller alone and become an appropriation. Thus, it was submitted that surcharge on sales tax payable by the assessee is part of sales tax and it is neither in the nature of royalty, licence fee, service fee, privilege f....
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....&M) Corporation Ltd. The enactment of distinct legislations fundamentally points to the levy and charging of independent taxes. The contention that surcharge is subsumed by sales tax is unacceptable. The incidence of surcharge and sales tax are wholly different and the tax-base, being the classes of tax payers for both the levies is different. 5.1 The Ld. DR submitted that the intention of the State Government is to apportion the profits from State Government undertaking BEVCO by bringing in colourable devices like Surcharge, which is not tantamount to tax. Hence, the principle of ejusdim generis does not arise. Thus, according to the Ld. DR, Section 40(a)(iib) is very much applicable in the case of assessee, especially limb 2 by which amount is being appropriated directly or indirectly from a State Government undertaking by the State Government from trading in liquor as Surcharge or by any other name. According to the Ld. DR, the assessee company is the only company holding FL 9 license under the Abkari Act as detailed in the website of Kerala State Excise Department. It was submitted that the Government of Kerala has granted the license solely to the assessee. Hence, the Ld. D....
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....sions of Finance Act of CBDT dated 24.01.2014; The relevant excerpts of read as follows: "..Disputes have arisen in respect of income-tax assessment of some State Government undertakings as to whether any sum paid by way of privilege fee, license fee, royalty, etc. levied or charged by the State Government exclusively on its undertakings are deductible or not for the purpose of computation of income of such undertakings. In some cases orders have been issued to the effect that surplus arising to such undertakings shall vest with the State Government. As a result, it has been claimed that such income by way of surplus is not subject to tax. It is a settled law that State Government undertakings are separate legal entities than the State are liable to incometax. Hence, in order to protect the tax base of the State Government undertakings vis-a-vis exclusive levy of fees, charge, etc. Or appropriation of amount by the State Governments from its undertakings, Section 40 of the Income-tax Act was amended to provide that any amount paid by way of fee, charge, etc., which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Governmen....
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.... per cent, and the provisions of the Kerala General Sales Tax Act, 1963 shall apply in relation to the said surcharge as they apply in relation to the tax payable under the said Act".] Provided that where in respect of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956 the tax payable by such dealer under [the Kerala General Sales-Tax Act, 1963] together with the surcharge payable under this sub-section, exceeds [four per centum] of the sale or purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed [four per centum] of the sale or purchase price. (2) Notwithstanding anything contained [in sub-section (1) of section 22 of the Kerala General Sales Tax Act, 1963] no dealer referred to in sub-section (1) shall be entitled to collect the surcharge payable under the said subsection. ["(3) Any dealer who collects the surcharge payable under sub-section (1) in contravention of the provision of sub-section (2) shall be punishable with fine which may extent to one thousand rupees and no court below the rank of a Magistrate of the ....
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....he said Act shall be transferred to the Government by such local authority and the same shall vest in the Government free of all trusts, liabilities and encumbrances. Thereupon it shall be competent for the Government to utilize the said fund in such manner as they may deem fit. 6. We have heard the rival submissions and perused the record. The first contention of the Ld. AR is that expenditure mentioned in section 40(a)(iib) covers only expenditure which is incurred in consideration of obtaining some benefits or rights or license by the State Government in connection with conduct of business. In other words, it covers the expenditure incurred in connection with rights granted or parted with by the Government in favour of the assessee for the purpose of carrying on the business of the assessee. There should be an element of quid pro quo in payments. According to the ld. AR, payments incurred by way of surcharge is only a statutory payment and it is not covered by section 40(a)(iib) of the Act. In our opinion, the assessee has been granted FL 9 license under the Abkari Act and the assessee is liable to pay surcharge to the State Government. This surcharge is exclusively levied on....
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....o sales tax. This argument of the Ld. AR is rejected. 6.2 The next argument of the Ld. AR is that surcharge is not exclusively levied by State Government on the assessee. Hence, it cannot come under the purview of section 40(a)(iib) of the Act. In our opinion, FL 9 license under the Abkari Act was exclusively given to the assessee and no other undertaking has been granted such license. Being so, it is exclusively levied on the assessee. This argument of the Ld. AR is rejected. 6.3 The next argument of the assessee's Counsel is that surcharge is charged to the P&L account and not to the appropriation of P&L account. His argument is that it cannot be considered as appropriation of profit so as to attract the second limb of section 40(a)(iib) of the Act. In our opinion, it is a flow back of the profits of the assessee by way of payment of surcharge to the government account which is nothing but a colourable device used by the State Government so as to reduce the taxable profits of the assessee. Thus, it amounts to appropriation of the profits of the assessee directly or indirectly to the State Government. The word 'appropriation' used in section 40(a)(iib) of the Act does not me....