KERALA STATE BEVERAGES MANUFACTURING & MARKETING CORPORATION LTD. versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1) on 3 January 2022

KERALA STATE BEVERAGES MANUFACTURING &MARKETING CORPORATION LTD.

v.

THE ASSISTANT COMMISSIONER OF INCOME TAXCIRCLE 1(1)

(Civil Appeal No. 11 of 2022)

JANUARY 03, 2022

[R. SUBHASH REDDY AND HRISHIKESH ROY, JJ.]

Income Tax Act, 1961: s.40(a)(iib) – Purpose of amendmentof Income Tax Act by Act 17 of 2013, by which s.40(a)(iib)(A), (B)is inserted – Held: The said amendment is made to plug the possiblediversion or shifting of profits from state owned undertakings intoState’s treasury – In view of s.40(a)(iib) of the Act any amount,which is levied exclusively on the State owned undertaking (KSBCin the instant case), cannot be claimed as a deduction in the booksof State owned undertaking, thus same is liable to income tax – It isfairly well settled that the interpretation is to be in the manner whichwill subserve and promote the object and intention behind thelegislation – If it is not interpreted in the manner as aforesaid itwould defeat the very intention of the legislation – To defeat thesaid provision, the State Governments may issue licences to morethan one State owned undertakings and may ultimately say it is notan exclusive undertaking and therefore s.40(a)(iib) is not attracted– Abkari Act, 1902 – Constitution of India – Art.289.

Income Tax Act, 1961: s.40(a)(iib) – Gallonage fee, licencefee and shop rental (kist) with respect to FL-9 and FL-1 licencessquarely fall within the purview of s.40(a)(iib) of the Act .

Income Tax Act, 1961: s.40(a)(iib) – ‘fee’ or ‘charge’ asmentioned in s.40(a)(iib) – Held: It will take in only ‘fee’ or ‘charge’as mentioned therein or any fee or charge by whatever name called,but cannot cover tax or surcharge on tax – Surcharge on sales taxis nothing but an increase of the basic sales tax levied under s.5(1)of the KGST Act, as such the surcharge is nothing but a sales tax –It is nothing but the enhancement of the tax – It falls outside thepurview of s.40(a)(iib)(A) and s.40(a)(iib) (B) of the Act – Samereason shall apply to the turnover tax also – As such turnover tax is

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Aalso outside the purview of s.40(a)(iib)(A) and s.40(a)(iib)(B) ofthe Act.

Income Tax Act, 1961: s.40(a)(i), 40(a)(ia), 40(a)(iib),40(a)(ic) – Wherever the Parliament intended to cover the tax, itspecifically mentioned as a tax – s.40(a)(i) and s.40(a)(ia)Bspecifically relate to tax related items – s.40(a)(ic) refers to a sumpaid on account of fringe benefit tax – At the same time, s.40(a)(iib)refers to royalty, licence fee, service fee, privilege fee or any otherfee or charge – If these words are considered to include a tax orsurcharge like sales tax, the distinction so carefully spelt out in s.40between a tax and a fee will be obliterated and rendered meaninglessC– It is settled principle of interpretation that where the same Statute,uses different terms and expressions, then it is clear that Legislatureis referring to distinct and different things.

Disposing of the appeals, the Court

Disposing of the appeals, the Court

DHeld: 1. Section 40 of the Income tax Act, 1961 is aprovision which deals with the amounts which are not deductiblewhile computing the income chargeable under the head ‘Profitsand gains of business or profession’. Section 40 of the Act isamended in the year 2013, and 40(a)(iib) is inserted by AmendingAct 17 of 2013, which has come into force from 01.04.2014. InEterms of Article 289 of the Constitution of India, the propertyand income of a State shall be exempt from Union taxation.Therefore, in terms of Article 289, the Union is prevented fromtaxing the States on its income and property. It is the constitutionalprotection granted to the States in terms of the above said Article.FThis protection has led the States in shifting income/ profits fromthe State Government Undertakings into Consolidated Fund ofthe respective States to have a protection under Article 289. Inthe instant case the KSBC, a State Government Undertaking, isa company like any other commercial entity, which is engaged inthe business and trade like any other business entity for theGpurpose of wholesale and retail business in liquor. As much asthese kind of undertakings are under the control of the States asthe total shareholding or in some cases majority of shareholding,is held by States. As such they exercise control over it and shiftthe profits by appropriating whole of the surplus or a part of it toH

KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.COMMISSIONER OF INCOME TAX CIRCLE 1(1)

the Government by way of fees, taxes or similar suchappropriations. From the relevant Memorandum to the FinanceAct, 2013 and underlying object for amendment of Income TaxAct by Act 17 of 2013, by which Section 40(a)(iib)(A)(B) is inserted,it is clear that the said amendment is made to plug the possiblediversion or shifting of profits from these undertakings into State’streasury. In view of Section 40(a)(iib) of the Act any amount, asindicated, which is levied exclusively on the State ownedundertaking (KSBC in the instant case), cannot be claimed as adeduction in the books of State owned undertaking, thus same isliable to income tax. [Para 13][121-D-H; 122-A-B]

2. In the instant case the gallonage fee, licence fee, shoprental (kist), surcharge and turnover tax are the amounts of whichassessee claims that they are not attracted by Section 40(a)(iib)of the Act. On the other hand it is the case of the respondent/revenue that all the said components attract the ingredients ofSection 40(a) (iib)(A) or Section 40(a)(iib)(B), as such they arenot deductible. Broadly these levies can be divided into threecategories. Gallonage fee, licence fee and shop rental (kist) arein the nature of fee imposed under the Abkari Act of 1902. Theseare the fees payable for the licences issued under FL-9 and FL-1. In the impugned order, the High Court has held that thegallonage fee, licence fee and shop rental (kist) with respect toFL-9 licence are not deductible, as it is an exclusive levy on theCorporation. Further a distinction is drawn between FL-1 licenceand FL-9 licence, to apply Section 40(a)(iib), only on the groundthat, FL-1 licences are issued not only to the appellant/KSBCbut also issued to one other Government Undertaking, i.e., KeralaState Cooperatives Consumers’ Federation Ltd. High Court hasheld that as there is no other player holding licences under FL-9like KSBC as such the word ‘exclusivity’ used in Section 40(a)(iib)attract such amounts. At the same time only on the ground thatFL-1 licences are issued not only to the KSBC but also to KeralaState Co-operatives Consumers’ Federation Ltd., High Court hasheld that exclusivity is lost so as to apply the provision underSection 40(a)(iib). If the amended provision under Section 40(a)(iib) is to be read in the manner, as interpreted by the High Court,

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Ait will literally defeat the very purpose and intention behind theamendment. The aspect of exclusivity under Section 40(a)(iib) isnot to be considered with a narrow interpretation, which will defeatthe very intention of Legislature, only on the ground that thereis yet another player, viz., Kerala State Cooperatives Consumers’Federation Ltd. which is also granted licence under FL1. TheBaspect of ‘exclusivity’ under Section 40(a)(iib) has to be viewedfrom the nature of undertaking on which levy is imposed and noton the number of undertakings on which the levy is imposed. Ifthis aspect of exclusivity is viewed from the nature of undertaking,in this particular case, both KSBC and Kerala State CooperativesCConsumers’ Federation Ltd. are undertakings of the State ofKerala, therefore, levy is an exclusive levy on the StateGovernment Undertakings. Therefore, that any otherinterpretation would defeat the very object behind the amendmentto Income Tax Act, 1961. [Para 14][122-B-H; 123-A]

D2. It is fairly well settled that the interpretation is to be inthe manner which will subserve and promote the object andintention behind the legislation. If it is not interpreted in themanner as aforesaid it would defeat the very intention of thelegislation. To defeat the said provision, the State Governmentsmay issue licences to more than one State owned undertakingsEand may ultimately say it is not an exclusive undertaking andtherefore Section 40(a)(iib) is not attracted. The submission forthe appellant is that the gallonage fee, licence fee and the shoprental (kist) are the levies under the Abkari Act on all the licenceholders, as such it cannot be said that same is an exclusive levy Fon the appellant/KSBC. It is submitted that because of the AbkariPolicy in particular year, licences are issued in favour of theappellant – State owned Undertaking, as such it cannot be saidthat the statutory levies under the Abkari Act are on the StateGovernment Undertaking and such levies are only on thelicensees but not on the State-owned Undertakings like KSBC.GThe said submission cannot be accepted for the reason that byvirtue of licence which is granted in favour of State-ownedUndertaking, the statutory fees etc., viz., gallonage fees, licencefee and shop rental (kist) are payable by the appellant-Undertaking, i.e., KSBC. Once the State GovernmentH

KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.COMMISSIONER OF INCOME TAX CIRCLE 1(1)

Undertaking takes licence, the statutory levies referred aboveare on the Government Undertaking because it is grantedlicences. Therefore, the finding of the High Court that gallonagefee, licence fee and shop rental (kist) so far as FL-1 licences areconcerned, is not attracted by Section 40(a)(iib), cannot beaccepted and such finding of the High Court runs contrary toobject and intention behind the legislation. [Para 14.1][123-B-F]

4. Further, because another State GovernmentUndertaking, i.e., Kerala State Co- operatives Consumers’Federation Ltd. was also granted licences during the relevantyears, as such exclusivity mentioned in Section 40(a)(iib) is lost,also cannot be accepted, for the reason that exclusivity is to beconsidered with reference to nature of licence and not on numberof State owned Undertakings. If the interpretation, as held by theHigh Court, is accepted, the legislative intent can be defeated byissuing licences in FL-1 to several State GovernmentUndertakings and then make a contention that exclusivity is lost.Said interpretation runs contrary to the intent of the amendment.[Para 14.2][123-F-H]

5. So far as surcharge on sales tax is concerned, the HighCourt has held in favour of KSBC and against the revenue. Thereasoning of the High Court is that surcharge on sales tax is atax and Section 40(a) (iib) does not contemplate ‘tax’ andsurcharge on sales tax is not a ‘fee’ or a ‘charge’. Therefore,High Court was of the view that surcharge levied on KSBC doesnot attract Section 40(a)(iib) of the Act. The submission of revenuewith regard to surcharge on sales tax is two-fold. One is that thelevy of surcharge on sales tax is also an exclusive levy on KSBC,therefore, attracts Section 40(a)(iib) itself. Secondly, it issubmitted, as an alternative submission that if the same is notcovered by Section 40(a)(iib)(A) it would fall under Section40(a)(iib)(B) of the Act, for the reason that the surcharge on salestax is a tax and tax is a form of appropriation by the State fromKSBC. On the other hand it is the case of the appellant/assesseethat the sales tax is outside the scope of Section 40(a)(iib) andthe surcharge is nothing but is an enhancement of the tax. Byreferring to words used in Section 40(a)(iib), learned counsel AB

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ASri Ganesh has submitted that the said provision is to beinterpreted by applying the doctrine of ejusdem generis. It issubmitted that the words ‘any other fee or charge’ immediatelyfollowing the words ‘royalty, licence fee, service fee, privilegefee, service charge’ relate to such similar charges and none ofthe terms can possibly cover a tax, like sales tax or surcharge onBsales tax. The ‘fee’ or ‘charge’ as mentioned in Section 40(a)(iib)is clear in terms and that will take in only ‘fee’ or ‘charge’ asmentioned therein or any fee or charge by whatever name called,but cannot cover tax or surcharge on tax and such taxes areoutside the scope and ambit of Section 40(a)(iib)(A) and SectionC40(a)(iib)(B) of the Act. [Para 14.3][124-A-G]

6. A reading of preamble and Section 3(1) of the KST Act,make it abundantly clear that the surcharge on sales tax leviedby the said Act is nothing but an increase of the basic sales taxlevied under Section 5(1) of the KGST Act, as such the surchargeDis nothing but a sales tax. It is also settled legal position that asurcharge on a tax is nothing but the enhancement of the tax.[Para 14.4][125-G-H]

7. Further, CBDT itself has issued Circular No.3/2018 as ameasure for reducing litigation, by revision of monetary limitsEfor filing appeals by the Department before the Income TaxAppellate Tribunal, High Courts and SLP/appeals before thisCourt. In the said circular, it is clearly mentioned that forconsidering tax effect it includes applicable surcharge and cess.Same will also strengthen the stand of the assessee. Thus, it isclear that the surcharge which is sought to be levied is nothingFbut the enhancement of sales tax, which is levied under Section5(1) of the KGST Act. When on the basic sales tax paid by KSBCunder Section 5(1)(b) of the KGST Act, deduction was allowed,there is no reason not to allow deduction of surcharge on salestax. If the revenue does not consider Section 40(a)(iib) isGapplicable to the basic sales tax paid by KSBC under Section5(1)(b) of the KGST Act, it is not known how the surcharge onsales tax, which is nothing but the sales tax, can be brought inthe net of Section 40(a) (iib)(A) or 40(a) (iib)(B) of the Act. Furthera clear distinction between ‘fee’ and ‘tax’ is carefully maintained H

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throughout the scheme under Section 40(a) of the Act itself.Wherever the Parliament intended to cover the tax it specificallymentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically relateto tax related items. Section 40(a)(ic) refers to a sum paid onaccount of fringe benefit tax. At the same time, Section 40(a) (iib)refers to royalty, licence fee, service fee, privilege fee or anyother fee or charge. If these words are considered to include atax or surcharge like sales tax, the distinction so carefully speltout in Section 40 between a tax and a fee will be obliterated andrendered meaningless. It is settled principle of interpretationthat where the same Statute, uses different terms and expressions,then it is clear that Legislature is referring to distinct and differentthings. Further turnover tax is also a tax. The very same reasonassigned above for surcharge, equally apply to the turnover taxalso. As such turnover tax is also outside the purview of Section40(a) (iib)(A) and 40(a) (iib)(B). Thus, gallonage fee, licence feeand shop rental (kist) with respect to FL-9 and FL-1 licencesgranted to the appellant will, squarely fall within the purview ofSection 40(a)(iib) of the Income Tax Act, 1961. The surcharge onsales tax and turnover tax, is not a fee or charge coming withinthe scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such sameis not an amount which can be disallowed under the said provisionand disallowance made in this regard is rightly set aside by theHigh Court. [Paras 14.5, 15, 16][126-G-H; 127-A-D; 128-B-D]

DLF Qutab Enclave Complex Educational CharitableTrust v. State of Haryana & Ors. (2003) 5 SCC 622 :[2003] 2 SCR 1; Kailash Nath Agarwal & Ors. v.Pradeshiya Industrial & Investment Corporation of U.P.Ltd.& Anr. (2003) 4 SCC 305 : [2003] 1 SCR 1159;Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001)3 SCC 609 : [2001] 2 SCR 36; C.I.T. v. K. Srinivasan(1972) 4 SCC 526 : [1972] 2 SCR 309; Sarojini TeaCo. Ltd. v. Collector, Dibrugarh (1992) 2 SCC 156 :[1992] 1 SCR 371; Jalkal Vibhag Nagar Nigam & Ors.v Pradeshiya Industrial and Investment Corporation andAnother 2021 SCC OnLine SC 960 – referred to.

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Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No.11 ofC2022.

From the Judgment and Order dated 30.04.2020 of the High Courtof Kerala at Ernakulam in ITA No.135 of 2019

WithD

Civil Appeal Nos. 12, 13 and 14 of 2022.

N. Venkataraman, ASG, S. Ganesh, A. K. Panda, Sr. Advs., AnilD. Nair, Ms. Beena Victor, Ms. Priya, Jogy Scaria, Mrs. Anil Katiyar,Manish Pushkarna, Ms. Preeti Rani, Raj Bahadur Yadav, Advs. for theappearing parties.E

The Judgment of the Court was delivered by

R. SUBHASH REDDY, J.

1. Leave granted.

F2. These appeals are preferred, by the State-owned Undertaking,Kerala State Beverages Manufacturing & Marketing Corporation Ltd.,a company registered under the Companies Act, 1956, engaged in thewholesale and retail trade of beverages, aggrieved by the commonjudgment and order dated 30.04.2020 passed in I.T.A. No.135; 146 and313 of 2019 by the High Court of Kerala at Ernakulam. The Civil AppealGarising out of S.L.P.(C)No.12859 of 2020 is filed by the assessee andother three appeals are preferred by the revenue.

3. For the assessment year 2014-2015, the Deputy Commissionerof Income Tax, Circle-2(1), Thiruvananthapuram finalised the assessmentof income of the appellant under Section 143(3) of the Income-tax Act,H

1961 (in short, ‘the Act’) vide Assessment Order dated 14.12.2016. ThePrincipal Commissioner of Income Tax, Thiruvananthapuram hasexercised power of revision as contemplated under Section 263 of theAct and set aside order of assessment on the ground that same iserroneous and is prejudicial to the interest of the revenue, to the extent itfailed to disallow the debits made in the Profit & Loss Account of theassessee, with respect to the amount of surcharge on sales tax andturnover tax paid to the State Government, which ought to have beendisallowed under Section 40(a)(iib) of the Act. Against order of thePrincipal Commissioner, Income Tax, dated 25.09.2018, the appellantherein filed appeal before the Income Tax Appellate Tribunal (in short,‘the Tribunal’) in ITA No.536/Coch/2018.

4. With respect to Assessment Year 2015-2016 assessment againstthe appellant was completed under Section 143(3) of the Act by theAssistant Commissioner of Income Tax, Circle-1(1),Thiruvananthapuram vide order of assessment dated 28.12.2017. Debitscontained in the Profit & Loss Account of the appellant with respect topayment of gallonage fee, licence fee, shop rental (kist) and surchargeon sales tax, amounting to a total sum of Rs.811,90,88,115/- weredisallowed under Section 40(a)(iib) of the Act. Aggrieved by the saidorder, appellant herein has filed appeal before the Commissioner ofIncome Tax (Appeals), Thiruvananthapuram and the same was dismissed.The appellant carried the matter by way of second appeal before theTribunal in ITA No.537/Coch/2018.

The Tribunal has dismissed the ITA Nos.536-537/Coch/2018 by acommon order dated 12.03.2019. The appellant herein thereafter hasfiled miscellaneous application in MP No.47/Coch/2019 on the groundthat the Tribunal had failed to consider the issue agitated against thedisallowance of the surcharge on sales tax. The said miscellaneousapplication was allowed by recalling earlier order dated 12.03.2019 passedin I.T.A.No.537/Coch/2018 and a fresh order was passed on 11.10.2019,finding the issue against the appellant and dismissing the appeal. Aggrievedby the aforesaid three orders, the appellant herein has filed Income TaxAppeals before the High Court in ITA Nos.135; 146 and 313 of 2019which are disposed, by the common impugned order. In the commonimpugned order passed by the High Court, the question of law raised,was answered partly in favour of the assessee/appellant and partly infavour of the revenue. Para 23 and 24 of the judgment read as under :

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A“23. While summing up the conclusions, we are persuaded toanswer the question of law raised, partly in favour of the revenueand partly in favour of the assessee. We hold that the levy ofGallonage Fee, Licence Fee and Shop Rental (kist) with respectto the FL-9 licences granted to the appellant will clearly fall withinthe purview of Section 40 (a) (iib) and the amount paid in thisBregard is liable to be disallowed. The amount of Gallonage Fee,Licence Fee, or Shop Rental (kist) paid with respect to FL-1licences granted in favour of the appellant, with respect to theretail business in foreign liquor, is not an exclusive levy on theappellant, which is a state government undertaking. ThereforeCthe disallowance made with respect to those amounts cannot besustained. The surcharge on sales tax and turnover tax is not a‘fee or charge’ coming within the scope of Section 40 (a) (iib)and is not an amount which can be disallowed under the saidprovision. Therefore the disallowance made in this regard is liableto be set aside.D

24. In the result the assessment completed against the appellantswith respect to the assessment years 2014-2015, 2015-2016 arehereby set aside. The matter is remitted to the Assessing Officerto pass revised orders, after computing the I.T. Appeal Nos. 135,146 & 313/2019 -32- liability in accordance with the position settledEhereinabove, on affording an opportunity of hearing to the appellant.The needful steps in this regard shall be completed at the earliest,at any rate, within three months from the date of receipt of a copyof this judgment.”

5. For the purpose of disposal, we refer to the parties, as arrayed Fin the appeal filed by Kerala State Beverages Manufacturing &Marketing Corporation Ltd. (KSBC).

6. We have heard Sri S. Ganesh, learned senior advocate for theappellant and Sri N. Venkataraman, learned Additional Solicitor Generalappearing for the respondent.G7. Section 40 of the Income-tax Act, 1961 is the provision dealingwith ‘amounts not deductible’. The amounts as detailed in the Sectionare not deductible, in computing the income chargeable under the head“Profits and gains of business or profession”. By the Finance Act, 2013(Act 17 of 2013), Section 40 of the Act is amended by inserting Section40(a)(iib), which has come into force from 01.04.2014. The said provisionHunder Section 40(a)(iib) reads as under :

“40. Amounts not deductible.- Notwithstanding anythingcontrary in sections 30 to 38, the following amounts shall not bededucted in computing the income chargeable under the head“Profits and gains of business or profession”,- A

(a) in the case of any assessee-

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(iib)any amount -

(A)paid by way of royalty, licence fee, service fee,privilege fee, service charge or any other fee orCcharge, by whatever name called, which is leviedexclusively on; or (B)which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government.

Explanation.-For the purposes of this sub-clause, a StateGovernment undertaking includes- D

(i) a corporation established by or under any Act of theState Government;

(ii) a company in which more than fifty per cent of thepaid-up equity share capital is held by the StateEGovernment;

(iii) a company in which more than fifty per cent of thepaid-up equity share capital is held by the entityreferred to in clause (i) or clause (ii) (whether singlyor taken together); F

(iv) a company or corporation in which the StateGovernment has the right to appoint the majority ofthe directors or to control the management or policydecisions, directly or indirectly, including by virtue ofits shareholding or management rights or shareholdersGagreements or voting agreements or in any othermanner;

(v) an authority, a board or an institution or a bodyestablished or constituted by or under any Act of theState Government or owned or controlled by the StateGovernment;”.

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A8. While it is the case of the assessee/appellant that the gallonagefees, licence fee and shop rental (kist) for FL-9 licence and FL-1 licence,the surcharge on sales tax and turnover tax do not fall within the purviewof the abovesaid amended Section, the case of the revenue is that all theaforesaid amounts are covered under Section 40(a)(iib) as such, suchamounts are not deductible for the purpose of computation of income,Bfor the assessment years 2014-2015 and 2015-2016.

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9. During the assessment years 2014-2015 and 2015-2016 theappellant was holding FL-9 and FL-1 licences to deal in wholesale andretail of, Indian Made Foreign Liquor (IMFL) and Foreign Made ForeignLiquor (FMFL) granted by the Excise Department. FL-9 licence wasCissued to deal in wholesale liquor, which they were selling to FL-1, FL-3,FL-4, 4A, FL-11, FL-12 licence holders. The FL-1 licence was for saleof foreign liquor in sealed bottles, without privilege of consumption withinthe premises. The gallonage fee is payable as per Section 18A of theKerala Abkari Act and Rule 15A of the Foreign Liquor Rules. Theappellant was the only licence holder for the relevant years so far asDFL-9 licence to deal in wholesale, and so far as FL-1 licences areconcerned, it was also granted to one other State owned Undertaking,i.e., Kerala State Co-operatives Consumers’ Federation Ltd.. Byinterpreting the word ‘exclusively’ as worded in Section 40(a)(iib)(A) ofthe Act, High Court in the impugned order has held that the levy ofEgallonage fee, licence fee and shop rental (kist) with respect to FL-9licences granted to the appellant will clearly fall within the purview ofSection 40(a)(iib) of the Act and the amounts paid in this regard is liableto be disallowed. At the same time the amount of gallonage fee, licencefee and shop rental (kist) paid with respect to FL-1 licences granted infavour of the appellant for retail business, the High Court has held that itFis not an exclusive levy, as such disallowance made with respect to thesame cannot be sustained. With regard to surcharge on sales tax andturnover tax, it is held that same is not a ‘fee’ or ‘charge’ within themeaning of Section 40(a)(iib) as such same is not an amount which canbe disallowed under the said provision.G10. Sri Ganesh, learned senior counsel appearing for the appellant G10. Sri Ganesh, learned senior counsel appearing for the appellantby referring to Explanatory Note to the Finance Act, 2013, and Section40(a)(iib) of the Act, has submitted that the levy of gallonage fees, licencefee and shop rental (kist) on FL-9 licence is not on any State GovernmentUndertaking but same is a levy on the licensee. It is submitted that thelevy was on the licence holder whoever he or it might be and only inHview of the Abkari Policy of the relevant years licences were granted to

the appellant as such it cannot be said that same was exclusive levy onthe appellant attracting Section 40(a)(iib) of the Act so as to disallow thesame. It is submitted that the mere fact that in a particular year, thelicence holder happens to be State Government Undertaking does notmake the levy, one, which is imposed directly and exclusively on theState Government Undertaking. It is submitted that High Court has failedto appreciate that the decision as to whom FL-9 licences are to be granted,depends only on the State Government’s Abkari Policy, which may varyfrom year to year. It is submitted that said submission also holds goodwith regard to gallonage fee, licence fee and shop rental for FL-1 licence,which issue is already decided in favour of appellant, by the High Court.With regard to surcharge on sales tax and turnover tax, it is submittedthat taxes levied, are completely outside the ambit of Section 40(a)(iib)of the Act. It is submitted that the Kerala Surcharge on Taxes Act, 1957(for short, ‘KST Act’) is enacted only to increase the taxes, inter alia,on the sale or purchase of goods, as such it is nothing but an incrementto the basic sales tax levied under Section 5(1) of Kerala General SalesTax Act, 1963 (for short, ‘KGST Act’). It is submitted that surcharge onsales tax is nothing but an enhancement of tax itself. In support of thesaid submission, the learned counsel has placed reliance on the judgmentsof this Court in the case of C.I.T. v. K. Srinivasan[1] and in the case ofSarojini Tea Co. Ltd. v. Collector, Dibrugarh[2]. Reference is alsomade on the CBDT Circular No.3/2018 dated 11.07.2018, to buttressthe said submission. Learned counsel, by drawing our attention to thedistinction between ‘fee’ and ‘taxes’ which is maintained throughout thescheme under Section 40(a) has submitted that, the sales tax and turnovertax is outside the scope of Section 40(a)(iib) of the Act. Lastly it issubmitted that for the assessment year 2014-2015, the assessing officerhas allowed deductions in respect of surcharge on sales tax and turnovertax, the Commissioner interfered, in exercise of power of revision underSection 263 of the Act. It is submitted that the view taken by the assessingofficer was a possible view, as such the very invocation of revisionalpower was not permissible, to interfere with the order of the assessingofficer.

With the aforesaid submissions, learned counsel has submitted toallow the appeal filed by the assessee and dismiss the appeals filed bythe revenue.

1 (1972(4) SCC 5262 (1992) 2 SCC 156

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A11. Sri Venkataraman, learned ASG appearing for the revenue,by drawing our attention to the provisions under Articles 285 and 289 ofthe Constitution of India, has explained the intent behind the amendmentto Section 40 of the Income-tax Act, 1961, by Act 17 of 2013. It issubmitted that in terms of Article 289 of the Constitution, the propertyand income of a State is exempted from Union taxation. The constitutionalBprotection under Article 289 had led the States in shifting income/profitsfrom the State Government Undertakings into Consolidated Fund of theStates. It is submitted that State Government Undertaking – KSBC,which in this case is a company like any other commercial concern, isengaged in trade and business and commercial activity, therefore, is toCbe treated like any other business entity. However, when it came tofiling of Return of Income, the State as the only shareholder or majorshareholder in this type of undertakings, exercise control over it andshift profits by appropriating the whole of the surplus or a part of it byway of taxes, fee or similar such appropriations. It is submitted that thisresulted in erosion of profits in the hands of State GovernmentDUndertakings leading to lesser payment of taxes, since theseappropriations by the respective States from their State GovernmentUndertakings were accounted for as allowable expenditure under Section40(a) and these undertakings claimed deduction of the same from theincome earned, therefore could not be taxed in the hands of the StateEGovernment Undertakings. It is further submitted that the shifted profit,upon its transfer, went into the Consolidated Fund of the States and onthis basis constitutional protection under Article 289 were claimed as aresult of which, these amounts could neither be taxed in the hands of theState Government Undertakings nor in the hands of the respective States.Precisely the underlined spirit in bringing out the said amendment byFinserting Section 40(a)(iib), is to plug the possible diversion or shifting ofprofits from these undertakings into State’s treasury. Learned counselalso referred to the Memorandum attached to the Finance Bill of 2013which explains the provisions relating to direct taxes. The relevant portionof the Memorandum reads as under :G“Disallowance of certain fee, charge, etc. in the case ofState Government Undertakings The existing provisions of section 40 specifies the amounts whichshall not be deducted in computing the income chargeable underthe head “Profits and gains of business or profession”. The non- deductible expense under the said section also includes statutorydues like fringe benefit tax, income-tax, wealth-tax, etc.

Disputes have arisen in respect of income-tax assessment of someState Government undertakings as to whether any sum paid byway of privilege fee, license fee, royalty, etc. levied or charged bythe State Government exclusively on its undertakings aredeductible or not for the purposes of computation of income ofsuch undertakings. In some cases, orders have been issued to theeffect that surplus arising to such undertakings shall vest with theState Government. As a result it has been claimed that suchincome by way of surplus is not subject to tax. It is a settled lawthat State Government undertakings are separate legal entitiesthan the State and are liable to income-tax.

In order to protect the tax base of State Government undertakingsvis-à-vis exclusive levy of fee, charge, etc. or appropriation ofamount by the State Governments from its undertakings, it isproposed to amend section 40 of the Income-tax Act to providethat any amount paid by way of fee, charge, etc., which is leviedexclusively on, or any amount appropriated, directly or indirectly,from a State Government undertaking, by the State Government,shall not be allowed as deduction for the purposes of computationof income of such undertakings under the head “Profits and gainsof business or profession”. It is also proposed to define theexpression “State Government Undertaking” for this purpose.

This amendment will take effect from 1st April, 2014 and will,accordingly, apply in relation to the assessment year 2014-15 andsubsequent assessment years.”

11.1. With regard to gallonage fees, licence fee and the shop rental(kist), it is submitted that High Court has upheld the disallowance infavour of the revenue with regard to FL-9 licence on the ground that theappellant – KSBC is the exclusive licence holder, so far as FL-9 licencesare concerned. It is submitted that so far as FL-1 licences are concernedonly on the ground that similar licences are also given for another licenceholder, viz., to Kerala State Co-operatives Consumers’ Federation Ltd.,the High Court has held that there is no exclusivity so far as FL-1 licencesare concerned. It is the contention of the learned counsel that thedisallowance under Section 40(a)(iib) is not contingent upon the natureof licence. The test should be whether levy under the Abkari Act is AB

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Aexclusive or not and in this case it is exclusive. It is submitted that therestricted interpretation made by the High Court to the extent of FL-1licences issued in favour of the appellant runs contrary to object andintent of Section 40(a)(iib) of the Act and makes the said provisionredundant and otiose. It is the case of the revenue that the aspect ofexclusivity used under Section 40(a)(iib) of the Act, has to be viewedBfrom the nature of undertaking on which levy is imposed and not on thenumber of undertakings on which levy is imposed. It is further submittedthat the KSBC and the Kerala State Co-operatives Consumers’ FederationLtd. are undertakings of the State of Kerala, therefore, the levy is anexclusive levy on such State Government Undertakings which areClicensees.11.2. So far as surcharge on sales tax is concerned, again it issubmitted that such a levy is an exclusive levy on KSBC alone, therefore,attracts Section 40(a)(iib)(A) itself. Alternatively, it is further submittedthat even assuming that such tax is not attracted by Section 40(a)(iib)(A),Dit would fall under Section 40(a)(iib)(B) for the reason that surcharge onsales tax is a ‘tax’ and tax is a form of appropriation by the State fromKSBC. It is submitted that the surcharge levied under Section 3(1) ofthe KST Act is on the tax payable by a dealer in foreign liquor underSection 5(1) of the KGST Act. It is the contention of the learned counselthat, the cumulative reading of Section 3(1) of the KST Act and SectionE5(1)(b) of the KGST Act would reveal that surcharge is levied on thetax payable by a dealer in foreign liquor under Section 5(1) of KGSTAct. It is submitted that Section 3(1) does not deal with any other categoryand specifically pertain only to a dealer in foreign liquor. It is submittedthat as much as Section 5(1)(b) of the KGST Act refers to trade inFforeign liquor and it applies specifically and exclusively to KSBC andfurther surcharge levied under Section 3(1) of KST Act is on the salestax, exclusively payable by KSBC under Section 5(1)(b) of KGST Act.As such, the inevitable conclusion, therefore is that it qualifies as anexclusive levy attracting Section 40(a)(iib) of the Act. To show that the

distinction between a ‘tax’ and a ‘fee’ has substantially been effaced inGthe development of constitutional jurisprudence, learned counsel, hasplaced reliance on a recent judgment of this Court in the case of JalkalVibhag Nagar Nigam & Ors. v Pradeshiya Industrial andInvestment Corporation and Another[3].

H3 2021 SCC OnLine SC 960

11.3. With regard to turnover tax, it is submitted that unlikesurcharge which is an exclusive levy on KSBC, it is fairly submitted thatsuch tax was imposed not only on KSBC under Section 5(1)(b) of theKGST Act, but also was being imposed on various other retail dealersspecified under Section 5(2) of KGST Act. It is submitted that as theissue has not been dealt and examined in detail by the High Court, madea request to leave it open for fresh adjudication since facts and figuresneed to be verified.

With the above submissions, learned ASG has pleaded to allowthe appeals filed by the revenue and dismiss the appeal filed by theKSBC.

12. Having heard the learned counsels on both sides we haveperused the impugned order and other material placed on record.

13. Section 40 of the Income-tax Act, 1961 is a provision whichdeals with the amounts which are not deductible while computing theincome chargeable under the head ‘Profits and gains of business orprofession’. Section 40 of the Act is amended in the year 2013, and40(a)(iib) is inserted by Amending Act 17 of 2013, which has come intoforce from 01.04.2014. In terms of Article 289 of the Constitution ofIndia, the property and income of a State shall be exempt from Uniontaxation. Therefore, in terms of Article 289, the Union is prevented fromtaxing the States on its income and property. It is the constitutionalprotection granted to the States in terms of the abovesaid Article. Thisprotection has led the States in shifting income/ profits from the StateGovernment Undertakings into Consolidated Fund of the respective Statesto have a protection under Article 289. In the instant case the KSBC, aState Government Undertaking, is a company like any other commercialentity, which is engaged in the business and trade like any other businessentity for the purpose of wholesale and retail business in liquor. As muchas these kind of undertakings are under the control of the States as thetotal shareholding or in some cases majority of shareholding, is held byStates. As such they exercise control over it and shift the profits byappropriating whole of the surplus or a part of it to the Government byway of fees, taxes or similar such appropriations. From the relevantMemorandum to the Finance Act, 2013 and underlying object foramendment of Income-tax Act by Act 17 of 2013, by which Section40(a)(iib)(A)(B) is inserted, it is clear that the said amendment is madeto plug the possible diversion or shifting of profits from these undertakings A

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Ainto State’s treasury. In view of Section 40(a)(iib) of the Act any amount,as indicated, which is levied exclusively on the State owned undertaking(KSBC in the instant case), cannot be claimed as a deduction in thebooks of State owned undertaking, thus same is liable to income tax.

14. In the instant case the gallonage fee, licence fee, shop rentalB(kist), surcharge and turnover tax are the amounts of which assesseeclaims that they are not attracted by Section 40(a)(iib) of the Act. Onthe other hand it is the case of the respondent/revenue that all the saidcomponents attract the ingredients of Section 40(a)(iib)(A) or Section40(a)(iib)(B), as such they are not deductible. Broadly these levies canbe divided into three categories. Gallonage fee, licence fee and shopCrental (kist) are in the nature of fee imposed under the Abkari Act of1902. These are the fees payable for the licences issued under FL-9 andFL-1. In the impugned order, the High Court has held that the gallonagefee, licence fee and shop rental (kist) with respect to FL-9 licence arenot deductible, as it is an exclusive levy on the Corporation. Further aDdistinction is drawn from FL-1 licence from FL-9 licence, to apply Section40(a)(iib), only on the ground that, FL-1 licences are issued not only tothe appellant/KSBC but also issued to one other GovernmentUndertaking, i.e., Kerala State Co-operatives Consumers’ FederationLtd. High Court has held that as there is no other player holding licencesunder FL-9 like KSBC as such the word ‘exclusivity’ used in SectionE40(a)(iib) attract such amounts. At the same time only on the groundthat FL-1 licences are issued not only to the KSBC but also to KeralaState Co-operatives Consumers’ Federation Ltd., High Court has heldthat exclusivity is lost so as to apply the provision under Section 40(a)(iib).If the amended provision under Section 40(a)(iib) is to be read in theFmanner, as interpreted by the High Court, it will literally defeat the verypurpose and intention behind the amendment. The aspect of exclusivityunder Section 40(a)(iib) is not to be considered with a narrowinterpretation, which will defeat the very intention of Legislature, onlyon the ground that there is yet another player, viz., Kerala State Co- operatives Consumers’ Federation Ltd. which is also granted licenceGunder FL-1. The aspect of ‘exclusivity’ under Section 40(a)(iib) has tobe viewed from the nature of undertaking on which levy is imposed andnot on the number of undertakings on which the levy is imposed. If thisaspect of exclusivity is viewed from the nature of undertaking, in thisparticular case, both KSBC and Kerala State Co-operatives Consumers’HFederation Ltd. are undertakings of the State of Kerala, therefore, levy is an exclusive levy on the State Government Undertakings. Therefore,we are of the considered view that any other interpretation would defeatthe very object behind the amendment to Income-tax Act, 1961.

14.1. It is fairly well settled that the interpretation is to be in themanner which will subserve and promote the object and intention behindthe legislation. If it is not interpreted in the manner as aforesaid it woulddefeat the very intention of the legislation. To defeat the said provision,the State Governments may issue licences to more than one State ownedundertakings and may ultimately say it is not an exclusive undertakingand therefore Section 40(a)(iib) is not attracted. The submission of SriGanesh, learned senior counsel for the appellant is that the gallonagefee, licence fee and the shop rental (kist) are the levies under the AbkariAct on all the licence holders, as such it cannot be said that same is anexclusive levy on the appellant/KSBC. It is submitted that because ofthe Abkari Policy in particular year, licences are issued in favour of theappellant – State owned Undertaking, as such it cannot be said that thestatutory levies under the Abkari Act are on the State GovernmentUndertaking and such levies are only on the licensees but not on theState-owned Undertakings like KSBC. The said submission cannot beaccepted for the reason that by virtue of licence which is granted infavour of State-owned Undertaking, the statutory fees etc., viz., gallonagefees, licence fee and shop rental (kist) are payable by the appellant-Undertaking, i.e., KSBC. Once the State Government Undertaking takeslicence, the statutory levies referred above are on the GovernmentUndertaking because it is granted licences. Therefore, we are of theview that the finding of the High Court that gallonage fee, licence feeand shop rental (kist) so far as FL-1 licences are concerned, is notattracted by Section 40(a)(iib), cannot be accepted and such finding ofthe High Court runs contrary to object and intention behind the legislation.

14.2. Further, because another State Government Undertaking,i.e., Kerala State Co-operatives Consumers’ Federation Ltd. was alsogranted licences during the relevant years, as such exclusivity mentionedin Section 40(a)(iib) is lost, also cannot be accepted, for the reason thatexclusivity is to be considered with reference to nature of licence andnot on number of State owned Undertakings. If the interpretation, asheld by the High Court, is accepted, the legislative intent can be defeatedby issuing licences in FL-1 to several State Government Undertakingsand then make a contention that exclusivity is lost. Said interpretationruns contrary to the intent of the amendment.

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A14.3. So far as surcharge on sales tax is concerned, the HighCourt has held in favour of KSBC and against the revenue. The reasoningof the High Court is that surcharge on sales tax is a tax and Section40(a)(iib) does not contemplate ‘tax’ and surcharge on sales tax is not a‘fee’ or a ‘charge’. Therefore, High Court was of the view that surchargelevied on KSBC does not attract Section 40(a)(iib) of the Act. TheBsubmission of Sri Venkataraman, learned ASG with regard to surchargeon sales tax is two-fold. One is that the levy of surcharge on sales tax isalso an exclusive levy on KSBC, therefore, attracts Section 40(a)(iib)(A)itself. Secondly, it is submitted, as an alternative submission that if thesame is not covered by Section 40(a)(iib)(A) it would fall under SectionC40(a)(iib)(B) of the Act, for the reason that the surcharge on sales tax isa tax and tax is a form of appropriation by the State from KSBC. Thelearned counsel placed reliance on a recent judgment of this Court in thecase of Jalkal Vibhag Nagar Nigam and Others[3]. On the other handit is the case of the appellant/assessee that the sales tax is outside thescope of Section 40(a)(iib) and the surcharge is nothing but is anDenhancement of the tax. By referring to words used in Section 40(a)(iib),learned counsel Sri Ganesh has submitted that the said provision is to beinterpreted by applying the doctrine of ejusdem generis. It is submittedthat the words ‘any other fee or charge’ immediately following the words‘royalty, licence fee, service fee, privilege fee, service charge’ relate toEsuch similar charges and none of the terms can possibly cover a tax, likesales tax or surcharge on sales tax. With regard to surcharge on salestax, we are in agreement with the submission of Sri Ganesh, learnedsenior counsel appearing for appellant. The ‘fee’ or ‘charge’ as mentionedin Section 40(a)(iib) is clear in terms and that will take in only ‘fee’ or‘charge’ as mentioned therein or any fee or charge by whatever nameFcalled, but cannot cover tax or surcharge on tax and such taxes areoutside the scope and ambit of Section 40(a)(iib)(A) and Section40(a)(iib)(B) of the Act. The surcharge which is imposed on KSBC isunder Section 3(1) of the KST Act which reads as under :“3. Levy of surcharge on sales and purchase taxes. – G

(1) The tax payable under sub-section (1) of section 5 of theKerala General Sales Tax Act, 1963, by a dealer in foreign liquorshall be increased by a surcharge at the rate of ten per cent, andthe provisions of the Kerala General Sales Tax Act 1963 shallapply in relation to the said surcharge as they apply in relation toHthe tax payable under the said Act.

Provided that where in respect of declared goods as defined inclause (c) of section 2 of the Central Sales Tax Act, 1956 thetax payable by such dealer under the Kerala General SalesTax Act, 1963 together with the surcharge payable under thissub-section, exceeds four per centum of the sale or purchaseprice, the rate of surcharge in respect of such goods shall bereduced to such an extent that the tax and the surchargetogether shall not exceed four per centum of the sale or purchaseprice.”

Section 5(1)(b) of the Kerala General Sales Tax Act, 1963 readsas under :

5. Levy of tax on sale or purchase of goods: - (1) Everydealer (other than a casual trader or agent of a non-resident dealeror the Central Government, or Government of Kerala or theGovernment of any other state or of any Union Territory, or anylocal authority) whose total turnover for a year is not less thantwo lakhs rupees and every casual trader or agent of a non-residentdealer, the Central Government, Government of Kerala, theGovernment of any other state or of any Union Territory, or anylocal authority whatever be its total turnover for the year in respectof goods included in the Schedule at the rate mentioned againstsuch goods,- (a) … … … …

(a) … … … …

(b) in respect of Foreign liquor, at the point of sale by the KeralaState Beverages (Manufacturing and Marketing) CorporationLimited and at the point of first sale in the State by a dealer liableto tax under this section except where the sale is to the KeralaState Beverages (Manufacturing and Marketing) CorporationLimited.

(c) … … … …”

14.4. A reading of preamble and Section 3(1) of the KST Act,make it abundantly clear that the surcharge on sales tax levied by thesaid Act is nothing but an increase of the basic sales tax levied underSection 5(1) of the KGST Act, as such the surcharge is nothing but asales tax. It is also settled legal position that a surcharge on a tax isnothing but the enhancement of the tax. In this regard, in support thesaid view, ready reference can be made to the judgments of this Court in A

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Athe case of K. Srinivasan[1] and Sarojini Tea Co. Ltd.[2]. Para 7 of thejudgment in the case of K. Srinivasan[1] reads as under :

“7. The above legislative history of the Finance Acts, as also thepractice, would appear to indicate that the term “Income tax” asemployed in Section 2 includes surcharge as also the special andBthe additional surcharge whenever provided which are alsosurcharges within the meaning of Article 271 of the Constitution.The phraseology employed in the Finance Acts of 1940 and 1941showed that only the rates of income tax and supertax were to beincreased by a surcharge for the purpose of the CentralGovernment. In the Finance Act of 1958 the language used showedCthat income tax which was to be charged was to be increased bya surcharge for the purpose of the Union. The word “surcharge”has thus been used to either increase the rates of income tax andsuper tax or to increase these taxes. The scheme of the FinanceAct of 1971 appears to leave no room for doubt that the termD“Income tax” as used in Section 2 includes surcharge.”

Para 20 of the judgment in the case of Sarojini Tea Co. Ltd.[2]reads as under :

“20. For the reasons aforesaid, we are unable to endorse the viewof the High Court that surcharge on land revenue payable underEthe Surcharge Act is not land revenue but a levy which is distinctfrom land revenue. In consonance with the law laid down by thisCourt in Vishwesha Thirtha Swamiar case [(1972) 3 SCC 246 :(1972) 1 SCR 137 : AIR 1971 SC 2377] it must be held that thesurcharge on land revenue levied under the Surcharge Act, beingFan enhancement of the land revenue, is part of the land revenueand has to be treated as such for the purpose of assessingcompensation under Section 12 of the Ceiling Act.”

14.5. Further, CBDT itself has issued circular in Circular No.3/2018 which is issued, as a measure for reducing litigation, by revision ofGmonetary limits for filing appeals by the Department before the Income-tax Appellate Tribunal, High Courts and SLP/appeals before this Court.In the said circular it is clearly mentioned that for considering tax effectit includes applicable surcharge and cess. Same will also strengthen thestand of the assessee. Thus it is clear that the surcharge which is soughtto be levied is nothing but the enhancement of sales tax, which is leviedHunder Section 5(1) of the KGST Act. When the basic sales tax paid by

KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed,there is no reason not to allow deduction of surcharge on sales tax. Ifthe revenue does not consider Section 40(a)(iib) is applicable to the basicsales tax paid by KSBC under Section 5(1)(b) of the KGST Act, it is notknown how the surcharge on sales tax, which is nothing but the salestax, can be brought in the net of Section 40(a)(iib)(A) or 40(a)(iib)(B) ofthe Act. Further a clear distinction between ‘fee’ and ‘tax’ is carefullymaintained throughout the scheme under Section 40(a) of the Act itself.Wherever the Parliament intended to cover the tax it specificallymentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically relate totax related items. Section 40(a)(ic) refers to a sum paid on account offringe benefit tax. At the same time, Section 40(a)(iib) refers to royalty,licence fee, service fee, privilege fee or any other fee or charge. Ifthese words are considered to include a tax or surcharge like sales tax,the distinction so carefully spelt out in Section 40 between a tax and afee will be obliterated and rendered meaningless. It is settled principle ofinterpretation that where the same Statute, uses different terms andexpressions, then it is clear that Legislature is referring to distinct anddifferent things. To support the said view ready reference can be madeto judgments of this Court in the case of DLF Qutab Enclave ComplexEducational Charitable Trust v. State of Haryana & Ors.[4]; KailashNath Agarwal& Ors. v. Pradeshiya Industrial & InvestmentCorporation of U.P. Ltd. & Anr.[5]; and Shri Ishar Alloy Steels Ltd.v. Jayaswals Neco Ltd.[6]. The judgment relied on by the learned ASGin the case of Jalkal Vibhag Nagar Nigam and Others[3] would notrender any assistance to support the case of the revenue. The saidjudgment only considers whether the levy of water tax under Section52A of the U.P. Water Supply and Sewerage Act is a fee or whether itis a tax covered by Entry 49 of List II of the seventh schedule to theConstitution. The said judgment in fact maintains and does not take awaythe basic constitutional distinction between ‘fee’ and ‘tax’. Having regardto language used in Section 40(a)(iib), we are of the view that theaforesaid judgment does not support the case of the revenue. Even theother alternative submission of the learned counsel that it may attractSection 40(a)(iib)(B) also cannot be accepted for the reason that whereverthe Parliament intended to include tax, referred clearly to taxes clearly 4 (2003) 5 SCC 622

5 (2003) 4 SCC 305

6 (2001) 3 SCC 609

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Ain the very Section 40. That itself indicates that the surcharge or taxwere never intended to be included in the net of amended Section40(a)(iib)(A) or 40(a)(iib)(B) of the Income-tax Act, 1961.

15. So far as turnover tax is concerned it is submitted by thelearned ASG appearing for the revenue that such tax was imposed notBonly on KSBC in terms of Section 5(1)(b) of KGST Act, but it is imposedon various other retail dealers specified under Section 5(2) of the saidAct. Further turnover tax is also a tax. The very same reason which wehave assigned above for surcharge, equally apply to the turnover taxalso. As such turnover tax is also outside the purview of Section40(a)(iib)(A) and 40(a)(iib)(B).C

16. For the aforesaid reasons, we hold that the gallonage fee,licence fee and shop rental (kist) with respect to FL-9 and FL-1 licencesgranted to the appellant will, squarely fall within the purview of Section40(a)(iib) of the Income-tax Act, 1961. The surcharge on sales tax andturnover tax, is not a fee or charge coming within the scope of SectionD40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which canbe disallowed under the said provision and disallowance made in thisregard is rightly set aside by the High Court.

17. Accordingly, the civil appeal filed by the assessee is dismissedand the civil appeals filed by the revenue are partly allowed to the extentEindicated above. In result, the assessments completed against the assesseewith respect to assessment years 2014-2015 and 2015-2016 stand setaside. The assessing officer to pass revised orders after computing theliability in accordance with the directions as indicated above. As thedispute relates to assessment years 2014-2015 and 2015-2016, theFassessing officer shall pass appropriate orders, within a period of twomonths from the date of receipt of this judgment.

Devika Gujral

Appeals disposed of.

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