DCIT, Circle-1(1), Hyd, Hyderabad V. Andhra Pradesh Beverages Corporation Ltd., Hyd, Hyderabad

ITA 360/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5923 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SVSS PRASAD
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Gift; Depreciation; Business expenditure; Diversion of income; Retrospective amendment; Additional evidence
• Section: 43B; 143(3); 142(1); 115JB; 37(1); 80G; 27

Judgement Text

ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 1 OF 28 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.360/HYD/2015 ASSESSMENT YEAR 2010-2011 THE DCIT, CIRCLE - 1(1) HYDERABAD. VS. M/S. A.P. BEVERAGES CORPORATION LTD., HYDERABAD. PAN AABCA7385A (APPELLANT) (RESPONDENT) ITA.NO.417/HYD/2015 ASSESSMENT YEAR 2010-2011 M/S. A.P. BEVERAGES CORPORATION LTD., HYDERABAD. PAN AABCA7385A VS. THE DCIT, CIRCLE - 1(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : DR. SVSS PRASAD FOR ASSESSEE : MR. Y. RATNAKAR & MR. B.SATYANARAYANA MURTHY. DATE OF HEARING : 06 . 1 0.2016 DATE OF PRONOUNCEMENT : 21 . 12 .2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE CROSS-APPEALS FOR THE A.Y. 2010-2011. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-C OMPANY, ENGAGED IN THE BUSINESS OF TRADING IN ALCOHOLIC PRO DUCTS, FILED ITS RETURN OF INCOME FOR THE A.Y. 2010-2011 ON 16.09.20 10 DECLARING NIL ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 2 OF 28 INCOME AS PER THE NORMAL PROVISIONS OF THE I.T. ACT AND PAID TAX ON BOOK PROFIT OF RS.99,630 UNDER SECTION 115JB OF THE I.T. ACT. 3. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE I.T. ACT, THE A.O. OBSERVED THAT THE ASSESSEE (APBC L IN SHORT) IS A CORPORATION WHOLLY OWNED AND CONTROLLED BY THE GOVE RNMENT OF A.P. AS PER THE ANDHRA PRADESH (REGULATION OF TRADE IN INDI AN MADE FOREIGN LIQUOR, FOREIGN LIQUOR) ACT, 1993 AND HAS BEEN GIVE N THE EXCLUSIVE PRIVILEGE OF IMPORTING AND EXPORTING AND CARRYING O N THE WHOLESALE TRADE AND DISTRIBUTION OF IMFL, FOREIGN LIQUOR, WIN E AND BEER ON BEHALF OF THE GOVERNMENT, FOR THE WHOLE OF THE STAT E OF ANDHRA PRADESH AND NO OTHER PERSON SHALL BE ENTITLED TO AN Y PRIVILEGE OF CARRYING ON SUCH BUSINESS IN WHOLESALE OR DISTRIBUT ING THE SAME FOR THE WHOLE OR ANY PART OF THE STATE. HE OBSERVED THA T IN PURSUANCE OF ACT 15 OF 1993, THE WHOLESALE TRADE OF INDIAN MADE FOREIGN LIQUOR, (IMFL) AND BEER IN THE STATE OF A.P, WAS ENTRUSTE D TO THE CORPORATION W.E.F. 01.01.1994 AND SECTIONS 23A AND 23B WERE INS ERTED IN THE EXCISE ACT TO ENSURE PROPER COLLECTION OF REVENUES FROM THE APBCL WHICH HAS EXCLUSIVE RIGHTS OVER WHOLESALE TRADE IN LIQUOR IN THE STATE OF A.P. HE OBSERVED THAT FOR THE PREVIOUS YEAR RELE VANT TO THE A.Y. 2010-2011, THE ASSESSEE HAS DECLARED A TURNOVER OF RS.11,862.84 CRORES AND A PROFIT OF RS.7,06,770 AS PER THE PROVI SIONS OF THE COMPANIES ACT. HE ALSO OBSERVED THAT ON ACCOUNT OF ADJUSTMENTS ON ACCOUNT OF DEPRECIATION, ALLOWANCES ON ACCOUNT OF S ECTION 43B AND DEDUCTION UNDER SECTION 80G, THE INCOME WAS SHOWN A T RS.NIL FOR INCOME TAX PURPOSES. FROM THE P & L A/C OF THE ASSE SSEE, HE OBSERVED THAT THE EXPENDITURE CLAIMED INCLUDED PRIVILEGE FEE AT RS.2391,89,30,220 PAID TO THE GOVERNMENT OF A.P. VI DE NOTICE UNDER SECTION 142(1) OF THE I.T. ACT, THE ASSESSEE WAS AS KED TO FURNISH THE BASIS FOR REMITTANCE OF THE FEE TO THE GOVERNMENT O F A.P. AND WAS ALSO ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 3 OF 28 ASKED TO FILE THE WORKING SHEET SHOWING THE COMPUTA TION, SUPPORTED BY THE COPIES OF RELEVANT G.OS OR CORRESPONDENCE. 4. THE ASSESSEE VIDE LETTER DATED 24.01.2013 FILED THE COPIES OF THE ORDER SHEETS CONTAINING NOTINGS RELATING TO PAYMENT OF PRIVILEGE FEE ETC., WHEREIN THE AMOUNT OF PRIVILEGE FEE ETC., FOR EACH MONTH HAS BEEN WORKED OUT. FOR SPECIAL PRIVILEGE FEE FOR SPORTS, C OPY OF G.O.RT.NO.218 DATED 05.02.2005 (G.O MS. NO.391 DATED 12.06.2001) WAS SEPARATELY FILED WHEREIN IT WAS STATED THAT THE CORPORATION WA S TO REMIT RS.25 CRORES PER ANNUM TO THE SPORTS AUTHORITY OF A.P. 5. AFTER CONSIDERING THE ABOVE, THE A.O. ISSUED A S HOW CAUSE LETTER DATED 19.02.2013 ASKING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE OF (I) PRIVILEGE FE E ETC.(II) DEDUCTION UNDER SECTION 80G AND (III) GROUP LEAVE ENCASHMENT CLAIM, AS PER PROVISIONS OF SECTION 43B(F) OF THE ACT. THE ASSESS EE WAS ASKED TO EXPLAIN AS TO WHY THE PRIVILEGE FEE, SPECIAL PRIVIL EGE FEE, AND SPORTS PRIVILEGE FEE SHOULD NOT BE DISALLOWED AND ADDED BA CK TO THE ASSESSEES INCOME, AS ACCORDING TO HIM, THE PAYMENT OF PRIVILEGE FEE TO THE GOVT. IS NOTHING BUT APPLICATION OF ITS INCOME. AS REGARDS THE CONTRIBUTION TO THE CHIEF MINISTERS RELIEF FUND, P URSUANT TO THE LETTER OF THE PRINCIPAL SECRETARY TO THE GOVT. OF A.P, THE ASSESSEE WAS ASKED AS TO WHY DISALLOWANCE OF THE SAME SHOULD NOT BE MA DE AS THE SAME IS NOT VOLUNTARY IN NATURE. AS REGARDS THE CONTRIBUTIO N OF RS.3,19,05,158/- TO GROUP LEAVE ENCASHMENT SCHEME W ITH LIC OF INDIA, IT WAS SOUGHT TO BE DISALLOWED U/S 43B(F) OF THE ACT. FURTHER, THE AO OBSERVED THAT AN AMOUNT OF RS.20,95,646 HAS BEEN ACCRUED AS INTEREST ON THE ABOVE SCHEME WHICH HAS NOT BEEN OFF ERED TO TAX. THE ASSESSEE WAS THEREFORE, ASKED TO SHOW CAUSE AS TO W HY THE SAME SHOULD NOT BE TREATED AS ASSESSEES INCOME. ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 4 OF 28 6. ON THE PROPOSAL OF DISALLOWANCE OF THE ABOVE AMO UNTS, THE ASSESSEE, VIDE ITS LETTER DATED 27.02.2013, SUBMITT ED THAT THE PRIVILEGE FEE PAID IS IN CONSIDERATION OF THE PRIVILEGE CONFE RRED ON THE CORPORATION AND IS IN ACCORDANCE WITH THE PROVISION S OF SECTION 23A OF THE EXCISE ACT AND SINCE THE ASSESSEE IS DEEMED TO BE AN AUTHORITY ACTING ON BEHALF OF THE GOVERNMENT, IT HAS TO BE CO NSIDERED AS AN AGENT OF THE STATE. IT WAS SUBMITTED THAT THE PAYME NT OF PRIVILEGE FEES IS DIVERSION OF INCOME BY OVERRIDING TITLE AND IS NOT APPLICATION OF INCOME AND FURTHER THAT, INCOME TAX IS TO BE ASCERT AINED AFTER PROFIT IS ASCERTAINED AFTER PAYMENT OF THE PRIVILEGE FEE. IT WAS ALSO CLAIMED THAT THE EXPENDITURE INCURRED BY WAY OF PRIVILEGE FEE IS REVENUE IN NATURE AS PER THE PROVISIONS OF THE INCOME TAX ACT AND THE REFORE, IT CANNOT BE DISALLOWED. IT WAS SUBMITTED THAT INCOME TAX IS TO BE ASCERTAINED ONLY AFTER THE PROFIT IS ASCERTAINED AFTER PAYMENT OF TH E PRIVILEGE FEES. THE ASSESSEE ALSO SUBMITTED THAT THE PROVISIONS OF THE ACT WHICH CONFERRED THE PRIVILEGE ON THE ASSESSEE UNDERWENT AN AMENDMEN T BY INSERTION OF SECTIONS 4A, 4B AND 4C BY ACT 5 OF 2012 W.R.E.F 21. 7.1993, BY VIRTUE OF WHICH, IT IS THE GOVT, WHICH FROM TIME TO TIME, SPE CIFIES THE TRADE MARGIN, PRIVILEGE FEE OR ANY OTHER LEVY BY WHATEVER INCOME CALLED TO BE COLLECTED BY THE ASSESSEE AND THE AMOUNT SO REALIZE D U/S 4A, BEING THE INCOME OF THE GOVT, IS TO BE REMITTED BY APBCL TO THE GOVT. IN THE MANNER SPECIFIED BY THE GOVT. AND THAT, ALL AMOUNTS PAID BY THE CORPORATION FROM 21.7.1993 TO THE GOVT. AS PRIVILEG E FEE OR SPECIAL PRIVILEGE FEE OR ANY OTHER FEES OR CESS BY WHATEVER NAME CALLED, IN CONSIDERATION OF THE PRIVILEGE CONFERRED ON THE COR PORATION AS PER THE PROVISIONS OF SECTION 23(1), 23A & 23B OF THE A.P. EXCISE ACT, 1968, SHALL BE DEEMED TO BE AND ALWAYS DEEMED TO HAVE BEE N, THE INCOME OF THE GOVT AND DUE PAYMENT FOR THE RELEVANT YEARS IN TERMS OF SECTION 4B AND SECTION 23A AND 23B SHALL BE OMITTED FROM TH E A.P. EXCISE ACT ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 5 OF 28 OF 1968. THUS, IT WAS SUBMITTED THAT THE PRIVILEGE FEE WAS THE INCOME OF THE STATE AND CANNOT BE BROUGHT TO TAX IN THE HA NDS OF THE ASSESSEE. HOWEVER, AO WAS NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE. HE HELD THAT AS PER SECTION 23B OF THE A.P. EXCISE ACT, AFTER DEDUCTING THE EXPENSES, THE RESIDUARY SUM IS TO BE PAID AS PR IVILEGE FEE TO THE GOVT. OF A.P AND THEREFORE, THE ASSESSEE IS LIABLE TO FIRST PROVIDE FOR INCOME TAX AND ONLY THEN REMIT THE RESIDUAL SUM AS PRIVILEGE FEE ETC., TO THE STATE GOVERNMENT. HE THUS, MADE THE DISALLOW ANCE OF THE PRIVILEGE FEE AND OTHER SIMILAR FEES AND BROUGHT IT TO TAX. THE A.O. ALSO RELIED UPON THE JUDGMENT OF THE APEX COURT IN THE C ASE OF APSRTC REPORTED IN (1964) 052 ITR 0524 (S.C) FOR HOLDING T HAT THE ASSESSEE IS NOT AN ARM OF THE GOVT. AND THEREFORE, ITS INCOME C ANNOT BE CONSIDERED AS THE INCOME OF THE GOVT. AND THUS DENIED THE CLAI M OF THE ASSESSEE. 7. THEREAFTER, THE AO ALSO OBSERVED THAT THE ASSESS EE HAS MADE A CLAIM OF DEDUCTION UNDER SECTION 80G OF THE ACT WIT H REGARD TO THE CONTRIBUTION MADE TO THE CHIEF MINISTERS RELIEF FU ND. IT WAS SUBMITTED THAT THE CORPORATION IS WHOLLY OWNED BY T HE STATE GOVERNMENT, AND IT IS DECLARED BY THE STATE GOVERNM ENT IN THE AMENDMENT ACT THAT THE INCOME FROM TRADE IN LIQUOR BELONGS TO IT AND THEREFORE, IF THE GOVERNMENT, THROUGH A G.O., DIREC TS THAT A SUBSTANTIAL MARGIN SHOULD BE CONTRIBUTED TO THE C.M S RELIEF FUND, IT AMOUNTS TO VOLUNTARY CONTRIBUTION ONLY. THE A.O. DI D NOT ACCEPT THE ASSESSEES CONTENTION OBSERVING THAT ANY CONTRIBUTI ON TO BE CALLED AS DONATION HAS TO BE VOLUNTARY IN NATURE AND SINCE THE CONTRIBUTION BY THE ASSESSEE TO THE C.MS. RELIEF FUND WAS IN PURSU ANCE OF A LETTER OF THE PRINCIPAL SECRETARY TO THE GOVERNMENT, IT IS NO T A VOLUNTARY DONATION AND THEREFORE, THE CLAIM OF DEDUCTION UNDE R SECTION 80G WAS DENIED. ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 6 OF 28 8. FURTHER, ON THE ISSUE OF PAYMENT TO LIC TOWARDS GROUP LEAVE ENCASHMENT SCHEME, THE ASSESSEE HAD SUBMITTED THAT THE ENTIRE AMOUNT CLAIMED WAS IN ACCORDANCE WITH THE PROVISION S OF SECTION 43B(F) OF THE ACT AND THEREFORE, IT IS ALLOWABLE. W ITH REGARD TO THE INTEREST ON SUCH GROUP LEAVE ENCASHMENT, IT WAS SUB MITTED THAT THE ASSESSEE HAS NO CONTROL OVER THE INTEREST AS IT ACC RUES IN THE LIC ON THE PAYMENT TO GROUP LEAVE ENCASHMENT FUND AND AS P ER THE TERMS AND CONDITIONS OF LIC, THE LIC WILL INTIMATE THE LI ABILITY OF THE ASSESSEE FOR THE NEXT YEAR AFTER ADJUSTING THE PAYMENTS MADE DURING THE YEAR TO THE EMPLOYEES AFTER CARRYING OUT ACTUARIAL VALUATIO N AND INTEREST EARNED DURING THE PREVIOUS YEAR. IT WAS SUBMITTED T HAT ON RECEIPT OF SUCH ADVICE, THE CORPORATION WOULD PAY THE AMOUNT A S CONTRIBUTION FOR THE YEAR. THUS, ACCORDING TO THE ASSESSEE, INTE REST EARNED ON THE FUND HAS NEITHER ACCRUED NOR PAID TO THE CORPORATIO N UNLESS THE FUND IS TERMINATED AND HENCE, IS NOT LIABLE TO TAX IN TH E HANDS OF THE ASSESSEE. THE A.O. HOWEVER, DISALLOWED THE CONTRIBU TION TO LIC, ON THE GROUND THAT THE SAME IS NOT ALLOWABLE UNDER SECTION 43B(F) OF THE ACT AND ALSO BROUGHT TO TAX THE INTEREST ON THE SAID F UND. 9. AGGRIEVED BY THE ABOVE DISALLOWANCES AND THE ADD ITIONS, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGAINST THE RELIEF GRANTED BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US, WHILE THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCES AND THE CONSEQUENT ADDITIONS CONF IRMED BY THE CIT(A). 10. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAI SED THE GROUNDS OF APPEAL AGAINST THE DISALLOWANCE OF PRIVI LEGE FEE, SPECIAL PRIVILEGE FEE AND SPECIAL PRIVILEGE FEE (SPORTS) AG GREGATING TO ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 7 OF 28 RS.2391,89,30,220 AND ALSO AGAINST THE ADDITION OF RS.20,95,646 ON ACCOUNT OF INTEREST CREDITED BY LIC ON LEAVE ENCASH MENT FUND. 11. AT THE TIME OF HEARING, THE LD. D.R., SUBMITTE D THAT THE ISSUE OF ALLOWABILITY OF PRIVILEGE FEE, SPECIAL PRI VILEGE FEE AND SPECIAL PRIVILEGE FEE (SPORTS) IS COVERED AGAINST THE ASSES SEE BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.YS. 2006-07, 2008-09 AND 2009-10 IN ITA.NOS.302, 303 AND 545/2013 DATED 21.01.2014. THEREFORE, ACCORDING TO HIM, THE ASSESSEES APPEAL IS LIABLE TO BE DISMISSED. 12. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT CERTAIN IMPORTANT FACTS WERE NOT BRO UGHT TO THE NOTICE OF THE INCOME TAX APPELLATE TRIBUNAL IN THE EARLIER YEARS WHICH MIGHT HAVE RESULTED IN THE DECISION BEING TAKEN AGAINST T HE ASSESSEE AND FURTHER THAT UNDER SIMILAR CIRCUMSTANCES, THE HONB LE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE BEVERAGES CORP ORATION LTD IN W.P. NO.12872 OF 2013 & OTHERS VIDE ORDER DATED 18. 02.2016 HAS GIVEN A JUDGMENT IN FAVOUR OF THE ASSESSEES THEREIN . THEREFORE, ACCORDING TO HIM, ASSESSEES APPEAL NEEDS TO BE CON SIDERED ON MERITS AFRESH. IN VIEW OF THE SAME AND TO UNDERSTAND THE F ACTUAL ASPECT AND ALSO AS TO WHETHER THE ISSUE IS COVERED BY THE JUDG MENT OF THE HONBLE KARNATAKA HIGH COURT, WE PROCEEDED TO HEAR THE ASSE SSEES APPEAL AT LENGTH. 13. THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO VARIOUS SECTIONS OF EXCISE ACT, MORE PARTICULARLY, SECTIONS 23, 23A & 23B OF THE 1968 AND 1993 ACTS TO DEMONSTRATE THAT T HE PRIVILEGE FEE IS THE AMOUNT PAYABLE BY THE ASSESSEE TO THE GOVERNMEN T FOR GRANTING THE PRIVILEGE FOR CARRYING ON THE TRADE IN FOREIGN LIQUOR AND INDIAN MADE FOREIGN LIQUOR EXCLUSIVELY. ACCORDING TO HIM, THE PROVISIONS ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 8 OF 28 PRESCRIBE THAT THE ENTIRE MARGIN, THE SPECIAL PRIVI LEGE FEE AND ANY OTHER RECEIPTS REALIZED BY THE CORPORATION, FROM WH ATEVER SOURCE, AFTER DEDUCTING THE EXPENSES INCURRED BY THE CORPORATION, SHALL BE PAID AS PRIVILEGE FEE OR SPECIAL PRIVILEGE FEE OR ANY OTHER FEE BY WHATEVER NAME CALLED TO THE COMMISSIONER OF PROHIBITION & EXCISE IN TERMS OF SECTION 23(1) OF THE EXCISE ACT IN THE MONTH SUCCEEDING THE MONTH OF SALE. THUS, ACCORDING TO HIM, THE SECTION CLEARLY PROVIDE S THAT THE ASSESSEE IS ENTITLED TO ONLY THE EXPENDITURE INCURRED BY IT AND ALL OTHER RECEIPTS ARE TO BE TRANSFERRED TO THE GOVERNMENT OF A.P. TOW ARDS PRIVILEGE FEE, SPECIAL PRIVILEGE FEE ETC. THUS, ACCORDING TO HIM, THE RECEIPTS ARE NOT THE INCOME OF THE ASSESSEE BUT ARE THE INCOME OF TH E GOVERNMENT OF A.P. AND THE ASSESSEE IS ENTITLED TO KEEP ONLY THE AMOUNT INCURRED BY IT TOWARDS THE EXPENDITURE. ACCORDING TO THE LD. CO UNSEL FOR THE ASSESSEE, THIS FACT HAS NOT BEEN PROPERLY APPRECIAT ED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER A.YS. FURTHER, HE SUBMITTED THAT THE ASSESS EE HAS BEEN FOLLOWING THE SAME METHOD OF MAKING PAYMENT OF PRIV ILEGE FEE TO THE GOVERNMENT SINCE INCEPTION AND IT WAS ONLY IN THE Y EARS 2006-2007 AND 2009-2010 THAT THE REVENUE AUTHORITIES HAVE DIS ALLOWED THE SAME. FURTHER, HE SUBMITTED THAT THOUGH THE DOCTRINE OF R ES-JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS, THE HONB LE SUPREME COURT IN ITS DECISION IN THE CASE OF RADHASOAMI SATSANG V S. CIT REPORTED IN 193 ITR 321 (S.C) HAS HELD THAT THE DOCTRINE OF CON SISTENCY REQUIRES THAT THE REVENUE AUTHORITIES FOLLOW AND MAINTAIN UN IFORMITY AND CONSISTENCY IN THE CASE OF AN ASSESSEE OVER A PERIO D OF TIME UNLESS THERE ARE DISTINGUISHING FACTORS. HE HAS ALSO PLACE D RELIANCE UPON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF KARNATAKA STATE BEVERAGES CORPORATION LTD., IN WP.NO.17514 OF 2015 DATED 18 TH FEBRUARY, 2016 WHEREIN IT HAS BEEN HELD THAT THE PR IVILEGE FEE IS ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 9 OF 28 TAXABLE ONLY W.E.F. 01.04.2014 AND NOT PRIOR THERET O. AS REGARDS THE A.OS RELIANCE ON AS-22 TO STATE THAT THE INCOME TA X IS AN EXPENDITURE, HE SUBMITTED THAT THE SAID CONTENTION IS NOT CORREC T. THEREFORE, HE PRAYED THAT THE DECISION OF THE HONBLE KARNATAKA H IGH COURT BE FOLLOWED AND THE PRIVILEGE FEE BE ALLOWED. ALTERNAT IVELY, THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IF THE TRIBUNA L IS NOT INCLINED TO CONSIDER THE PRIVILEGE FEE AS DIVERSION OF INCOME BY OVERRIDING TITLE, THEN THE SAME MAY BE ALLOWED AS EXPENDITURE INCURRE D FOR THE PURPOSE OF CARRYING ON THE ASSESSEES BUSINESS. 14. THE LD. D.R, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND RELIED UPON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EA RLIER ASSESSMENT YEAR. HE ALSO TRIED TO DISTINGUISH THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT STATING THAT IN THE CASE OF TH E ASSESSEE BEFORE US, THERE WAS NO PERCENTAGE FIXED FOR PAYMENT OF TH E PRIVILEGE FEE WHEREAS, IN THE CASE OF KARNATAKA STATE BEVERAGES C ORPORATION, PRIVILEGE FEE WAS PAID AT A FIXED PERCENTAGE OF THE TURNOVER. THUS, ACCORDING TO HIM, THE DECISION OF THE HONBLE KARNA TAKA HIGH COURT CANNOT BE FOLLOWED IN ASSESSEES CASE. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT UNDISPUTEDLY THE ASSESSEE IS C ONFERRED WITH THE PRIVILEGE OF MANUFACTURE AND TRADING OF LIQUOR IN T HE STATE OF A.P. BY THE GOVT. OF A.P. FOR A PRIVILEGE FEE. ADMITTEDLY, THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE IN THE EARLIER A.YS AND THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASSESSEE AND THE ASSE SSEE IS IN APPEAL BEFORE THE HON'BLE HIGH COURT. IT IS THE CASE OF TH E ASSESSEE THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY V IRTUE OF THE HON'BLE KARNATAKA HIGH COURT DECISION IN THE CASE OF KARNAT AKA STATE ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 10 OF 28 BEVERAGES CORPN. VS. CIT (CITED SUPRA) AND THAT THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT HAS TO BE FOLLOWED SIN CE THERE IS NO DECISION OF ANY OTHER HIGH COURT AGAINST THE ASSESS EE. 16. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBU NAL IN THE ASSESSEES OWN CASE FOR THE A.Y 2006-07, 2008-09 AN D 2009-10 HAS HELD THE ISSUE AGAINST THE ASSESSEE VIDE ORDERS DAT ED 22.01.2014. WE HAVE PERUSED THE ORDER AND WE FIND THAT IN THE SAID ORDERS, THE TRIBUNAL HAS CONSIDERED AS TO WHETHER THE PRIVILEGE FEE, SPECIAL PRIVILEGE FEE ETC., PAID BY THE ASSESSEE TO THE GOV T. WAS DIVERSION OF INCOME BY OVERRIDING TITLE. THE TRIBUNAL HAS HELD THAT AS PER THE AMENDED PROVISION OF EXCISE ACT, THE PAYMENT OF MAR GINS IN THE FORM OF PRIVILEGE FEE ETC, IS NOT THE INCOME OF THE GOVE RNMENT NOR IS IT DIVERSION OF INCOME BY OVERRIDING TITLE. FURTHER, AT PARA 21 OF ITS ORDER, THE TRIBUNAL HAS ALSO CONSIDERED AS TO WHETH ER THE SPECIAL PRIVILEGE FEE PAID TO THE GOVT. CAN BE ALLOWED AS E XPENDITURE. THE TRIBUNAL, AFTER CONSIDERING THE AS-22 HAS OBSERVED THAT IT WOULD BE LOGICAL TO CONSIDER THAT THE ASSESSEE SHOULD HAVE R EMITTED ITS MARGIN, PRIVILEGE FEE ETC., AFTER DEDUCTING EXPENSES WHICH ALSO INCLUDED INCOME TAX AND FURTHERMORE, WHEN NO MECHANISM HAS BEEN PRO VIDED FOR COMPUTING THE PRIVILEGE FEE, SPECIAL PRIVILEGE FEE ETC., AND ADMITTEDLY THE ASSESSEE HAVING NOT COLLECTED PRIVILEGE FEE, SP ECIAL PRIVILEGE FEE ETC., SEPARATELY IN THE BILLS, THE QUANTIFICATION OF SUCH FEE IS ALSO NOT POSSIBLE AND IN THESE CIRCUMSTANCES, IT CANNOT BE C LAIMED AS EXPENDITURE. THE TRIBUNAL HELD THAT THE PAYMENT OF SURPLUS/MARGIN/PRIVILEGE IS ONLY PARTLY OF THE PROF IT OF THE ASSESSEE CORPORATION TO THE STATE AND THEREFORE, IT CANNOT B E ANYTHING ELSE BUT APPLICATION OF INCOME AND THEREFORE, NOT ALLOWABLE AS AN EXPENDITURE. THUS, IT CAN BE SEEN THAT THE ISSUE AS TO WHETHER T HERE IS ANY DIVERSION OF INCOME BY OVERRIDING TITLE TO THE STAT E IS CLEARLY AGAINST ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 11 OF 28 THE ASSESSEE BY THE ABOVE ORDER OF THE TRIBUNAL AND THE COORDINATE BENCH OF THIS TRIBUNAL IS BOUND TO FOLLOW THE SAME FOR THE SAKE OF UNIFORMITY UNLESS THE FACTS GERMANE TO THE ISSUE HA VE NOT BEEN CONSIDERED BY THE EARLIER BENCH OR NEW FACTS HAVE E MERGED THIS YEAR REQUIRING FRESH LOOK AT THE ISSUE. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON THE FOLLOWING DECISIONS TO CONTEND THAT THIS TRIBUNAL C AN RE-CONSIDER/RE- EXAMINE THE ISSUE IF THERE IS ANY NEW MATERIAL, OR CHANGE IN CIRCUMSTANCES: A) NEW JEHANGIR VAKIL MILLS CO. VS. CIT 49 ITR 137 @142(S.C) B) ITO V. MURALIDHAR BHAGWANDAS 52 ITR 335 @ 342(S .C) C) RADHASOAMY SATSANG V. CIT 193 ITR 321 @ 329 (S. C) D) CIT V. BRIJLAL LOHIA AND MAHABIR PRASAD 84 ITR 273 @ 277(S.C) E) CIT VS. KALPETTA ESTATES LTD 211 ITR 635 @ 638 (KER.) 18. WE FIND THAT THE HON'BLE SUPREME COURT IN THE C ASE OF NEW JEHANGIR VAKIL MILLS CO. LTD (SUPRA), HELD THAT THE TRIBUNAL CAN DECIDE THE APPEAL ON THE BASIS OF THE FACTS ADMITTED AND/O R FOUND BY THE TRIBUNAL. IN THE CASE OF INCOME TAX OFFICER VS. MUR ALIDHAR BHAGWAN DAS (SUPRA), THE HON'BLE SUPREME COURT HELD THAT IN DECIDING AN APPEAL RELATING TO ONE ASSESSMENT YEAR, THE APPELLA TE AUTHORITY CANNOT GIVE A DIRECTION OR A FINDING THAT A PARTICULAR INC OME WHICH WAS NOT CHARGEABLE TO TAX IN THAT ASSESSMENT YEAR, WAS CHAR GEABLE TO TAX IN ANOTHER A.Y. HON'BLE SUPREME COURT, IN THE CASE OF RADHASOAMY STASANG VS. CIT REPORTED IN 193 ITR 321 VS. CIT (SU PRA), HELD THAT THE ASSESSMENTS ARE QUASI-JUDICIAL AND EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR, BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH T HE DIFFERENT A.YS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND T HE PARTIES HAVE ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 12 OF 28 ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLE NGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITI ON TO BE CHANGED IN A SUBSEQUENT YEAR. 19. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . BRIJ LAL LOHIA AND MAHABIR PRASAD KHEMKA (CITED SUPRA) WAS DEALING WITH THE CASE OF AN ASSESSEE WHO GIFTED SOME OF THE MONEY TO HIS BROTHER AND HIS NEPHEW WHO ARE STATED TO HAVE STARTED A NEW FIRM DE ALING IN JUTE WHILE THE ASSESSEE HAS STOPPED HIS BUSINESS OF DEALING IN JUTE. THE QUESTION FOR CONSIDERATION WAS WHETHER THE GIFTS STATED TO H AVE BEEN GIVEN BY THE ASSESSEE WERE GENUINE. THIS QUESTION HAD COME U P FOR CONSIDERATION BEFORE THE AUTHORITIES WHILE DEALING WITH THE ASSESSMENT OF THE ASSESSEE FOR THE A.YS 1945-46 AND 1946-47 AN D ON THE BASIS OF THE MATERIAL BEFORE THEM, THE TRIBUNAL HELD THAT TH E GIFTS, IN QUESTION, ARE NOT GENUINE GIFTS. THE HON'BLE HIGH COURT DID N OT INTERFERE WITH THE FINDINGS OF THE TRIBUNAL ON THE GROUND THAT IT WAS A FINDING OF FACT. THE MATTER TRAVELLED UP TO THE HON'BLE SUPREME COUR T ALSO AND THE APEX COURT REFUSED TO INTERFERE WITH THE FINDING OF THE TRIBUNAL OBSERVING THAT THE QUESTION WHETHER THE GIFTS WERE REAL WAS THE MATTER WITHIN THE JURISDICTION OF THE TRIBUNAL AS THE FINA L FACT FINDING AUTHORITY. THE QUESTION WHETHER THOSE VERY GIFTS WE RE GENUINE OR NOT CAME UP AGAIN BEFORE THE AUTHORITIES WHILE DEALING WITH THE ASSESSMENT OF THE ASSESSEE FOR THE A.YS 1947-48 TO 1951-52. IN THESE YEARS, THE ASSESSEE ADDUCED CONSIDERABLE ADDITIONAL EVIDENCE. ON THE BASIS OF THAT EVIDENCE, THE TRIBUNAL AFTER TAKING I NTO CONSIDERATION THE DECISION RENDERED BY THE TRIBUNAL IN THE PREVIOUS P ROCEEDINGS, CAME TO CONCLUSION THAT THE GIFTS, IN QUESTION, ARE GENU INE. THE MATTER TRAVELLED UP TO THE HON'BLE SUPREME COURT AND AFTER CONSIDERING THE EVIDENCE TAKEN INTO CONSIDERATION BY THE TRIBUNAL F OR A DIFFERENT CONCLUSION THAN IN THE EARLIER A.YS, THE HON'BLE SU PREME COURT HELD ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 13 OF 28 THAT THE CIRCUMSTANCES TAKEN INTO CONSIDERATION BY THE TRIBUNAL HAVE MATERIAL BEARING ON THE POINTS ON THE ISSUE AND THA T IT CANNOT BE SAID THAT THE TRIBUNAL HAS IGNORED ANY ONE OF THE RELEVA NT CIRCUMSTANCES. THE HON'BLE SUPREME COURT ALSO OBSERVED THAT THE FA CT THAT IN THE EARLIER PROCEEDINGS, THE TRIBUNAL TOOK A DIFFERENT VIEW OF THOSE DEEDS IS NOT A CONCLUSIVE CIRCUMSTANCE AND THE DECISION OF T HE TRIBUNAL REACHED DURING THOSE PROCEEDINGS DOES NOT OPERATE A S RES JUDICATA. 20. THE HON'BLE KERALA HIGH COURT IN THE CASE OF CI T VS. KALPETTA ESTATES LTD (CITED SUPRA) ALSO HAS HELD THAT THE DE CISION IN THE ASSESSEES CASE RELATING TO PRIOR YEARS WOULD NOT O PERATE AS RES JUDICATA AND THE TRIBUNAL IS ENTITLED TO TAKE A DIFFERENT VI EW OF THE MATTER, IF NEW MATERIALS ARE PLACED OR ON A CLOSER AND MORE INTELLIGENT ANALYSIS. THUS, IN VIEW OF THE ABOVE DECISIONS, IT CAN BE CONCLUDED THAT THE DECISION IN THE CASE OF AN ASSESSEE IN ONE PART ICULAR YEAR MAY NOT ACT AS RES JUDICATA, BUT IT IS ALSO NOT PERMISSIBLE TO DISTURB A SETTLED POSITION IN THE SUBSEQUENT YEARS WITHOUT ANY BASIS. 21. IN THE CASE BEFORE US, IT IS THE CONTENTION OF THE ASSESSEE THAT ALL ALONG, PRIVILEGE FEE PAID BY THE ASSESSEE HAS BEEN ALLOWED, EXCEPT FOR THE A.YS 2006-07 ONWARDS WHEN, THE REVENUE HAS DISA LLOWED THIS ITEM. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLAC ED RELIANCE UPON THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE BEVERAGE CORPORATION (CITED SUPRA) TO DEMONSTRATE THAT UNDER SIMILAR CIRCUMSTANCES, THE PRIVILEGE FEE PAID TO THE GOVT. OF ANDHRA PRADESH IS TO BE ALLOWED. FURTHER, HE HAS AL SO PLACED RELIANCE UPON THE FOLLOWING DECISIONS FOR THE PROPOSITION TH AT THE I.T. ACT BEING AN ALL INDIA STATUTE, UNIFORMITY IN THE CONSTRUCTIO N OF ITS STATUTORY PROVISIONS IS DESIRABLE AND THE CONSIDERED OPINION OF ANY OF THE HIGH ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 14 OF 28 COURT SHOULD BE FOLLOWED UNLESS THERE ARE OVERRIDIN G REASONS FOR TAKING DIVERGENT VIEW. (I) CIT VS. T.MANEKLAL MFG.CO. LTD (115 ITR 725 (BO M.) (II) CIT VS. JAYANTILAL RAMANLAL & CO. (137 ITR 257 (BOM.) (III) ARVIND BOARDS & PAPER PRODUCTS LTD VS. CIT (1 37 ITR 635 (GUJ.) (IV) CIT VS.HIGHWAY CONSTRUCTIONS CO. (217 ITR 234) 22. HAVING GONE THROUGH THESE DECISIONS, WE FIND TH AT THE COMMON FINDING OF ALL THE HON'BLE HIGH COURTS IS THAT THER E IS A NEED FOR UNIFORM DECISIONS AND THE DECISION OF ONE HIGH COUR T ON IDENTICAL PROVISIONS SHOULD BE FOLLOWED BY ANOTHER HIGH COURT UNLESS THERE ARE OVERRIDING REASONS FOR TAKING A DIVERGENT VIEW. 23. HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. COMMISSIONER OF INCOME-TAX [1992] 193 ITR 321 (SC) HAS ALSO HELD THAT WHERE TWO INTERPRETATIONS ARE POSSIBLE, ONE FA VOURABLE TO THE ASSESSEE SHOULD BE ACCEPTED. 24. THE HON'BLE GUJARAT HIGH COURT WHILE OBSERVING AS ABOVE, HAS ALSO HELD THAT THE INCOME TAX ACT BEING AN ALL INDIA STA TUTE, DECISION OF ONE HIGH COURT INTERPRETING A TAXING PROVISIONS SHOULD GENER ALLY BE FOLLOWED WHEN THERE IS NO OTHER VIEW IN THE FIELD. 25. THE HON'BLE GUWAHATI HIGH COURT IN THE CASE OF HIGHWAY CONSTRUCTIONS (CITED SUPRA) WAS CONSIDERING THE CAS E WHERE THE DEPARTMENTAL APPEAL WAS SET ASIDE AND THE TRIBUNAL HAD TAKEN UP THE ASSESSEES APPEAL AND PASSED ORDERS THEREIN. THE HO N'BLE HIGH COURT HAS HELD THAT WHEN THERE IS A DECISION OF DIFFERENT HIG H COURT AND THERE IS NO CONTRARY DECISION, IT WILL BE JUST AND PROPER FOR T HE TRIBUNAL TO FOLLOW THE SAID DECISION. 26. IN THE CASE BEFORE US, THE DECISIONS AVAILABLE BEFORE US, (I) THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR THE ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 15 OF 28 EARLIER A.YS AND (II) THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT AND IT IS ALSO AN ADMITTED FACT THAT THE HON'BLE HIGH COUR T OF A.P HAS ADMITTED THE ASSESSEES APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE EARLIER A.YS. THEREFORE, WE ARE SATISFIED THAT IT IS NECESSARY TO HAVE A RELOOK AT THE ISSUE IN THE LIGHT OF THE FOLLOWING FACTS BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE A.Y BEFORE US. 27. THE HON'BLE SUPREME COURT IN THE CASE OF HAR SH ANKAR & OTHERS VS. DY. EXCISE & TAXATION COMMISSIONER & OTHERS, REPORT ED IN AIR 1974 S.C 1121 HAS CONSIDERED THE NATURE OF THE RIGHTS BELONG ING TO THE STATE WITH REGARD TO INTOXICANTS AND AT PARAS 55 & 56 OF ITS O RDER HAS HELD AS UNDER: SINCE RIGHTS IN REGARD TO INTOXICANTS BELONG TO THE STATE, IT IS OPEN TO THE GOVERNMENT TO PART WITH THOSE RIGHTS FOR A CONS IDERATION. BY ARTICLE 298 OF THE CONSTITUTION, THE EXECUTIVE POWER OF THE ST ATE EXTENDS TO THE CARRYING ON OF ANY TRADE OR BUSINESS AND TO THE, MAKING OF CONTRACTS FOR ANY PURPOSE. AS OBSERVED IN HARINA RAYAN JAISWAL'S CASE, 'IF THE GOVERNMENT' IS THE EXCLUSIVE OWNER OF THOSE PRIVILEGES, RELIANCE ON ARTICLE 19 ( 1 ) (G) OR ARTICLE 14 BECOMES IRRELEVANT. CITIZENS CANNOT HAVE ANY FUNDAMENTAL RIGHT TO TRADE OR CARRY ON BUSINESS IN THE PROPERTIES OR RIGHTS BELONGING TO THE GOVERNMEN T, NOR CAN THERE BE ANY INFRINGEMENT OF ARTICLE 14 , IF THE GOVERNMENT TRIES TO GET THE BEST AVAILABLE PRICE FOR ITS VALUABLE. RIGHTS.' SECTION 27 OF THE ACT RECOGNISES THE RIGHT OF THE GOVERNMENT TO GRANT A L EASE OF ITS RIGHT TO 'MANUFACTURE, SUPPLY OR SELL INTOXICANTS. SECTION 34 OF THE ACT READ WITH SECTION 59(D) EMPOWERS THE FINANCIAL COMMISSIONER TO DIRECT THAT A LICENCE, PERMIT OR PARS BE GRANTED UNDER THE ACT ON PAYMENT OF SUCH FEES AND SUBJECT TO SUCH RESTRICTIONS AND ON S UCH CONDITIONS AS HE MAY PRESCRIBE. IN SUCH A SCHEME, IT IS NOT OF THE E SSENCE WHETHER THE AMOUNT CHARGED TO THE LICENSEES IS PREDETERMINED AS IN THE APPEALS OF NORTHERN INDIA CATERERS AND OF GREEN HOTEL OR WHETH ER IT IS LEFT TO BE DETERMINED BY BIDS OFFERED IN AUCTIONS HELD FOR GRA NTING THOSE RIGHTS TO LICENSEE,,. THE POWER OF THE GOVERNMENT TO CHARG E A PRICE FOR PARTING WITH ITS RIGHTS AND NOT THE MODE OF FIXING THAT PRICE IS WHAT CONSTITUTES THE ESSENCE OF THE MATTER. NOR INDEED D OES THE LABEL AFFIXED TO THE PRICE DETERMINE EITHER THE TRUE NATURE OF TH E CHARGE LEVIED BY THE GOVERNMENT OR ITS RIGHT TO LEVY THE SAME. THE DISTINCTION WHICH THE CONSTITUTION MAKES FOR LE GISLATIVE PURPOSES BETWEEN A 'TAX' AND A 'FEE' AND THE CHARACTERISTIC OF THESE TWO AS ALSO OF 'EXCISE DUTY' ARE WELL-KNOWN. 'A TAX IS A COMPULSOR Y EXACTION OF MONEY BY PUBLIC AUTHORITY FOR PUBLIC PURPOSES ENFOR CEABLE BY LAW AND IS NOT A PAYMENT FOR SERVICES RENDERED'.(1) A FEE I S A. CHARGE FOR ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 16 OF 28 SPECIAL SERVICES RENDERED TO INDIVIDUALS BY SOME GO VERNMENT THAT AGENCY AND SUCH A CHARGE HAS AN ELEMENT IN IT OF A QUID PRO QUO. (2). EXCISE DUTY IS PRIMARILY A DUTY ON THE PRODUCTION O R MANUFACTURE OF GOODS PRODUCED OR MANUFACTURED WITHIN THE COUNTRY(3 ). THE AMOUNTS, CHARGED TO THE LICENSEES IN THE INSTANT CASE ARE, E VIDENTLY, NEITHER NATURE OF TAX NOR EXCISE DUTY. BUT THEN, THE 'LICEN CE FEE' WHICH THE STATE GOVERNMENT CHARGED TO THE LICENSEES THROUGH T HE MEDIUM OF AUCTIONS OR THE 'FIXED FEE' WHICH IT CHARGED TO THE VENDORS OF FOREIGN. LIQUOR HOLDING LICENCES IN FORMS L-3, L-4 AND L- 5 N EED BEAR NO, QUID PRO QUO TO THE SERVICES RENDERED TO THE LICENCEES. THE WORD 'FEE' IS NOT USED IN THE ACT OR THE RULES IN THE TECHNICAL SENSE OF THE EXPRESSION. BY 'LICENCE FEE' OR 'FIXED FEE' IS MEANT THE PRICE OR CONSIDERATION WHICH THE GOVERNMENT CHARGES TO THE LICENSEES FOR PARTING WIT H ITS PRIVILEGES AND GRANTING THEM TO THE LICENSEES. AS THE STATE CA N CARRY ON A TRADE OR BUSINESS, SUCH A CHARGE IS THE NORMAL INCIDENT O F A TRADING, OR BUSINESS TRANSACTION. 28. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE FOLLOWING JUDGMENTS AND STATUTORY PROVISIONS WERE N OT CONSIDERED IN THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS. A) THE JUDGMENT OF THE CONSTITUTIONAL BENCH OF THE HON'BLE SUPREME COURT IN HAR SHANKAR & OTHERS VS. DY.EXCISE & TAXATION COMMISSIONER & OTHERS REPORTED IN AIR 1974 S.C 1121 WAS NOT NOTICED BY THE HON'BLE TRIBUNAL. B) THE ORDER OF THE HON'BLE TRIBUNAL RUNS COUNTER T O THE JUDGMENT OF THE CONSTITUTIONAL BENCH OF THE HON'BLE SUPREME COURT; C) THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT I N CIT VS. MC. DOWELL & CO. REPORTED IN 314 ITR 167 WAS NOT NOTICE D BY THE HON'BLE TRIBUNAL; D) THE SUBSEQUENT AMENDMENT BY WAY OF INSERTION OF SUB-CLAUSE (IIB) TO SUB-CLAUSE (A) TO SECTION 40 OF THE I.T. A CT W.E.F. 1.4.2014 BY THE FINANCE ACT, 2013 WAS NOT NOTICED BY THE HON 'BLE TRIBUNAL. WHAT IS THE EFFECT OF THE SAID PROVISION IN RELATION TO THE PAST YEARS HAS NOT BEEN GONE INTO. ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 17 OF 28 E) THE SUBSEQUENT JUDGMENT OF THE KARNATAKA HIGH CO URT IN THE CASE OF KARNATAKA BEVERAGE CORPORATION LTD VS. CIT & 3 OTHERS IN W.P. NO.12872 OF 2013 DT. 18.2.2016 WHICH HELD T HAT THE PRIVILEGE FEE IS AN EXPENDITURE THAT NEEDS TO BE DE DUCTED WHILE ARRIVING AT THE TOTAL INCOME NEEDS TO BE CONSIDERED . THIS JUDGMENT IS THE ONLY JUDGMENT OF A HIGH COURT IN TH E COUNTRY ON THE SUBJECT AND THE ORDERS OF THE HON'BLE TRIBUNAL FOR THE EARLIER YEARS RUNS COUNTER TO THIS JUDGMENT. F) INCOME TAX IS AN ENACTMENT OF ALL INDIA APPLICAT ION. THE LAW CANNOT BE DIFFERENT IN ONE STATE AND ALTOGETHER DIF FERENT IN ANOTHER STATE. THEREFORE, IF THERE IS ONE JUDGMENT OF ANY HIGH COURT WHICH HAS TAKEN A PARTICULAR VIEW AND THERE I S NO CONTRARY JUDGMENT IT IS NECESSARY FOR ALL THE BENCHES OF THE HON'BLE TRIBUNAL TO FOLLOW THE ABOVE HIGH COURT JUDGMENT. G) WHETHER THE PAYMENT PRIVILEGE FEES CONSTITUTE AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE I.T. ACT HAS NOT BEEN GONE INTO AND DISCUSSED BY THE HON'BLE TRIBUNAL IN ITS PREVIOUS O RDER. IN THE PRESENT APPEAL IT IS THE CASE OF THE APPELLANT CORP ORATION THAT THE PAYMENT OF PRIVILEGE FEES CONSTITUTES AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE I.T. ACT. 29. WE FIND THAT, IN THE CASE OF CIT VS. MCDOWELL & CO. LTD REPORTED IN 314 ITR 167 (SC), THE HON'BLE SUPREME COURT HAS CON SIDERED THE DECISION IN THE CASE OF HAR SHANKAR & OTHERS (CITED SUPRA) AND HAS HELD THAT THERE IS NO FUNDAMENTAL RIGHT TO DO TRADE OR BUSINESS IN INT OXICANTS AND THE STATE UNDER ITS REGULATORY POWERS HAS THE RIGHT TO PROHIB IT ABSOLUTELY EVERY FORM OF ACTIVITY IN RELATION TO INTOXICANTS, THEIR MANUFACT URE, STORAGE, EXPORT, IMPORT, SALE AND POSSESSION IN ALL THEIR MANIFESTATIONS AND THAT THESE RIGHTS ARE VESTED IN THE STATE. IT WAS HELD THAT THE BOTTLING FEES FOR ACQUIRING A RIGHT OF ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 18 OF 28 BOTTLING OF IMFL WHICH IS DETERMINED UNDER THE EXCI SE ACT IS PAYABLE BY THE ASSESSEE AS CONSIDERATION FOR ACQUIRING THE EXCLUSI VE PRIVILEGE AND IT IS NEITHER FEE NOR TAX BUT THE CONSIDERATION FOR GRANT OF APPROVAL BY THE GOVT. AS TERMS OF CONTRACT IN EXERCISE OF ITS RIGHTS TO E NTER INTO A CONTRACT IN RESPECT OF THE EXCLUSIVE RIGHT TO DEAL IN BOTTLING LIQUOR IN ALL ITS MANIFESTATIONS. 30. WE FIND THAT THESE ABOVE DECISIONS WERE NOT BRO UGHT TO THE NOTICE OF THE TRIBUNAL IN THE EARLIER A.YS. WE HAVE ALSO GONE THROUGH THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KAR NATAKA STATE BEVERAGES CORPORATION LTD AND FIND THAT THE HON'BLE HIGH COUR T HAS TAKEN NOTE OF THESE JUDGMENTS TO HOLD THAT THE PRIVILEGE FEE PAID BY THE ASSESSEE THEREIN TO THE KARNATAKA GOVT. IS AN ALLOWABLE EXPENDITURE. FO R THE SAKE OF CLARITY AND READY REFERENCE, THE RELEVANT PARAS OF THE HON'BLE KARNATAKA HIGH COURTS JUDGMENT IS REPRODUCED HEREUNDER: THE ASSESSING OFFICER HAS DISALLOWED THE PRIVILEGE FEE ON THE FOLLOWING GROUNDS NAMELY: I) THE PRIVILEGE FEE PAID IS MORE THAN THE SURPLUS EARNED BY THE COMPANY IN THE TRADE OF LIQUOR. II) THE DISTRIBUTION OF PROFITS ARISING IN THE HAND S OF 50 CL-11 LICENCE HOLDERS WAS TAKEN OVER BY THE STATE GOVERNMENT UNDE RTAKING, NAMELY THE PETITIONER. III) PRIVILEGE FEE PAID IS NOTHING BUT THE APPROPRI ATION OF INCOME. IV) THE GOVERNMENT OF KARNATAKA HAS TAKEN AWAY NOT ONLY THE PROFITS EARNED BY THE ASSESSEE COMPANY IN THE NAME OF THE P RIVILEGE FEE BUT ALSO THE OTHER INCOME. V) COMPANY HAS TO COMPUTE THE PROFIT, PAY THE TAXES ON IT AND ONLY THEN THE SURPLUS, IF ANY, CAN BE APPROPRIATED. VI) THE GOVERNMENT OF KARNATAKA HAS VARIED THE PRIV ILEGE FEE EVERY YEAR AND THERE IS NO FIXED RATE. VII) THE PERCENTAGE OF PRIVILEGE FEE IS NOT KNOWN T O THE COMPANY IN ADVANCE OR AT THE BEGINNING OF THE YEAR AND THE PAY MENTS MADE BY ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 19 OF 28 THE COMPANY ARE AGAINST THE PROVISIONS OF THE COMPA NIES ACT , 1956, THE INCOME-TAX ACT , 1961 AND ACCOUNTING STANDARDS. VIII) THE GOVERNMENT ORDER ON LEVYING THE PRIVILEGE FEE IS PASSED PURPOSEFULLY ONLY AT THE FAG END OF THE FINANCIAL Y EAR. IX) THE PETITIONER - COMPANY IS PARTING WITH ITS TA XABLE PROFITS TO THE GOVERNMENT UNDER THE NAME OF 'PRIVILEGE FEE'. X) PROVISIONS OF SECTION 40(A)(II) WOULD BE APPLICABLE. XI) THE PRIVILEGE FEE DOES NOT SATISFY THE DEFINITI ON OF 'FEE', AS ALL THE ELEMENTS OF 'TAX' LEVIED ARE MISSING. XII) THE PAYMENT OF PRIVILEGE FEE IS NOT AN EXPENDI TURE INCURRED TOWARDS EARNING OF INCOME. XIII) SECTION 40(A)(IIB) IS HELD AS CLARIFICATORY IN NATURE. PAGE NO.88 OF THE ORDER FOR THE ASSESSMENT YEAR 2012-2013. XIV) AMENDMENT MADE IN SECTION 24 OF THE KARNATAKA E XCISE ACT, 1965 IS ILLEGAL. . 5. ON A CONSIDERATION OF THE ABOVE CONTENTIONS AND THE FACTS AND CIRCUMSTANCES, IT IS NOT IN DISPUTE THAT THE PR IVILEGE FEE WHICH WAS PAID BY THE PETITIONER TO THE STATE GOVERNMENT FOR THE YEARS 2004-05, 2005-06, 2006-07 WAS ALLOWED AS BUSINESS EXPENDITUR E. THE RESPONDENTS 1 AND 2 HAVE DRAWN INSPIRATION FROM THE 2013 AMENDMENT, WHEREBY CLAUSE (IIB) OF SUB-CLAUSE (A) OF SECTION 40 OF THE IT ACT WAS INSERTED BY THE FINANCE ACT , 2013 WITH EFFECT FROM 1.4.2014. THIS APPARENTLY HAS BEEN HELD BY THE ASSESSING AUTHORITY AS BEING CLARIFICATORY IN NATUR E AND HAS SOUGHT TO APPLY IT WITH RETROSPECTIVE EFFECT. IN THAT, THE AS SESSING OFFICER HAS PASSED THE ASSESSMENT ORDER DISALLOWING THE PRIVILE GE FEE PAID AS BUSINESS EXPENDITURE ON THE VERY DATE OF THE BUDGET . THOUGH THE ASSESSING OFFICER HAS TAKEN A VIEW THAT THE PRIVILE GE FEE WOULD BE DISALLOWED AS BUSINESS EXPENDITURE EVEN PRIOR TO TH E AMENDMENT BY INSERTION OF SUB- CLAUSE (IIB) OF CLAUSE (A) OF SECTION 40 OF THE IT ACT, THE ASSESSING OFFICER FEELS FORTIFIED IN HIS VIEW O N SUCH AMENDMENT AND IT IS ALSO HIS OPINION THAT IT IS MERELY CLARIF ICATORY IN NATURE AND THAT SUCH EXPENDITURE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE AND IS LIABLE TO TAX AND THE LIABILITY IS WITH RETROSPE CTIVE EFFECT AND HENCE IS JUSTIFIED IN SEEKING TO DISALLOW SUCH EXPENDITURE O VER THE YEARS. ON A FURTHER REASONING, IT IS SOUGHT TO BE DEMONSTRATED WITH REFERENCE TO COMPARISON OF THE PRIVILEGE FEE, THE TURNOVER, TAXA BLE INCOME OF THE ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 20 OF 28 PETITIONER FOR THE YEARS 2004-05 UP TO 2011-12 AS I F TO DEMONSTRATE THE SHOCKING INCREASE IN THE TURNOVER OF THE PETITIONER WHILE THE TAXABLE INCOME HAS REMAINED LOW AND THEREFORE, THE PETITION ER SEEKING TO USE THIS AS A DEVICE TO EVADE TAX. THEREFORE, THE PRIMARY REASONING OF THE ASSESSING O FFICER IS THAT THE PRIVILEGE FEE IMPOSED IS UNREASONABLE AND DOES NOT TAKE ON THE CHARACTERISTIC OF A PRIVILEGE FEE AND IT COULD NOT BE CONSTRUED AS A FEE AT ALL AND IT IS MERELY A DEVICE TO EVADE TAX. IN THIS REGARD, AS POINTED OUT BY THE LEARNED ADVOC ATE GENERAL SHRI MADHUSUDAN NAIK, A CONSTITUTION BENCH OF THE SUPREM E COURT IN THE CASE OF HAR SHANKAR V. DEPUTY EXCISE AND TAXATION COMMISSIONER AIR 1975 SC 1121, HAS EXPOUNDED ON THE DISTINCTION BETWEEN A 'TAX' AND 'FEE' AND THE CHARACTERISTICS O F THESE TWO AS ALSO EXCISE DUTY, IN THE FOLLOWING WORDS: 55. SINCE RIGHTS IN REGARD TO INTOXICANTS BELONG TO THE STATE, IT IS OPEN TO THE GOVERNMENT TO PART WITH THOSE RIGHTS FOR A C ONSIDERATION. BY ARTICLE 298 OF THE CONSTITUTION, THE EXECUTIVE POWER OF THE ST ATE EXTENDS TO THE CARRYING ON OF ANY TRADE OR BUSINESS AND TO THE, MAKING OF CONTRACTS FOR ANY PURPOSE. AS OBSERVED IN HARINA RAYAN JAISWAL'S CASE, 'IF THE GOVERNMENT' IS THE EXCLUSIVE OWNER OF THOSE PRIVILEGES, RELIANCE ON ARTICLE 19 (1) (G) OR ARTICLE 14 BECOMES IRRELEVANT. CITIZENS CANNOT HAVE ANY FUNDAMENTAL RIGHT TO TRADE OR CARRY ON BUSINESS IN THE PROPERTIES OR RIGHTS BELONGING TO THE GOVERNMEN T, NOR CAN THERE BE ANY INFRINGEMENT OF ARTICLE 14 , IF THE GOVERNMENT TRIES TO GET THE BEST AVAILABLE PRICE FOR ITS VALUABLE RIGHTS.' SECTION 27 OF THE ACT RECOGNISES THE RIGHT OF THE GOVERNMENT TO GRANT A L EASE OF ITS RIGHT TO 'MANUFACTURE, SUPPLY OR SELL INTOXICANTS. SECTION 34 OF THE ACT READ WITH SECTION 59(D) EMPOWERS THE FINANCIAL COMMISSIONER TO DIRECT THAT A LICENCE, PERMIT OR PASS BE GRANTED UNDER THE ACT ON PAYMENT OF SUCH FEES AND SUBJECT TO SUCH RESTRICTIONS AND ON S UCH CONDITIONS AS HE MAY PRESCRIBE. IN SUCH A SCHEME, IT IS NOT OF THE E SSENCE WHETHER THE AMOUNT CHARGED TO THE LICENSEES IS PREDETERMINED AS IN THE APPEALS OF NORTHERN INDIA CATERERS AND OF GREEN HOTEL OR WHETH ER IT IS LEFT TO BE DETERMINED BY BIDS OFFERED IN AUCTIONS HELD FOR GRA NTING THOSE RIGHTS TO LICENSEES. THE POWER OF THE GOVERNMENT TO CHARGE A PRICE FOR PARTING WITH ITS RIGHTS AND NOT THE MODE OF FIXING THAT PRICE IS WHAT CONSTITUTES THE ESSENCE OF THE MATTER. NOR INDEED D OES THE LABEL AFFIXED TO THE PRICE DETERMINE EITHER THE TRUE NATURE OF TH E CHARGE LEVIED BY THE GOVERNMENT OR ITS RIGHT TO LEVY THE SAME. 56. THE DISTINCTION WHICH THE CONSTITUTION MAKES FO R LEGISLATIVE PURPOSES BETWEEN A 'TAX' AND A 'FEE' AND THE CHARAC TERISTIC OF THESE TWO AS ALSO OF 'EXCISE DUTY' ARE WELL-KNOWN. 'A TAX IS A COMPULSORY EXACTION OF MONEY BY PUBLIC AUTHORITY FOR PUBLIC PU RPOSES ENFORCEABLE BY LAW AND IS NOT A PAYMENT FOR SERVICES RENDERED'. PER LATHAM, C.J. IN MATHEWS VS. CHICKOR MARKETING BOARD, 60 CLR 263, 276. A FEE IS A ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 21 OF 28 CHARGE FOR SPECIAL SERVICES RENDERED TO INDIVIDUALS BY SOME GOVERNMENTAL AGENCY AND SUCH A CHARGE HAS AN ELEMEN T IN IT OF A QUID PRO QUO. COMMISSIONER H.R.E. MADRAS VS. LAKSHMINDRA THIRTHA SWAMIAR , 1954 SCR 1005, 1041 = (AIR 1954 SC 282 AT P.295). E XCISE DUTY IS PRIMARILY A DUTY ON THE PRODUCTION OR MANUF ACTURE OF GOODS PRODUCED OR MANUFACTURED WITHIN THE COUNTRY M/S. GURUSWAMY & CO. VS. STATE OF MYSORE , (1967) 1 SCR 548 = (AIR 1967 SC 1512). THE AMOUNTS, CHARGED TO THE LICENSEES IN THE INSTANT CA SE ARE, EVIDENTLY, NEITHER IN THE NATURE OF TAX NOR EXCISE DUTY. BUT T HEN, THE 'LICENCE FEE' WHICH THE STATE GOVERNMENT CHARGED TO THE LICENSEES THROUGH THE MEDIUM OF AUCTIONS OR THE 'FIXED FEE' WHICH IT CHAR GED TO THE VENDORS OF FOREIGN LIQUOR HOLDING LICENCES IN FORMS L-3, L- 4 AND L- 5 NEED BEAR NO, QUID PRO QUO TO THE SERVICES RENDERED TO THE LI CENCEES. THE WORD 'FEE' IS NOT USED IN THE ACT OR THE RULES IN THE TE CHNICAL SENSE OF THE EXPRESSION. BY 'LICENCE FEE' OR 'FIXED FEE' IS MEAN T THE PRICE OR CONSIDERATION WHICH THE GOVERNMENT CHARGES TO THE L ICENSEES FOR PARTING WITH ITS PRIVILEGES AND GRANTING THEM TO TH E LICENSEES. AS THE STATE CAN CARRY ON A TRADE OR BUSINESS, SUCH A CHAR GE IS THE NORMAL INCIDENT OF A TRADING, OR BUSINESS TRANSACTION. 59. THE ARGUMENT THAT IN COOVERJEE'S CASE 1954 SCR 8 73 = (AIR 1954 SC 220) THE IMPUGNED POWER HAVING BEEN EXERCISED IN RESPECT OF A CENTRALLY ADMINISTRATED AREA, THE POWER WAS NOT FET TERED BY LEGISLATIVE LISTS LOSES ITS RELEVANCE IN THE VIEW W E ARE TAKING. IT IS TRUE THAT IN THAT CASE IT WAS PERMISSIBLE TO THE COURT T O FIND, AS IN FACT IT DID, THAT THE FEE IMPOSED ON THE LICENCES WAS, 'MOR E IN THE NATURE OF A TAX THAN A LICENCE FEE'. AS THE AUTHORITY WHICH LEV IED THE FEE HAD THE POWER TO EXACT A TAX, THE LEVY COULD BE UPHELD AS A TAX, EVEN IF IT COULD NOT BE JUSTIFIED AS A 'FEE', IN THE CONSTITUTIONAL SENSE OF THAT TERM. BUT THE 'LICENCE FEE' OR 'FIXED FEE' IN THE INSTANT CAS E DOES NOT HAVE TO CONFORM TO THE REQUIREMENT THAT IT MUST BEAR A REAS ONABLE RELATIONSHIP WITH THE SERVICES RENDERED TO THE LICE NSEES. THE AMOUNT CHARGED TO THE LICENSEES IS NOT A FEE PROPERLY SO- CALLED NOR INDEED A TAX BUT IS IN THE NATURE OF THE PRICE OF A PRIVILEG E, WHICH THE PURCHASER HAS TO PAY IN ANY TRADING OR BUSINESS TRANSACTION.' IN ANY EVENT, WITH THE INSERTION OF SUB-CLAUSE (IIB) IN THE ACT, IT WO ULD NO LONGER BE POSSIBLE FOR THE PETITIONER TO CLAIM THAT THE SAID PRIVILEGE FEE IS NOT TAXABLE. THE QUESTION AS TO WHETHER THE SAID PROVIS ION CAN BE APPLIED WITH RETROSPECTIVE EFFECT, IS THE ONLY QUESTION THA T WOULD REMAIN FOR CONSIDERATION. AS RIGHTLY POINTED OUT BY SHRI SHANK AR, A PLAIN READING OF THE PROVISION WOULD NOT INDICATE THAT IT IS TO B E APPLIED WITH RETROSPECTIVE EFFECT. THERE ARE OTHER PROVISIONS WH ICH WERE ALSO AMENDED, AND WHEREVER THE LEGISLATURE INTENDED THAT CERTAIN PROVISIONS WOULD HAVE RETROSPECTIVE EFFECT, IT IS E XPRESSLY INDICATED THEREIN AND THEREFORE, THERE BEING NO SUCH EXPRESS INDICATION INSOFAR AS THE PRESENT PROVISION WITH WHICH WE ARE CONCERNE D, IT CANNOT BE SAID TO BE APPLICABLE WITH RETROSPECTIVE EFFECT. TH IS IS ALSO EVIDENT FROM THE CBDT CIRCULAR NO.3/2014 DATED 24.01.2014 ISS UED BY THE ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 22 OF 28 DEPARTMENT, WHICH WOULD BE BINDING ON THE ASSESSING AUTHORITY, THE RELEVANT PORTION OF WHICH READS AS FOLLOWS: '12. DISALLOWANCE OF CERTAIN FEE, CHARGE, ETC. IN T HE CASE OF STATE GOVERNMENT UNDERTAKINGS: 12.1 THE PROVISIONS OF SECTION 40 OF THE INCOME-TAX ACT, 1961 BEFORE ITS AMENDMENT BY THE ACT, SPECIFIES THE AMOUNTS WHICH S HALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE NON-DEDUC TIBLE EXPENSE UNDER THE SAID SECTION ALSO INCLUDES STATUTORY DUES LIKE FRINGE BENEFIT TAX, INCOME-TAX, WEALTH-TAX, ETC. DISPUTES HAVE ARI SEN IN RESPECT OF INCOME-TAX ASSESSMENT OF SOME STATE GOVERNMENT UNDE RTAKINGS AS TO WHETHER ANY SUM PAID BY WAY OF PRIVILEGE FEE, LICEN SE FEE, ROYALTY, ETC. LEVIED OR CHARGED BY THE STATE GOVERNMENT EXCLUSIVE LY ON ITS UNDERTAKINGS ARE DEDUCTIBLE OR NOT FOR THE PURPOSES OF COMPUTATION OF INCOME OF SUCH UNDERTAKINGS. IN SOME CASES, ORDERS HAVE BEEN ISSUED TO THE EFFECT THAT SURPLUS ARISING TO SUCH UNDERTAK INGS SHALL VEST WITH THE STATE GOVERNMENT. AS A RESULT IT HAS BEEN CLAIM ED THAT SUCH INCOME BY WAY OF SURPLUS IS NOT SUBJECT TO TAX. IT IS A SETTLED LAW THAT STATE GOVERNMENT UNDERTAKINGS ARE SEPARATE LEGAL EN TITIES THAN THE STATE AND ARE LIABLE TO INCOME-TAX. 12.2. IN ORDER TO PROTECT THE TAX BASE OF STATE GOV ERNMENT UNDERTAKINGS VIS-A-VIS EXCLUSIVE LEVY OF FEE, CHARG E, ETC. OR APPROPRIATION OF AMOUNT BY THE STATE GOVERNMENTS FR OM ITS UNDERTAKINGS, SECTION 40 OF THE INCOME-TAX ACT HAS BEEN 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 GOVERNMENT UNDERTAKING, BY THE STATE GOVERNMENT, SHALL NOT BE ALLOWED AS DEDUCTION FOR T HE PURPOSES OF COMPUTATION OF INCOME OF SUCH UNDERTAKINGS UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THE EXPRESSIO N 'STATE GOVERNMENT UNDERTAKING' FOR THIS PURPOSE INCLUDES - (I) A CORPORATION ESTABLISHED BY OR UNDER ANY ACT O F THE STATE GOVERNMENT; (II) A COMPANY IN WHICH MORE THAN FIFTY PER CENT, O F THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE STATE GOVERNMENT; (III) A COMPANY IN WHICH MORE THAN FIFTY PER CENT, OF THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE ENTITY REFERRED TO IN CLAUSE (I) OR CLAUSE (II) (WHETHER SINGLY OR TAKEN TOGETHER); (IV) A COMPANY OR CORPORATION IN WHICH THE STATE GO VERNMENT HAS THE RIGHT TO APPOINT THE MAJORITY OF THE DIRECTORS OR T O CONTROL THE MANAGEMENT OR POLICY DECISIONS, DIRECTLY OR INDIREC TLY, INCLUDING BY ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 23 OF 28 VIRTUE OF ITS SHAREHOLDING OR MANAGEMENT RIGHTS OR SHAREHOLDERS AGREEMENTS OR VOTING AGREEMENTS OR IN ANY OTHER MAN NER; (V) AN AUTHORITY, A BOARD OR AN INSTITUTION OR A BO DY ESTABLISHED OR CONSTITUTED BY OR UNDER ANY ACT OF THE STATE GOVERN MENT OR OWNED OR CONTROLLED BY THE STATE GOVERNMENT. 12.3 APPLICABILITY.- THIS AMENDMENT TAKES EFFECT FR OM 1ST APRIL, 2014 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASS ESSMENT YEAR 2014- 15 AND SUBSEQUENT ASSESSMENT YEARS.' FURTHER, CLAUSE 7 WHICH IS APPENDED TO THE FINANCE BILL, 2013, READS AS FOLLOWS: 'CLAUSE 7 OF THE BILL SEEKS TO AMEND SECTION 40 OF THE INCOME-TAX ACT RELATING TO AMOUNTS NOT DEDUCTIBLE. THE PROVISIONS OF SECTION 40 SPECIFY THE AMOUNTS WHICH SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. IT IS PROPOSED TO INSERT A NEW SUB-CLAUSE (IIB) IN CLAUSE (A) OF THE AFORESAID SECTION SO AS TO PROVIDE THAT ANY AMOUNT PAID BY WAY OF ROYALTY, LICENCE FEE, SERVICE FEE, PRIVILEGE FEE, S ERVICE CHARGE OR ANY OTHER FEE OR CHARGE, BY WHATEVER NAME CALLED WHICH IS LEVIED EXCLUSIVELY ON OR ANY AMOUNT WHICH IS APPROPRIATED, WHETHER DIRECTLY OR INDIRECTLY, FROM A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNMENT, SHALL NOT BE ALLOWED AS DEDUCTION IN CO MPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. IT IS FURTHER PROPOSED TO DEFINE THE EXPRESSION 'ST ATE GOVERNMENT UNDERTAKING' USED IN THE PROPOSED NEW SUB-CLAUSE (I IB). THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 4 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2014-15 AND SUBSEQUENT ASSESSMENT YEARS.' THEREFORE, IT CAN SAFELY BE SAID THAT THE PRIVILEGE FEE PAYABLE BY THE PETITIONER TO THE STATE GOVERNMENT WOULD BE TAXABLE WITH EFFECT FROM 1.4.2014 AND NOT PRIOR THERETO. THE UNREASONABLENESS OF THE PRIVILEGE FEE PAYABLE IS ALSO NOT A GROUND TO HOLD THAT IT IS A DEVICE BY WHICH THE PETITIONER AND THE STATE GOVERNMENT ARE AVOIDING PA YMENT OF TAX. IN THIS REGARD, RELIANCE IS PLACED ON HAR SHANKAR SUPR A, WHICH IS CLEAR ON THIS ASPECT AND THEREFORE, IT WAS NOT OPEN FOR T HE 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 THAT THERE IS NO ILLEGALITY COMMITTED BY THE PETITIONER IN PAYING SUCH PRIVILEG E FEE ON THE STATE GOVERNMENT HAVING FIXED SUCH PRIVILEGE FEE. THERE I S NO LEGAL ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 24 OF 28 PROHIBITION IN THIS REGARD AND THEREFORE, IT CANNOT BE SAID THAT THE SAME COULD HAVE BEEN DISALLOWED BY THE ASSESSING OF FICER. IT REQUIRES TO BE EMPHASIZED THAT THE SUPREME COURT IN HAR SHANKAR SUPRA HAS EXPRESSED THAT, 'THE POWER OF THE GOVERNM ENT TO CHARGE A PRICE FOR PARTING WITH ITS RIGHTS AND NOT THE MODE OF FIXING THE PRICE IS WHAT CONSTITUTES THE ESSENCE 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. THERE FORE, IT WOULD APTLY APPLY IN THE FACTS AND CIRCUMSTANCES OF THESE CASES INSOFAR AS THE ASSESSING OFFICER HAVING EXPRESSED AN OPINION OF TH E STATE GOVERNMENT HAVING EXERCISED ITS POWER 'UNSCIENTIFIC ALLY, ILLEGALLY AND IRRATIONALLY'. (SIC) CONSEQUENTLY, THESE PETITIONS ARE ALLOWED. THE IMPUGNED ASSESSMENTS ARE SET ASIDE INSOFAR AS IT TR EATS THE PRIVILEGE FEE PAID AS BEING TAXABLE TO INCOME. IN SO FAR AS THE OTHER DISALLOWANCES ARE CONCERNED, THE MATTER IS REMANDED TO THE ASSESSING OFFICER TO RE-EXAMINE THE SAME AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE PETITION ER IN RESPECT OF THE SEVERAL ASSESSMENT YEARS. 31. THUS, IT CAN BE SEEN THAT THE HON'BLE KARNATAKA HIGH COURT HAS CONSIDERED ALL THE ASPECTS OF THE ISSUE AND HAS HEL D THAT THE PAYMENT OF PRIVILEGE FEE/SPECIAL PRIVILEGE FEE ETC., BY WHATEV ER NAME CALLED IS AN ALLOWABLE EXPENDITURE. AS THERE IS NO CONTRARY DECI SION OF EITHER THE JURISDICTIONAL HIGH COURT OR ANY OTHER HIGH COURT O N THE ISSUE, WE RESPECTFULLY FOLLOWING THE SAID JUDGMENT, DIRECT TH E AO TO ALLOW THE PRIVILEGE FEE, SPECIAL PRIVILEGE FEE AND THE SPECIAL PRIVILEG E FORCE AS EXPENDITURE OF THE ASSESSEE U/S 37 OF THE ACT. 32. AS REGARDS ASSESSEES CONTENTION THAT THERE IS DIVERSION OF INCOME BY OVERRIDING TITLE, WE ARE OF THE OPINION THAT THIS I SSUE WAS NOT CONSIDERED BY THE HON'BLE HIGH COURT AND THE DECISION OF THE TRIB UNAL IN THE EARLIER A.YS WOULD COVER THE ISSUE AGAINST THE ASSESSEE. 33. IN THE RESULT, ASSESSEES GROUNDS OF APPEAL NOS . 1 TO 1.5 ARE REJECTED AND THE GROUND NO.1.6 IS ALLOWED. 34. AS REGARDS GROUND NO.2, WE FIND THAT THE ASSESS EES CONTENTION IS THAT THE ASSESSEE PAYS THE PREMIUM AFTER THE INTEREST CR EDITED BY THE LIC IS REDUCED FROM THE PREMIUM TO BE PAID. WE ARE OF THE OPINION THAT THIS ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 25 OF 28 CONTENTION NEEDS VERIFICATION. IF THE INTEREST CRED ITED BY LIC IS TAKEN AS INCOME OF THE ASSESSEE, THE ENTIRE PREMIUM PAYABLE BY THE ASSESSEE FOR THE NEXT A.Y SHOULD BE CONSIDERED AS EXPENDITURE OF THE ASSESSEE. THEREFORE, THIS ISSUE IS REMITTED TO THE FILE OF THE AO FOR VE RIFICATION OF THE ASSESSEES CONTENTION AND ALLOWING THE SAME IN ACCORDANCE WITH THE LAW. THE NET RESULT WOULD, HOWEVER, BE NIL IF THE ASSESSEES CONTENTI ONS ARE PROVEN TO BE CORRECT. 35. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. 36. AS REGARDS REVENUES APPEAL, THE REVENUE HAS RA ISED THE FOLLOWING REVISED GROUNDS OF APPEAL VIDE LETTER DATED 25 TH APRIL, 2016: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT (A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION OF RS.348,47,07,248 U/S 80G OF THE I.T. ACT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION OF R S.3,19,05,158 OUT OF RS.3,40,00,804 MADE ON ACCOUNT OF DISALLOWAN CE U/S 40A(9) OF THE ACT. 37. AS REGARDS GROUND NO.1, WE FIND THAT THE ASSESS EE HAD PAID AN AMOUNT OF RS.348,47,07,248 TO THE CHIEF MINISTERS RELIEF FUND PURSUANT TO THE LETTER OF THE PRINCIPAL SECRETARY TO THE GOVT. VIDE LETTER NO.2430/EX.II/2006-5, DATED 4/4/2006 AND CLAIMED IT AS A DEDUCTION U/S 80G OF THE ACT. THE AO HAS DISALLOWED THE SAME HOLD ING IT TO BE NOT A VOLUNTARY CONTRIBUTION. THE CIT (A) HAS CONSIDERED THAT IF THE ENTIRE SALES ARE TREATED AS RECEIPTS IN THE HANDS OF THE GOVT. T HEN THERE IS NOTHING LEFT AT THE DISPOSAL OF THE ASSESSEE OUT OF WHICH IT CAN MA KE DONATIONS OF RS.348.50 CRORES. SHE FURTHER OBSERVED THAT THE COR PORATION DOES NOT HAVE ANY OTHER SOURCE OF INCOME EXCEPT THE SALE RECEIPTS . THEREFORE, SHE OBSERVED THAT THE INCOME OF THE STATE BEING EXEMPT, THERE IS NO NECESSITY TO CLAIM 80G DEDUCTION. OBSERVING THAT THE STAND OF THE I.T. DEPARTMENT HAS ALWAYS BEEN THAT THE SALE PROCEEDS ARE TO BE TAXED IN THE HANDS OF THE CORPORATION, ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 26 OF 28 SHE DIRECTED THE AO TO ALLOW DEDUCTION U/S 80G, AGA INST WHICH THE REVENUE IS IN APPEAL BEFORE US. 38. THE LEARNED DR PLACED RELIANCE UPON THE ASSESSM ENT ORDER, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE BEING THE UNDERTAKING OF THE GOVT. OF A.P IS BOUND BY THE DIR ECTION OF THE GOVT. AND THEREFORE, THE CONTRIBUTION TO THE CMS RELIEF FUND IS TO BE ALLOWED U/S 80G OF THE ACT. 39. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CMS RELIEF FUND IS AN APPROVED FUND U/S 80G OF THE ACT BUT THE ASSESSEE IS REQUIRED TO PAY THE PRIVILEGE FEE, SPECIAL PRIVILEGE FEE ETC, AFTER SETTING OFF ITS EXPENDITURE ONLY FROM THE RECEIPTS AND WE HAVE ALREADY HELD THAT PRIVILEGE FEE IS AN ALLOWABLE EXPENDITURE. IN THESE CIRCUMSTANCES, THE ASSESSEE WOULD NOT BE LEFT WITH ANY FUND TO MAKE A DONATION TO C.MS RELIEF FUND. EVEN OTHERWISE, THE CONTRIBUTION IS AN ALLOWA BLE DEDUCTION. THEREFORE, WE ARE OF THE OPINION THAT THIS GROUND OF THE REVEN UE BECOMES INFRUCTUOUS IN VIEW OF OUR FINDING ABOVE. 40. AS REGARDS GROUND NO.2 AGAINST THE DELETION OF RS.3,19,05,158 OUT OF RS.3,40,00,804 MADE BY THE AO U/S 43B(F) OF THE ACT , WE FIND THAT THE AO HAS DISALLOWED THE SAME ON THE GROUND THAT THE REMI TTANCE TO LIC TOWARDS GROUP LEAVE ENCASHMENT SCHEME IS A REMITTANCE TO AN UNRECOGNIZED FUND AND ONLY RECOGNIZED PF/GRATUITY/PENSION ARE EXEMPT FROM THE OPERATION OF SECTION 40A(9). WE FIND THAT ON APPEAL, THE CIT (A) HAS FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT REPORTED IN (2000) 245 ITR 428 (S.C) AND ALSO THE D ECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. EXIDE IN DUSTRIES LTD REPORTED IN (2007) 292 ITR 470 TO HOLD THAT THE PAYMENT MADE TO WARDS THE LIC GROUP LEAVE ENCASHMENT SCHEME IS ALLOWABLE. WE FIND THAT THE MAIN OBJECTION IS THAT THE LIC GROUP LEAVE ENCASHMENT SCHEME IS NOT A N APPROVED GRATUITY FUND. THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 27 OF 28 THE CASE OF CIT VS. M/S. TEXTOOL CO. LTD., IN CIVIL APPEAL NO.447 OF 2003 AND THE RELEVANT PARA OF THE SAID DECISION ARE AS U NDER: HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BA CKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHOULD BE ADDED OR S UBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CON STRUCTION TO GIVE EFFECT TO THE PURPOSE AND INTENTION OF ANY PARTICULAR PROVISION O F THE ACT. (SEE : SHRI SAJJAN MILLS LTD. VS. COMMISSIONER OF INCOME TAX, M.P. & ANR. (1 985) 156 ITR 585). FROM A BARE READING OF SECTIN 36(1)(V) OF THE ACT, IT IS MANIFE ST THAT THE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR THE B ENEFIT OF THE EMPLOYEES. IN THE INSTANT CASE, IT IS EVIDENT FROM THE FINDINGS RECOR DED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSO LUTELY NO CONTROL OVER THE FUND CREATED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID F UND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATUITY FUND, APPROVED BY THE CO MMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THUS, THE CONDITIONS S TIPULATED IN SECTION 36(1)(V) OF THE ACT WERE SATISFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL, NO FAULT CAN BE FOUND WIT H THE OPINION EXPRESSED BY THE HIGH COURT, WARRANTING OUR INTERFERENCE. RESULTANTLY, THE APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 41. RESPECTFULLY FOLLOWING THE SAME, WE SEE NO REAS ON TO INTERFERE WITH THE ORDER OF THE CIT (A) ON THIS ISSUE. 42. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 43. TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.12.2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 21 ST DECEMBER, 2016 VINODAN/VBP/SR.PS ITA NOS.360 & 417/HYD/2015 A.P BEVERAGES CORPORATIO N LTD HYDERABAD PAGE 28 OF 28 COPY TO : 1. A.P. BEVERAGES CORPORATION LTD., 9 & 10 EASTERN M.J . ROAD, NAMPALLY HYDERABAD. 2. THE DCIT, CIRCLE - 1(1), 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. CIT(A) - I, HYDERABAD 4. CIT - I, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE