KARNATAKA STATE BEVERAGES V. THE COMMISSIONER OF INCOME-TAX

WP/25429/2016

AI Insights

The case involves the Karnataka State Beverages Corporation Limited (petitioner) challenging the disallowance of 'privilege fees' by the Income Tax authorities (respondents) in Bengaluru. The 'privilege fees' are payments made to the State Government for the privilege to trade in liquor, which the petitioner argued were allowable expenditures. The legal contention centered around the jurisdiction of the assessing officer to disallow these fees, which was contested under Articles 226 and 227 of the Constitution of India. The High Court's decision referenced a prior Division Bench judgment which had already addressed this issue, confirming the fees as allowable expenditures before the specified amendment date.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 726933 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 23-06-2017
• Assessment Year: misc
• Other Referred Cases: The Commissioner of Income Tax vs. M/s. Karnataka State Beverages Corporation Limited (W.A.No.853/2016 & Connected matters)
• Laws Referred To: Articles 226 and 227 of the Constitution of India, Entry 8 of List-II of Seventh Schedule, Article 245(1) and 246(3) of the Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND; T K VEDAMURTHY
• Assessee Lawyers: SHANKAR; M LAVA
• Keywords: Allowable expenditure; Constitutional Validity; Jurisdiction; Ultravires; Privilege fees
• Section: 226; 227; 245(1); 246(3)

Judgement Text

" 1/3 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF JUNE 2017 BEFORE THE HON’BLE DR. JUSTICE VINEET KOTHARI WRIT PETITION NO. 25429 OF 2016 (T-IT) BETWEEN:- KARNATAKA STATE BEVERAGES CORPORATION LIMITED, REP. BY ITS EXECUTIVE DIRECTOR (FINANCE), SRI. SHREEKRISHNA N. BUGATYAGOL, AGED ABOUT 44 YEARS, 4TH FLOOR, TTMC BUILDING “A” BLOCK, BMTC, SHANTHINAGAR, BANGALORE – 560 027. ... PETITIONER (BY SRI. SHANKAR A., ADV. AND SRI. M. LAVA, ADV.) AND:- 1. THE COMMISSIONER OF INCOME-TAX, BANGALORE-4, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, 6TH BLOCK, BANGALORE – 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4(1) (1), BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, 6TH BLOCK, BANGALORE – 560 095. 3. STATE OF KARNATAKA, THROUGH ITS PRINCIPAL SECRETARY TO Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 2/7 GOVERNMENT OF KARNATAKA, FINANCE DEPARTMENT, 2ND FLOOR, VIDHANA SOUDHA, BANGALORE – 560 001. 4. THE COMMISSIONER OF EXCISE, 2ND FLOOR, TTMC A BLOCK, BMTC COMPLEX, K.H. ROAD, SHANTHINAGAR, BANGALORE – 560 001. …RESPONDENTS (BY SRI. K.V. ARAVIND, ADV. FOR R1 AND R2. SRI. T.K. VEDAMURTHY, AGA FOR R3 AND R4.) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE DISALLOWANCE OF PRIVILEGE FEES IN THE ASSESSMENT ORDER IS IN VIOLATION OF THE POWERS OF THE STATE TO HAVE ITS STATUTE AS PER ENTRY 8 OF LIST-II OF SEVENTH SCHEDULE AND BEING WITHIN ITS POWERS UNDER ARTICLE 245(1) AND 246(3) OF THE CONSTITUTION OF INDIA AND ETC. THE PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, COURT MADE THE FOLLOWING: ORDER MR. SHANKAR A. AND SRI. M. LAVA, ADVS., FOR PETITIONER, MR. K.V. ARAVIND, ADV. FOR RESPONDENTS 1 AND 2, MR. T.K. VEDAMURTHY, AGA FOR RESPONDENTS 3 AND 4. 1. Both the learned counsels at the Bar fairly submit that the controversy involved in the present Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 3/7 petition is no longer res integra as far as this court is concerned, and the same is covered by a Division Bench judgment of this Court in the case of The Commissioner of Income Tax vs. M/s. Karnataka State Beverages Corporation Limited (W.A.No.853/2016 & Connected matters), in the case of the present petitioner – assessee itself, which is a Government of Karnataka Undertaking trading in liquor and it has been held by the Division Bench that the “privilege fees” paid by the assessee to the State Government for granting privilege to trade in the liquor, is an allowable expenditure prior to the amendment with effect from 1.4.2014. 2. The relevant portion of the judgment of the Division Bench rendered on 3.3.2017 reads as under: “31. Under the circumstances, we find that the action of disallowance of the payment of the privilege fee by the assessing Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 4/7 officer for the respective period of assessment years which is prior to 1.4.2014 is per se without jurisdiction and also ultravires to his power under the Act. 32. In our view, the learned Single Judge has rightly observed that the assessing officer has no authority or competence to hold that the privilege fee is not having the character of statutory fee or that the State Legislature or the State Government in exercise of its power by way of a delegated legislation, cannot decide the quantum of fee or the percentage of the revenue on the income earned from the business. Be it recorded that the assessing officer was not exercising the power as that of a constitutional Court nor at any point of time the constitutional validity of the Karnataka Excise Act read with the Rules which include the grant of licence and payment of the privilege fees were under the challenge. It is not the case of the appellant that the Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 5/7 assessing officer had any authority, competence or jurisdiction to examine the constitutional validity of the State Legislature or subordinate legislation in exercise of the delegated power. 33. Under the circumstances, the observations made by the assessing officer in the impugned order so far as privilege fee is concerned can be said to be ultravires to his power under the Act. 34. In view of the above, if an action of disallowance of the deduction of privilege fee, the expenditure of privilege fee is wholly without jurisdiction and ultravires to his power, it would be the case falling under exceptional category for entertainment of writ power under Article 226 of the Constitution of India. 35. In view of the above, the disallowance of the deduction of privilege fees Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 6/7 as expenditure is wholly without jurisdiction and the observations made by the assessing Officer so far as constitutional validity of the relevant Act and the Rules and the power exercised by the State for delegated legislation for fixation of the quantum of fees can also be said as ultravires to his power because he has no power or authority to test the validity of any statutory provision, may be made by the State Legislature or the Parliament. 36. Under the circumstances, we find that the case would fall in the exceptional category to make a departure from the normal principle of relegating the party to the statutory remedy by way of appeal in exercise of power under Article 226 of the Constitution. 37. The exercise of the power by the learned Single Judge for remanding the matter to the Assessing Officer for Date of Order: 23/06/2017 W.P.No.25429/2016 KARNATAKA STATE BEVERAGES CORPORATION LIMITED VS. THE COMMISSIONER OF INCOME-TAX AND OTHERS 7/7 consideration other than of privilege fees also cannot be said as erroneous because the assessment order is a composite order on account of the finding recorded that the action of disallowance of the expenditure for payment of privilege fees is without jurisdiction and ultravires to the power. Consequently change / modification will have to be made in the order including the clause with all the interest etc. 38. In view of the above, we find that appeals being meritless deserve to be dismissed. Hence they are dismissed.” 3. Accordingly, the present writ petition is also disposed of in the same terms. Sd/- JUDGE KS "