Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 6427 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-08-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
10-03-2017
Assessment Year
2012-2013
Appeal Filed On
04-10-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI , ! . , ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER , AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.2866 TO 2869/MDS/2016 & NO.233/MDS/2017 /ASSESSMENT YEARS: 2010-11 TO 2012-13, 2012-13 & 2 013-14 M/S.TAMILNADU STATE MARKETING CORPORATION LTD., CMDA, TOWER-II, 4 TH FLOOR, GANDHI IRWIN BRIDGE, EGMORE, CHENNAI-600 008. VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(1), CHENNAI-34. [PA N: AAACT 2964 P ] ( & /APPELLANT) ( '(& /RESPONDENT) & ) / APPELLANT BY : MR.R.VIJAYARAGHAVAN, ADV. '(& ) /RESPONDENT BY : MRS.RUBY GEORGE, CIT ) /DATE OF HEARING : 17.08.2017 ) /DATE OF PRONOUNCEMENT : 21.08.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NOS.2866 TO 2869/MDS/2016 IS AN APPEAL FILED B Y THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS)-11, CHENNAI, IN ITA NOS.670/13-14, 122/14-15, 145/15-16, 233/15- 16 DATED 06.09.2016 FOR THE AYS 2010-11, 2011-12, 2012-13, 2 012-13 & ITA NO.233/MDS/2017 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI, I N ITA NO.115/16- 17/CIT(A)-11 DATED 23.12.2016 FOR THE AY 2013-14. ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 2 -: 2. MRS.RUBY GEORGE, CIT REPRESENTED ON BEHALF OF TH E REVENUE AND MR.R.VIJAYARAGHAVAN, ADV. REPRESENTED ON BEHALF OF THE ASSESSEE. 3. AS THE ISSUES IN ALL THESE CASES ARE INTER-CONNE CTED, COMMON AND RELATES TO THE SAME ASSESSEE, ALL THESE ISSUES ARE DISPOSED OF BY THIS COMMON ORDER. 4. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEAL S FOR ALL THE THREE ASSESSMENT YEARS AS FOLLOWS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF E NTIRETY OF SPECIAL PRIVILEGE FEE/ANNUAL PRIVILEGE FEE (LICENSE RENEWAL FEE)/VEND FEE/SPECIAL FEES PAID DURING THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH AND IN COMPLIANCE WITH THE TAMI NADU PROHIBITION ACT 1937 READ WITH THE TAMIL NADU LIQUOR (SUPPLY BY WHOLE SALE) RU LES, 1983. 2.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT SIMILAR PA YMENTS FOR THE EARLIER YEARS FROM 1983-84 TO 2009-10 HAS BEEN ALLOWED BY THE ITA T AND OR HONBLE HIGH COURT OF MADRAS AND THE CIT(A) GROSSLY ERRED IN IGNORING A ND NOT FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL AND THE HIGH COURT IN ASSE SSEES OWN CASE ON THE VERY SAME ISSUE. 3. THE CIT(A) ERRED IN HOLDING THAT FOR THE EARLIER YEA RS THE TRIBUNAL AND THE HIGH COURT HAD NOT SPECIFIED THAT SAID FEES ARE ALLOWABLE UNDER SE CTION 37 GROSSLY IGNORING THE FACT THAT THE QUESTION OF ALLOWABILITY OF SUCH FEES WILL AROSE ON LY UNDER SECTION 37. 3.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APEX C OURT IN THE CASE OF CIT, KERALA VS M/S.TRAVANCORE SUGARS & CHEMICALS LTD IN C IVIL APPEAL NO.2558 OF 2005 DTD. 7 TH MAY 2015 HAS HELD THAT FEE BY WHATEVER NAME CAL LED, IS AN ALLOWABLE DEDUCTION AS AND WHEN IF IT IS ACTU ALLY PAID IN ACCORDANCE WITH SEC 43B. 3.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESS EE HAS PAID ALL THE RELEVANT FEES BEFORE FILING OF THE RETURN AND HENCE THE SAME IS ALLOWABLE UNDER SECTION 43B. 3.3 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT ALLOWANCE TO WHICH SECTION 43B APPLIES PRE-SUPPOSES THE SAME IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT, HENCE THE CIT(A) ERRED IN DISALLOWING THE CLAIM ON T HE GROUND THAT EARLIER DECISION DID NOT SPECIFY THAT THE SAME IS ALLOWABLE UNDER SE CTION 37 OF THE ACT. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN H OLDING THAT CLAUSE (IIB) TO SECTION 40(A) INTRODUCED WITH EFFECT FROM 01.04.2014 WILL BE APPLICABLE RETROSPECTIVELY TO THE ASSESSMENT YEAR UNDER APPEAL. 4.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISI ON OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S.KARNATAKA BEVERAGES CORPORA TION V CIT REPORTED IN 238 ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 3 -: TAXMAN 0299 HAS HELD THAT CLAUSE (IIB) TO SECTION 40 (A) OF THE FINANCE ACT, 2013 HAS RETROSPECTIVE IN NATURE. 5. THE CIT(A) ERRED IN HOLDING THAT LEVY OF PRIVILEGE F EE, LICENSE FEE ETC UNDER TAMIL NADU PROHIBITION ACT 1937 READ WITH RELEVANT RULES ARE N OT REASONABLE AND ARE CONFLICTING WITH THE CENTRAL ACT VIZ., INCOME TAX ACT AND IS A TAX AVOID ANCE MEASURE. 5.1 THE CIT(A) FAILED TO APPRECIATE THAT THE PAYMENTS BY ASSESSEE WAS IN COMPLIANCE WITH THE STATUTORY PROVISIONS OF TAMIL NADU PROHIBI TION ACT 1937 READ WITH RELEVANT RULES AND THE SAME CANNOT BE HELD TO BE TAX AVOIDAN CE MEASURE. 5.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECISI ON OF HONBLE KARNATAKA? HIGH COURT IN THE CASE OF M/S.KARNATAKA BEVERAGES CORPORA TION V CIT REPORTED IN 238 TAXMAN 0299 FOLLOWING THE CASE OF APEX COURT IN THE CASE OF HAR SHANKAR V DTC - AIR - 1975 SC 1121 HAS HELD THAT FEES LEVIED BY THE STATE IN RESPECT OF GRANT OF LICENSE OR PRIVILEGE FEE CANNOT BE DISALLOWED ON TH E GROUND THAT IT IS NOT REASONABLE ITS POWER TO LEVY FEE AND NOT MODE OF COMPUTATION O R LEVY OF FEE IS ESSENCE OF THE POWER OF THE STATE TO LEVY SAID FEE. 5.3 THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE G.OS H AVE BEEN VALIDLY LEGISLATED BY PLACING BEFORE THE LEGISLATIVE ASSEMBLY AND DULY NO TIFIED IN THE OFFICIAL GAZETTE. 6. THE CIT (A) ERRED IN RELYING ON THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF ANDHRA PRADESH BEVERAGES CORPORATION LIMITED IGNORI NG THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. 6.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECIS ION OF THE HYDERABAD TRIBUNAL WAS BASED ON THE PROHIBITION ACT APPLICABLE TO THE STATE OF ANDHRA PRADESH AND THE PRIVILEGE FEE ETC., PAID BY ANDHRA PRADESH BEVERAGE S CORPORATION LTD., AND THE TRIBUNAL HELD THAT THERE WAS NO SPECIFIC PROVISION CHARGING PRIVILEGE FEE ETC., UNDER THE ACT. THUS, THE DECISION OF THE HYDERABAD ITAT I S NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ITAT, HYDERABAD THEMSELVES HAVE INDICATED THAT THE DECISION OF THE CHENNAI TRIBUNAL WAS NOT APPLICABLE TO THE CASE OF THE ANDHRA PRADESH BEVERAGES CORPORATION IS A FACT PREVAILING WERE DIFFERENT IN BOTH THE CASE. 6.3 THE CIT(A) ERRED IN NOT ADJUDICATING THE GROUND RELA TING TO DISALLOWANCE OF A SUM OF RS.40,75,34,247/- BEING ANNUAL PRIVILEGE FEE FOR FY 2010-11 NOT PERTAINING TO THIS AY 2012-13, OUGHT TO HAVE ALLOWED THE SAME IN AY 20 11-12. (ONLY FOR ASST YEAR: 2012-13). 5. THE LD.AR AT THE TIME OF HEARING SUBMITTED THAT THE ASSESSEE IS A GOVERNMENT COMPANY INCORPORATED ON 23.05.1983 WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF MANUFACTURING, PROCESSI NG, BUYING, STOCKING, SELLING, EXPORTING TO OTHER STATES IN INDIA, IMPORT ING FROM OTHER STATES IN INDIA AND GENERALLY DEAL IN ALL KINDS OF INDIAN MAD E FOREIGN SPRITS AS A WHOLESALE DEALER OR A RETAIL DEALER OR AS A MANUFAC TURER IN TAMIL NADU. IT WAS A SUBMISSION THAT TAMIL NADU PROHIBITION ACT, 1 937 CLAUSE 17C, THE ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 4 -: ASSESSEE WAS GIVEN THE EXCLUSIVE PRIVILEGE OF SUPPL YING BY WHOLESALE IMFL FOR THE STATE OF TAMIL NADU TO THE EXCLUSION OF ALL OTHERS. SUCH LICENSE WAS SUBJECT TO THE RULES MADE BY THE STATE GOVERNMENT I N THIS BEHALF. THE ASSESSEE WAS ALSO GRANTED THE LICENSE TO OPEN BRANC HES AND ALSO SELL BY RETAIL IMFL. UNDER CLAUSE 17D OF THE SAID TAMIL NA DU PROHIBITION ACT, 1937, IT WAS PRESCRIBED THAT THE STATE GOVERNMENT M AY BY RULES, LEVY A SUM OR FEE OR BOTH IN CONSIDERATION OF THE GRANT OF ANY EXCLUSIVE OR PRIVILEGE U/S.17C AND ALSO FEE ON THE LICENSE GRANT ED U/S.17(C). THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RULES, 1983, WERE A LSO INCORPORATED AND UNDER RULE 15, THE VEND FEE HAD BEEN PRESCRIBED FOR VARIOUS ITEMS AT VARIOUS RATES. U/S.54(2) TAMIL NADU PROHIBITION ACT , 1937, THE STATE GOVERNMENT PRESCRIBED THE PROVISIONS FOR MAKING RUL ES. IT WAS A SUBMISSION THAT SUBSEQUENTLY, NOTIFICATIONS BY ISSU ANCE OF VARIOUS GOVERNMENT ORDERS (IN SHORT GOS) WERE DONE FIXING THE RATES UNDER RULE 15 OF THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RUL ES, 1983. THE GO WAS PUT TO THE ASSEMBLY AND WAS ISSUED IN THE NAME OF THE GOVERNOR. THE GO AMENDS THE RULE BY SUBSTITUTION OF THE FIGUR ES IN THE RULE 15 OF THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RULES, 19 83. THESE SUBSTITUTIONS WERE BASICALLY IN RESPECT OF 3 CATEGO RIES: I. THE VEND FEE WHICH IS A FEE COLLECTED FROM THE ASSE SSEE ON THE PURCHASE OF LIQUOR. II. SPECIAL PRIVILEGE FEE COLLECTED IN RESPECT OF THE S ALE OF LIQUOR UNDER SEC.17C AND III. THE ANNUAL LICENSE FEE BEING THE LICENSE FEE IN RES PECT OF THE VARIOUS SHOPS NEARLY 6200 RUNNING BY THE ASSESSEE UNDER SEC.15D. 6. IT WAS A SUBMISSION THAT FOR THE AYS 1983-84 TO 1986-87, THE VARIOUS FEES PAID BY THE ASSESSEE TO THE GOVERNMENT OF THE STATE OF TAMIL ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 5 -: NADU HAD BEEN DISALLOWED BY THE AO BY HOLDING THAT THE PROVISIONS OF SEC.43B APPLIED. IT WAS A SUBMISSION THAT THIS IS SUE OF VEND FEE HAD COME IN APPEAL BEFORE THE HONBLE SUPREME COURT IN THE CASE OF TRAVANCORE SUGARS & CHEMICALS LTD., REPORTED IN CIV IL APPEAL NO.2558/2005, WHEREIN THE HONBLE SUPREME COURT BY AN ORDER DATED 07.05.2015 HAD HELD THAT THE 43B DID APPLY AND IF T HE VEND FEE WAS PAID BY THE ASSESSEE TO THE STATE BEFORE THE DUE DATE FO R FILING RETURN THEN IT IS ALLOWABLE AS IT WOULD FALL UNDER FEE BY WHATEVER N AME CALLED, EVEN IF THE VEND FEE IS CALLED PRIVILEGE. THE HONBLE SUPREM E COURT HAD HELD THAT IF THE PAYMENT HAD BEEN MADE BEFORE THE DUE DATE OF TH E FILING OF THE RETURN, THE SAME WAS ALLOWABLE AND ALTERNATIVELY, I T WAS ALLOWABLE IN THE YEAR IN WHICH IT IS ACTUALLY PAID. IT WAS A SUBMIS SION THAT FOR THE AYS 2004-05 TO 2008-09, THE AO HAD DISALLOWED THE VARIO US FEES PAID BY THE ASSESSEE TO THE STATE GOVERNMENT HOLDING THAT NO RE TROSPECTIVE LEVY WAS PERMISSIBLE. IT WAS A SUBMISSION THAT VARIOUS FEE MORE SPECIFICALLY THE PRIVILEGE FEE HAD BEEN DIRECTED BY THE GOVERNMENT T O BE PAID AFTER THE END OF THE RELEVANT ASSESSMENT YEAR. IT WAS SUBMIT TED BY THE LD.AR THAT THIS ISSUE HAS ALSO NOW BEEN HELD IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE AS SESSEES OWN CASE IN ITA NOS.962/MDS/2010, NO.964/MDS/2011 & NO.07/MDS/2012 AND ALSO IN ITA NOS.1367 TO 1370/MDS/2012 DATED 30.10.2012 AND ALSO BY THE HONBLE JURISDICTIONAL HIGH COURT OF MADRAS IN TC(A) NO.688 -690/2004 DATED 14.12.2010. IT WAS A SUBMISSION THAT NOW FOR THE A YS 2010-11 TO 2012- ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 6 -: 13, THE AO HAS DISALLOWED THE SAID EXPENDITURE BY R AISING THE FOLLOWING FOUR ISSUES: I. THE EXPENDITURE IS NOT ALLOWABLE U/S.37 AND THAT THE SAID EXPENDITURE WAS AN APPLICATION OF INCOME AND CONSEQUENTLY CAPITAL IN N ATURE. II. THE HYDERABAD BENCH OF THE INCOME TAX APPELLATE TRI BUNAL HAS HELD THE SAME TO BE APPLICATION OF INCOME. III. THE PRIVILEGE FEE TAKES AWAY, THE ENTIRE SURPLUS OF THE CORPORATION AND IS IN CONFLICT WITH THE INCOME TAX ACT AND THEREFORE THE NOTIFICATIONS BY WAY OF GOS WERE INVALID AND IT IS A TAX AVOIDANCE MEASURE. IV. SEC.40(A)(IIB) HAS BEEN AMENDED W.E.F. 01.04.2014 A ND IS CLARIFICATORY IN NATURE AND IS, THEREFORE, APPLICABLE FOR THESE YEARS. 7. IT WAS A SUBMISSION THAT A PERUSAL OF THE DECISI ON OF THE HYDERABAD ITAT IN THE CASE OF AP BEVERAGES CORPORATION LTD., HYDERABAD IN ITA NOS.302-303 & 545/HYD/2013 DATED 21.01.2014 AT PAGE NO.47, PARA NO.26 HAS HELD THAT THE DECISION OF THE ITAT CHENNA I BENCHES IN THE CASE OF TAMIL NADU STATE MARKETING CORPORATION IN ITA NO .962/MDS/2010 DATED 18.09.2012 WHEREIN THESE ISSUES HAD BEEN CONSIDERED WERE FACTUALLY DISTINGUISHABLE. IT WAS A SUBMISSION THAT AS PER T HE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF AP BEVERAGES CORPORA TION LTD., THE SAID DECISION ITSELF COULD NOT BE APPLIED IN THE CASE OF THE ASSESSEE. IT WAS A FURTHER SUBMISSION THAT THE SAID EXPENDITURE WERE E XCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND WAS CLE ARLY A STATUTORY LEVY IN SO FAR AS THE LEVY IS AS PER THE PROVISIONS OF SEC. 17D OF THE TAMIL NADU PROHIBITION ACT, 1937 R/W RULE 15 OF THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RULES, 1983 AND THE SAID GOS WERE ISSUED UNDER THE NAME OF THE GOVERNOR OF TAMIL NADU AFTER HAVING BEEN PUT TH ROUGH ASSEMBLY. IT WAS A FURTHER SUBMISSION THAT THE ISSUE WAS FULLY C OVERED BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 7 -: BEVERAGES CORPORATION LTD., REPORTED IN [2017] 391 ITR 185 (KARN). IT WAS A SUBMISSION THAT THE ADDITIONS MADE BY THE AO AND AS CONFIRMED BY THE LD.CIT(A) IN RESPECT OF THE VARIOUS FEES PAID B Y THE ASSESSEE TO THE STATE GOVERNMENT WAS LIABLE TO BE ALLOWED. 8. IN REPLY, THE LD.DR SUBMITTED THAT THE LEVY OF T HE FEE HAS PUT THE ASSESSEE INTO A LOSS AND LOSS IS AN ARTIFICIAL LOSS AND IS BASICALLY A BOGUS LOSS ON ACCOUNT OF THE UNREASONABLE FEES LEVIED BY THE STATE GOVERNMENT ON THE ASSESSEES COMPANY FOR THE PURPOSE OF STRIPP ING THE ASSESSEE COMPANY OF ALL ITS PROFITS. IT WAS A FURTHER SUBMI SSION THAT THE MANAGING DIRECTOR OF THE ASSESSEES COMPANY, THOUGH A GOVERN MENT SERVANT HAD WRITTEN TO THE GOVERNMENT IN REGARD TO THE STRONG F INANCIAL POSITION OF THE ASSESSEE AND HAD ALSO SUGGESTED THE QUANTIFICATION OF THE FEES TO BE LEVIED ON THE ASSESSEE AND THE SAME WAS ALSO LEVIED AS PER THE REQUEST OF THE MANAGING DIRECTOR. IT WAS A FURTHER SUBMISSION THA T WHEN THE COSTING OF THE LIQUOR AS SOLD BY THE ASSESSEE IS VERIFIED, IT IS NOTICED THAT THE SAME INCLUDES THE BASIC PRICE PLUS EXCISE DUTY PLUS SALES TAX LEVIED BY THE MANUFACTURER PLUS THE WHOLESALE AND RETAIL MARGINS AND THE SALES TAX PAID BY TASMAC. IT DID NOT INCLUDE THE VARIOUS LEVI ES BY STATE GOVERNMENT ON THE ASSESSEES COMPANY WHICH SHOWED T HAT THE LEVY WAS NOT REVENUE EXPENDITURE IN NATURE BUT WAS AN APPLIC ATION WHICH WAS THE BASIC LEVY TO STRIP THE ASSESSEE COMPANY OF ITS PRO FITS AND THEREBY DEPRIVE THE INCOME TAX DEPARTMENT, THE RIGHTFUL SHARE OF TH E REVENUE IN THE FORM OF TAXES. IT WAS A SUBMISSION THAT VARIOUS GOS ISS UED AT THE BEHEST OF THE ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 8 -: MANAGING DIRECTOR OF THE ASSESSEES COMPANY WAS A C OLOURABLE DEVICE. IT WAS A SUBMISSION THAT THE ORDER OF THE AO & THE LD. CIT(A) WERE LIABLE TO BE CONFIRMED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET, A PERUSAL OF THE PROVISIONS OF RULE 15 OF THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RULES, 1983 SHOWS THAT THE LEVY IS MADE BY THE STAT E GOVERNMENT IN RESPECT OF THE VARIOUS VARIETIES OF LIQUOR DEALT WI TH BY THE ASSESSEE COMPANY. A PERUSAL OF THE TAMIL NADU PROHIBITION A CT, 1937 MORE SPECIFICALLY SECS.17B, 17C & 17D SHOWED THAT THE ST ATE GOVERNMENT HAS GIVEN THE EXCLUSIVE RIGHT TO DEAL WITH IMFL TO THE ASSESSEE SUBJECT TO LEVIES MAY BE PRESCRIBED BY THE STATE GOVERNMENT. THE STATE GOVERNMENT HAS PRESCRIBED MULTIPLE LEVIES ON THE AS SESSEE WHICH ARE THE VEND FEE, SPECIAL PRIVILEGE FEE AND THE ANNUAL LICE NSE FEE. THE ANNUAL LICENSE FEE WAS COLLECTED TO THE EXTENT OF RS.1.00 CR. EVERY YEAR, WAS SUDDENLY INCREASED TO RS.250.00 CR. FOR THE AY 2011 -12 AND RS.500.00 CR. FROM THE AY 2012-13. WHEN THE ANNUAL LICENSE FEE W AS AN AMOUNT OF RS.1.00 CR., THE REVENUE DID NOT HAVE ANY OBJECTION S. WHEN THE STATE GOVERNMENT INCREASED THE LEVY TO RS.250.00 CR. AND THEN AGAIN TO RS.500.00 CR. THE REVENUE HAS PUT OBJECTION STATING THAT THE LEVY IS UNREASONABLE AND IS A COLOURABLE DEVICE TO DEPRIVE THE INCOME TAX DEPARTMENT OF ITS RIGHTFUL SHARE IN THE FORM OF TAX ES FROM THE REVENUE GENERATED BY THE ASSESSEE. IN RESPECT OF THE SPECI AL PRIVILEGE FEE, THE ALLEGATION OF THE REVENUE SEEMS TO BE THAT THE MANA GING DIRECTOR OF THE ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 9 -: ASSESSEES COMPANY WHO IS ALSO A GOVERNMENT SERVANT HAS INTIMATED THE GOVERNMENT REGARDING THE PROFITABILITY OF THE ASSES SEES COMPANY AND THE POSSIBLE RATES THAT COULD BE FIXED AND THE STATE GO VERNMENT AFTER CONSIDERING THE SAME HAD INCREASED THE LEVY ACCORDI NGLY. IN RESPECT OF THE VEND FEE ALSO, THE REVENUE ARGUED THAT ITS APPL ICATION IN SO FAR AS THE SAME WAS NOT CONSIDERED WHILE COMPUTING THE COST IN RESPECT OF THE LIQUOR SOLD BY THE ASSESSEE. THE FACT BEING MISSED IS THA T THE ASSESSEE IS A COMPANY OWNED AND CONTROLLED BY THE STATE GOVERNMEN T. THE DIRECTORS OF THE ASSESSEES COMPANY ARE ALSO APPOINTEES BY TH E STATE GOVERNMENT. ADMITTEDLY, THE ASSESSEE IS ALSO THE MONOPOLY DEALE R OF LIQUOR IN THE STATE OF TAMIL NADU ON ACCOUNT OF THE TAMIL NADU PROHIBIT ION ACT, 1937. THE LEVY ON THE ASSESSEE COMPANY IS NOT BY WAY OF ANY D EMAND BUT BY WAY OF A STATUTORY COMPULSION IN SO FAR AS THE GOS ARE MOD IFYING THE RULE 15 OF THE TAMIL NADU IMFS (SUPPLY BY WHOLESALE) RULES, 19 83. THIS BEING SO, IT CANNOT BE SAID THAT THERE IS A COLOURABLE DEVICE OR THAT ANY ATTEMPT IS BEING MADE TO STRIP THE ASSESSEES COMPANY OF ITS P ROFITS. THE ASSESSEE COMPANY CANNOT DO ITS BUSINESS UNLESS IT PAYS THE D EMANDS RAISED ON IT VIA STATUTORY SUBSTITUTION OF THE LEVIES. IF AT AL L THESE LEVIES ARE TO BE CHALLENGED, IT IS TO BE DONE BY THE ASSESSEE. IF T HE INCOME TAX DEPARTMENT DESIRES TO CHALLENGE THESE LEVIES ON THE GROUND THAT IT IS ENCROACHING UPON THE PROFITS OF THE ASSESSEE COMPAN Y THEREBY AFFECTING THE LEVY OF INCOME TAX ON THE PROFITS OF THE ASSESS EE COMPANY, IT WOULD HAVE TO DO SO BY WRIT BEFORE THE HONBLE JURISDICTI ONAL HIGH COURT. THE REVENUE CANNOT DISALLOW THE PAYMENTS MADE BY THE AS SESSEE COMPANY IN ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 10 -: COMPLIANCE TO STATUTORY LEVIES HOLDING THE LEVIES B Y THE STATE GOVERNMENT TO BE UNREASONABLE OR COLOURABLE. THE HONBLE KARNA TAKA HIGH COURT IN THE CASE OF THE KARNATAKA STATE BEVERAGES CORPORATION L TD., HAD BY APPLYING THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF HAR SHANKAR V. DY. EXCISE AND TAXATION COMMISSIONER, AI R 1975 SC 1121 HAD HELD AS UNDER: THEREFORE, IT CAN SAFELY BE SAID THAT THE PRIVILEGE FEE PAYABLE BY THE PETITIONER TO THE STATE GOVERNMENT WOULD BE TAXABLE WITH EFFECT FROM 1.4.20 14 AND NOT PRIOR THERETO. THE UNREASONABLENESS OF THE PRIVILEGE FEE PAYABLE IS AL SO NOT A GROUND TO HOLD THAT IT IS A DEVICE BY WHICH THE PETITIONER AND THE STATE GOVERNMENT AR E AVOIDING PAYMENT OF TAX. IN THIS REGARD, RELIANCE IS PLACED ON HAR SHANKAR SUPRA, WH ICH IS CLEAR ON THIS ASPECT AND THEREFORE, IT WAS NOT OPEN FOR THE ASSESSING OFFICER TO OPINE THAT PRIVILEGE FEE APPEARS TO BE RELATABLE TO THE PROFIT EARNED AND A LARGE CHUNK OF IT IS TRANSFERRED TO THE STATE GOVERNMENT IN THE NAME OF PRIVILEGE FEE. IT IS SETTLED LAW THA T THERE IS NO ILLEGALITY COMMITTED BY THE PETITIONER IN PAYING SUCH PRIVILEGE FEE ON THE STAT E GOVERNMENT HAVING FIXED SUCH PRIVILEGE FEE. THERE IS NO LEGAL PROHIBITION IN THIS REGARD A ND THEREFORE, IT CANNOT BE SAID THAT THE SAME COULD HAVE BEEN DISALLOWED BY THE ASSESSING OFF ICER. IT REQUIRES TO BE EMPHASIZED THAT THE SUPREME COURT IN HAR SHANKAR SUPRA HAS EXPRESSED THAT, THE POWER OF THE GOVERNMENT TO CHARGE A PRIC E FOR PARTING WITH ITS RIGHTS AND NOT THE MODE OF FIXING THE PRICE IS WHAT CONSTITUTES THE ES SENCE IN THE EXERCISE OF THE MATTER, ARE THE WORDS USED BY THE SUPREME COURT IN DEALING WITH THE PRIVILEGE OF THE STATE GOVERNMENT TO FIX SUCH A PRIVILEGE FEE. THEREFORE, IT WOULD AP TLY APPLY IN THE FACTS AND CIRCUMSTANCES OF THESE CASES IN SO FAR AS THE ASSESSING OFFICER HAVIN G EXPRESSED AN OPINION OF THE STATE GOVERNMENT HAVING EXERCISED ITS POWER UNSCIENTIFIC ALLY, ILLEGALLY AND IRRATIONALLY. (SIC) 10. A PERUSAL OF THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF AP BEVERAGES CORPORATION LTD., SHOWED THAT CO-ORDIN ATE BENCH HAD CLEARLY AND CATEGORICALLY SPECIFIED THAT THE FACTS IN THE C ASE OF AP BEVERAGES CORPORATION LTD., WERE DISTINGUISHABLE FROM THE FAC TS OF THE ASSESSEES CASE, THEREFORE, ADMITTEDLY THE SAID DECISION CANNO T BE HELD TO HAVE ANY PERSUASIVE VALUE. IN THESE CIRCUMSTANCES, AS THE I SSUE OF FEES LEVIED BY THE GOVERNMENT HAS ALREADY BEEN HELD TO BE AN ALLOW ABLE EXPENDITURE, RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATA KA BEVERAGES CORPORATION LTD., THE ADDITIONS MADE BY THE AO AND AS CONFIRMED BY THE ITA NOS.2866 TO 2869/MDS/2016 & ITA NO.233/MDS/2017 :- 11 -: LD.CIT(A) IN RESPECT OF THE VEND FEE, SPECIAL PRIVI LEGE FEE AND THE ANNUAL LICENSE FEE STANDS DELETED. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESS EE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 21, 2 017, AT CHENNAI. SD/- SD/- ( . ) ( A. MOHAN ALANKAMONY ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 1 /DATED: AUGUST 21, 2017. TLN ) '23 43 /COPY TO: 1. & /APPELLANT 4. 5 /CIT 2. '(& /RESPONDENT 5. 3 ' /DR 3. 5 ( ) /CIT(A) 6. /GF
Mehul