Word ‘exclusively’ used in Sec. 40(a)(iib) can’t be defeated if Govt. issued licence to more than one undertaking: SC

Case Details: Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. ACIT - [2022] 134 taxmann.com 11 (SC)

Judiciary and Counsel Details

• • R. Subhash Reddy and Hrishikesh Roy, JJ.

Facts of the Case

Assessee-Kerala State Beverages Manufacturing & Marketing Corporation Ltd. was a State-owned Undertaking engaged in beverages wholesale and retail trade. It held FL-9 and FL-1 licences to deal in wholesale and retail of Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL) granted by the Excise Department.

During the assessment, the Assessing Officer (AO) disallowed payment of gallonage fee, licence fee, shop rental (kist), the surcharge on sales tax and turnover tax under Section 40(a)(iib). Matter carried to High Court, and it was held that gallonage fee, licence fee and shop rental (kist) were not an exclusive levy on the assessee, and thus no disallowance could be made.

Further, the surcharge on sales tax and turnover tax is not a ‘fee’ or ‘charge’ within the meaning of Section 40(a)(iib) to attract disallowance. Against the ruling of High Court, Revenue filed an appeal before the Supreme Court.

Supreme Court Held

The Supreme Court of India held that section 40(a)(iib) provides that any amount levied exclusively on the State-owned undertaking cannot be claimed as a deduction.
The aspect of exclusivity under Section 40(a)(iib) is not to be considered with a narrow interpretation, which will defeat the very intention of the Legislature. The aspect of ‘exclusivity’ has to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed.

It is pretty well settled that the interpretation is to be in the manner which will subserve and promote the object and intention behind the legislation. To defeat the provisions of section 40(a)(iib), the State Governments may issue licences to more than one State-owned undertakings. They may ultimately say it is not an exclusive undertaking, and therefore Section 40(a)(iib) is not attracted.
Therefore, the view taken by High Court can’t be accepted and the statutory fees etc., viz., gallonage fees, licence fee, and shop rental (kist) levied on assessee cannot be claimed as deduction.

As far as surcharge on sales tax is concerned, it is settled legal position that a surcharge on a tax is nothing but the enhancement of the tax. Further, turnover tax is also a tax. Accordingly, such surcharge on sales tax and turnover tax can’t be treated as a fee or charge coming within the scope of Section 40(a)(iib).