KERALA STATE BEVEARAGES V. ASSISTANT COMMISSIONER OF INCOME TAX

WA/1007/2018

AI Insights

The case involves the Kerala State Beverages Corporation Ltd., which appealed against an enhanced tax demand for the assessment year 2015-16, attributed to a new provision under Section 40(a)(iib) of the Income Tax Act, 1961. This provision disallowed certain deductions previously allowed, leading to a significant increase in the taxable income of the Corporation. The Corporation argued that the levies in question were not exclusive to them and thus should not fall under the new provision. The Revenue contended that the issue had been thoroughly considered by the Assessing Officer and the Commissioner. The High Court decided to set aside the previous orders and directed a fresh consideration of the appeal, highlighting the need for a detailed examination of the new provision's applicability.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755197 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 26-06-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: ANIL NAIR; R SREEJITH; MEKHALA BENNY; ACHYUT PADMARAJ
• Keywords: Appropriation; Disallowance; Enhanced Demand; Exclusive Levy; State government undertaking
• Section: 40(a)(iib)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 26TH DAY OF JUNE 2018 / 5TH ASHADHA, 1940 WA.No. 1007 of 2018 IN WPC. 10173/2018 -------------------------------------- AGAINST THE ORDER/JUDGMENT IN WP(C) 10173/2018 of HIGH COURT OF KERALA APPELLANT(S)/PETITIONER: ------------------------ KERALA STATE BEVEARAGES, (MANUFACTURING & MARKETING)CORPORATION LTD., SASTHAKRIPA OFFICE COMPLEX, P.B.NO. 2263, SASTHAMANGALAM, THIRUVANANTHAPURAM - 695 010, REPRESENTED BY ITS GENERAL MANAGER-FINANCE, SUNIL KUMAR S. BY ADVS.SRI.ANIL D. NAIR SRI.R.SREEJITH KUM.MEKHALA M.BENNY SRI.ACHYUT K PADMARAJ RESPONDENT(S)/RESPONDENT: ------------------------ 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM - 695 001. 2. COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAM - 695 001. R1-R2 BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 26-06-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- W.A. No. 1007 of 2018 ------------------------------------------- Dated this the 26th day of June, 2018 J U D G M E N T Vinod Chandran, J. The issue raised in the appeal for the assessment year 2015-16, is the enhanced demand made on the appellant, far in excess of what is returned, by reason of the introduction of a new provision at Section 40(a)(iib) of the Income Tax Act, 1961 (for short 'the Act'). The assessee filed return showing a total income of Rs.2,34,39,61,420/-. A disallowance was made to deductions claimed as gallonage fee, licence fee, shop rental (kist) and surcharge on sales tax. This was a deduction allowed over the years, which stood disallowed in the present year for reason of the introduction of the aforesaid provision. The disallowance came to Rs.8,11,90,88,115/-. 2. We see from the assessment order as also the order impugned in the Writ Petition that the disallowance was made based WA No.1007/2018 2 on the provision as introduced in clause (iib) in Section 40(a), which is extracted hereunder: “(iib) any amount.- (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively 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 State Government undertaking includes- (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of 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 Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) any authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government;” WA No.1007/2018 3 3. Definitely, the appellant is a State Government Undertaking. But, however, the dispute is on whether the levy is exclusively on the appellant and whether there is any appropriation directly or indirectly, in so far as the various levies imposed on the appellant. The learned Counsel for the appellant submits that the levy imposed, cannot be said to be exclusive, since it is imposed on any vendor of liquor within the State. The fact remains that the privilege, as available with the State for vending liquor, has been conceded to the Corporation, which carries out the same under licenses issued under the Abkari Act. The retail sales are only through outlets of itself and a Consumer Co-operative Society. There is also sales effected to bars and clubs existing inside the State, who are also licensed under the Abkari Act. The levy of license fee at Rs.5,75,00,000/- is with respect to the licenses obtained by individuals or institutions for a single day and the shop rental is applicable to all the retail shops within the Kerala, which are run either by the appellant-Corporation or by the Consumer Co-operative Society. The surcharge on sales tax is applicable to all who sell Indian made foreign liquor inside the State. The gallonage WA No.1007/2018 4 fee is an exclusive levy on the Corporation only by reason of the monopoly and in any event such fee is also levied on distilleries, who supplies spirit to the hospitals within the State. In such circumstances, there cannot be said to be an exclusive levy nor an appropriation directly or indirectly by the State Government. 4. The learned Standing Counsel for the Revenue submits that the Assessing Officer had considered the issue elaborately and so has the Commissioner considered it in the impugned order. It is submitted that the learned Single Judge having declined discretion, it may not be appropriate for this Court in appeal to further interfere with the conditional order. 5. Considering the fact that this is an appeal from a judgment declining interference in a conditional order passed by the Commissioner (Appeals), we would not go into the specific contentions on merits raised by either side. We are however concerned with the fact that the provision was one introduced in the subject year and the deductions were allowed in all the earlier years. The income so generated by the Corporation also goes to the exchequer of the State, which definitely is used for welfare WA No.1007/2018 5 purposes. Yet again we are of the view that there is a debatable issue, which has to be considered, especially on the new provision introduced in the Income Tax Act. We hence direct the Commissioner (Appeals) to consider the appeal itself and in the meanwhile keep recovery in abeyance. We make it clear that the observations by this Court or the learned Single Judge need not regulate the consideration by the Appellate Authority. The observations, if at all made are only in the nature of prima facie ones to invoke the extra-ordinary jurisdiction under Article 226 of the Constitution. We, hence, set aside the impugned judgment, as also the conditional order and direct the Department to act in accordance with our directions herein above. The Writ Appeal would stand allowed. No order as to costs. Sd/- K. VINOD CHANDRAN Judge Sd/- ASHOK MENON Judge dkr "