IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & HONOURABLE MR.JUSTICE T.V.ANILKUMAR THURSDAY, 30TH DAY OF APRIL 2020 / 10TH VAISAKHA, 1942 ITA.No.135 OF 2019 AGAINST ORDER IN ITA 537/COCH/2018 OF S.T.A.TRIBUNAL, ERNAKULAM APPELLANT/APPELLANT: KERALA STATE BEVERAGES(MANUFACTORING AND MARKETING)CORPORATION LIMITED PALAYAM,VIKAS BHAVAN P.O., THIRUVANANTHAPURAM-695033, REPRESENTED BY ITS MANAGING DIRECTOR, MR. SPARJAN KUMAR,IPS BY ADVS. SRI.ANIL D. NAIR SRI.SREEJITH R.NAIR SRI.ACHYUT K PADMARAJ SMT. ARYA ANIL SHRI.GOKULRAJ L. RESPONDENT/RESPONDENT: ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 (I), TRIVANDRUM BY ADV. SHRI.P.VIJAYAKUMAR, ASG OF INDIA THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04-03- 2020, ALONG WITH ITA.146/2019, ITA.313/2019, COURT ON 30-04- 2020 DELIVERED FOLLOWING: I.T. Appeal Nos. 135, 146 & 313/2019 -2- IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & HONOURABLE MR.JUSTICE T.V.ANILKUMAR THURSDAY, 30TH DAY OF APRIL 2020 / 10TH VAISAKHA, 1942 ITA.No.146 OF 2019 AGAINST ORDER IN ITA 536/COCH/2018 DATED 04-04-2019 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: KERALA STATE BEVERAGES (MANUFACTURING AND MARKETING) CORPORATION LTD. PALAYAM, VIKAS BHAVAN P.O, THIRUVANANTHAPURAM REPRESENTED BY ITS MANAGING DIRECTOR, MR. SPARJAN KUMAR, IPS BY ADVS. SRI.ANIL D. NAIR SRI.SREEJITH R.NAIR SRI.ACHYUT K PADMARAJ SMT. ARYA ANIL SHRI.GOKULRAJ L. RESPONDENT/RESPONDENT: ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -1 (1), TRIVANDRUM 695 001 BY ADV. SHRI.P.VIJAYAKUMAR, ASG OF INDIA THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04-03- 2020, ALONG WITH ITA.135/2019, ITA.313/2019, COURT ON 30-04- 2020 DELIVERED FOLLOWING: I.T. Appeal Nos. 135, 146 & 313/2019 -3- IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & HONOURABLE MR.JUSTICE T.V.ANILKUMAR THURSDAY, 30TH DAY OF APRIL 2020 / 10TH VAISAKHA, 1942 ITA.No.313 OF 2019 AGAINST ORDER DATED 11-10-2019 IN ITA 537/COCH/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: KERALA STATE BEVERAGES (MANUFACTURING AND MARKETING) CORPORATION LTD. PALAYALAM, VIKAS BHAVAN P.O. THIRUVANANTHAPURAM 695 033, REPRESENTED BY ITS MANAGING DIRECTOR MR. G. SPARJAN KUMAR IPS. BY ADVS. SRI.ANIL D. NAIR SRI.R.SREEJITH SHRI.GOKULRAJ L. SMT. ARYA ANIL SMT.SRI HARINI S.P. RESPONDENT/RESPONDENT: ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 (1), TRIVANDRUM 695 001. R1 BY ADV. SRI.P.VIJAYAKUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04-03- 2020, ALONG WITH ITA.135/2019, ITA.146/2019, COURT ON 30-04- 2020 DELIVERED FOLLOWING: I.T. Appeal Nos. 135, 146 & 313/2019 -4- 'C.R.' C.K. ABDUL REHIM, J. & T.V. ANILKUMAR, J. I.T. Appeal Nos. 135, 146 & 313 OF 2019 DATED THIS 30th DAY OF APRIL, 2020 JUDGMENT Abdul Rehim, J: Income Tax Appeal Nos. 135/2019 & 146/2019 are filed challenging common order passed by Income Tax Appellate Tribunal, Cochin Bench in ITA Nos.536/Coch/2018 and 537/Coch/2018, dated 12-03-2019. Income Tax Appeal No.313/2019 is filed against revised order passed by same Tribunal ITA No.537/Coch/2018, dated 11-10-2019. assessee was appellant before Tribunal, who is appellant herein. revenue is respondent. 2. Appellant is company registered under Companies Act, engaged in wholesale and retail trade of beaverages within State of Kerala, and is 'State Government Undertaking' falling within 'Explanation' provided under Section 40 (a) (iib) of Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short). With respect to I.T. Appeal Nos. 135, 146 & 313/2019 -5- assessment year 2014-2015, Deputy Commissioner of Income Tax, Circle-2 (1), Thiruvananthapuram finalized assessment of income tax against appellant, under Section 143 (3) of Act, through order of assessment dated 14- 12-2016. But, Principal Commissioner of Income Tax, Thiruvananthapuram initiated proceedings under Section 263 of Act and set aside order of assessment, on holding that same is erroneous and is prejudicial to interest of revenue, to extent it failed to disallow debits made in Profit and Loss Account of assessee with respect to amount of surcharge on sales tax and turn over tax paid to State Government, which ought to have been disallowed under Section 40 (a) (iib) of Act. Against order of Principal Commissioner of Income Tax, issued under Section 263 of Act, dated 25-09-2018, appellant approached Tribunal in ITA No.536/Coch/2018. 3. With respect to assessment year 2015-2016, assessment against appellant was completed under Section 143 (3) of Act by Assistant Commissioner of Income Tax, Circle-1 (1), Thiruvananthapuram, through order of assessment, dated 28-12-2017. Debits contained in Profit and I.T. Appeal Nos. 135, 146 & 313/2019 -6- Loss Account of appellant with respect to payment of Gallonage Fee, Licence fee, Shop rental (Kist) and Surcharge on Sales Tax, amounting to total sum of Rs.811,90,88,115/- was disallowed under Section 40 (a) (iib). Aggrieved by said order appellant approached Commissioner of Income Tax (Appeals), Thiruvananthapuram. But first appellate authority had dismissed appeal. appellant took up matter in second appeal before Tribunal in ITA No.537/Coch/2018. 4. Tribunal considered ITA Nos.536 & 537/Coch/2018 together and dismissed them through common order passed on 12-03-2019. assessee thereafter filed MP No.47/Coch/2019 seeking rectification of mistake in order of Tribunal in ITA No.537/Coch/2018, on ground that Tribunal had failed to consider issue agitated against disallowance of surcharge on sales tax, and there occurred failure to adjudicate on that issue. Hence order passed by Tribunal in ITA No.537/Coch/2018, dated 12-03-2019 was requested to be recalled. Tribunal allowed Miscellaneous Petition and recalled order dated 12-03-2019 in ITA No.537/Coch/2018. issue mentioned above was reconsidered and fresh order was passed on 11-10-2019, finding issue against I.T. Appeal Nos. 135, 146 & 313/2019 -7- appellant and dismissing appeal. It is said order of Tribunal dated 11-10-2019 which is challenged in ITA No.313/2019. Since issue to be considered is common in all three appeals, above appeals were heard together and disposed of through this common judgment. 5. Heard; Shri. Anil D. Nair, learned counsel for appellant and Shri. P. Vijayakumar, learned Assistant Solicitor General appearing for respondent-Assessing Officer, 6. Common question of law arising in these cases is that, whether Gallonage Fee, Licence fee, Shop rental (Kist) and Surcharge on sales tax and turn over tax, with respect to which debits were made by assessee in their Profit and Loss Account, are liable to be disallowed while computing income derived as profit and gains of business or profession , under Section 40 (a) (iib) of Act, by treating them as amounts paid by assessee 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 assessee. I.T. Appeal Nos. 135, 146 & 313/2019 -8- 7. With respect to assessment year 2014-2015 Principal Commissioner of Income Tax, while setting aside original assessment, directed Assessing Officer to disallow amount of Rs.96,076.20 lakhs debited to Profit and Loss Account of assessee towards surcharge on sales tax and turn over tax, by invoking Section 40 (a) (iib). With respect to assessment year 2015-2016 Assessing Officer had disallowed total debit of Rs.811,90,88,115/- being amount paid as, Gallonage Fee, Licence Fee, Shop Rental (kist) and Surcharge on Sales Tax, which was confirmed by both appellate authorities. 8. For better appreciation of question of law raised, it is necessary to evaluate relevant provisions in Act. Chapter IV of Act deals with computation of business income. Section 40 provides about amounts which are not deductable while computing business income. It specifies amounts which shall not be deducted in computing income under head, profit and gains of business or profession. Sub-Section (a) (iib) of Section 40 reads as follows: 40. Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in I.T. Appeal Nos. 135, 146 & 313/2019 -9- computing income chargeable under head Profits and gains of business or profession .- (a) in case of any assessee- (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, State Government undertaking by State Government. Explanation. For purposes of this sub-clause, State Government undertaking includes (i) corporation established by or under any Act of State Government; (ii) company in which more than fifty per cent of paid-up equity share capital is held by State Government; (iii) company in which more than fifty per cent of paid-up equity share capital is held by entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) company or corporation in which State Government has right to appoint majority of directors or to control 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) authority, board or institution or body established or constituted by or under any Act of State I.T. Appeal Nos. 135, 146 & 313/2019 -10- Government or owned or controlled by State Government; Relevant portion of 'Explanatory Note' appended to amendment which introduced Section 40 (a) (iib), reads as follows; In order to protect tax base of State Government undertakings vis-a-vis exclusively levy of fee, charge, etc or appropriation of amount by State Government from its undertakings, section 40 of 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 State Government undertaking, by State Government, shall not be allowed as deduction for purposes of computation of income of such undertakings under head Profits and gains of business or profession. expression State Government Undertaking for this purpose includes- (i) corporation established by or under any Act of State Government; (ii) company in which more than fifty per cent of paid-up equity share capital is held by State Government; (iii) company in which more than fifty per cent of paid-up equity share capital is held by entity referred to in clause (i) or clause (ii) (whether singly or taken together); I.T. Appeal Nos. 135, 146 & 313/2019 -11- (iv) company or corporation in which State Government has right to appoint majority of directors or to control 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) authority, board or institution or body established or constituted by or under any Act of State Government or owned or controlled by State Government; On basis of contentions raised by both side, we may now deal with question regarding disallowance of each of items of fee or charges, separately; 9. Gallonage Fee Assessing Officer found that Gallonage Fee is levied as per Section 18 of Abkari Act, under Rule 15(A) of Foreign Liquor Rules. Fact revealed makes it clear that, assessee is dealing with wholesale and retail of Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL), for which they are holding licences issued by Excise Department of State Government. assessee is holding FL-1 Licence with respect to sale of foreign liquor in sealed bottles, without privilege of consumption within premises. They are also having FL-9 Licence for wholesale of I.T. Appeal Nos. 135, 146 & 313/2019 -12- foreign liquor, which they are selling to FL-1, FL-3, FL-4, 4A, FL- 11, FL-12 licence holders. Rule 15(A) of Foreign Liquor Rules provides that, Gallonage Fee at such rate as Government may prescribe from time to time, shall be paid by FL-9 licencees on quantity of foreign liquor sold by such licencees. It is found by Assessing Officer that, FL-9 licencees for wholesale of foreign liquor is issued by State Government exclusively to assessee company and therefore Gallonage Fee levied with respect to FL-9 licence is 'exclusive levy' imposed on assessee. above view has been upheld by first appellate authority. Contention of appellant is that, apart from Rule 15(A) of Foreign Liquor Rules, Gallonage Fee is also collected from other agencies under Rule 14 of Kerala Rectified Spirit Rules, 1972. For instance, it was pointed out that, Government is collecting Gallonage Fee from agencies like, Vikram Sarabhai Space Centre, Thiruvananthapuram, Travencore Sugers and Chemicals, Thiruvananthapuram, Malabhar Distilleries Ltd, Chittur, Palakkad, Earnest Brothers, Vellanikkara etc. Therefore it is contended that collection of Gallonage Fee is not exclusive levy on assessee as envisaged under Section 40 (a) (iib). It is levied on FL-9 licence I.T. Appeal Nos. 135, 146 & 313/2019 -13- holder as well as consumers of rectified spirit, other than pharmaceutical manufactures, as per Rule 14 of Kerala Rectified Spirit Rules, 1972, framed under Abkari Act. Inorder to constitute levy 'an exclusive levy' as envisaged in Section 40 (a) (iib), it shall be intended on entity alone and not on any particular product. levy of Gallonage Fee falls on assessee, as it happens to be wholesale dealer of foreign liquor within state. But when similar levy is being charged on various other state government and central government undertakings as well as on private licencees., levy of Gallonage Fee on assessee is not 'exclusive levy' imposed on assessee as state government undertaking, was contention. 10. first appellate authority found that, merely because fee in name of Gallonage Fee is levied under Rule 14 of Kerala Rectified Spirit Rules also, it is not relevant for purpose of examining applicability of Section 40 (a) (iib), with respect to fee paid under Foreign Liquor Rules. As long as FL-9 licence is exclusively granted to appellant, Gallonage Fee paid by appellant is 'exclusive levy' on assessee, which will attract provisions of Section 40 (a) (iib), is I.T. Appeal Nos. 135, 146 & 313/2019 -14- finding. view held by first appellate authority was also reiterated by Tribunal, in order passed on 12-03- 2019. It was held that, fact that fee in name of Gallonage Fee is also levied under Kerala Rectified Spirit Rules, 1972, is not relevant for purpose of examining applicability of provisions under Section 40 (a) (iib), with respect to fee paid under Foreign Liquor Rules, Tribunal held. 11. Before this court, learned counsel for appellant contended that, inorder to attract provisions of Section 40 (a) (iib) twin test to be satisfied are; firstly whether levies are imposed directly on state government undertaking; and secondly whether levy paid by assessee is exclusively imposed on such state government undertaking. Since levy is made by Excise Department of State Government and since similar levy is imposed on other undertakings also, it cannot be considered as 'exclusive levy' imposed directly by State Government, is argument. Per contra, learned Assistant Solicitor General contended that, Gallonage Fee is imposed on assessee with respect to wholesale trade on foreign liquor conducted by it under Section 18 of Abkari Act. It is not in dispute that wholesale trade in foreign liquor I.T. Appeal Nos. 135, 146 & 313/2019 -15- is exclusively licenced to assessee herein, under FL-9 licence. Therefore Gallonage Fee with respect to wholesale of foreign liquor, imposed under Foreign Liquor Rules, is 'exclusive levy' on assessee. It is contended that test of 'exclusivity' has to be assessed depending on mode of levy of charges. Since Gallonage Fee is confined to wholesale trade of foreign liquor licenced under FL-9, any other imposition of Gallonage Fee under different context with respect to other organisations for other purposes cannot be considered to make provisions of 40 (a) (iib) as not applicable to assessee. Gallonage Fee paid by assessee under Rule 15A of Foreign Liquor Rules with respect to wholesale trade in foreign liquor for human consumption, cannot be equated or in any way identical to Gallonage Fee paid by any industrial or research undertaking, in respect of rectified spirit / industrial spirit dealt with them, which are governed by provisions of Kerala Rectified Spirit Rules. Both levies cannot be considered as similar, because levies are on different trades for different products, charged under separate statutes. Merely because same nomenclature of Gallonage Fee is used, it cannot be contended that there is no I.T. Appeal Nos. 135, 146 & 313/2019 -16- exclusivity with respect to levy of Gallonage Fee from assessee, is argument. 12. We are persuaded to accept view taken by Tribunal, which confirmed view of authorities below. As supported by learned Assistant Solicitor General of India, as long as it is not in dispute that wholesale trade in foreign liquor under FL-9 licence is exclusive trade in state permitted to assessee herein alone, Gallonage Fee levied under Foreign Liquor Rules becomes 'exclusive levy' on assessee. Therefore we are of considered opinion that levy of Gallonage Fee with respect to wholesale trade under FL-9 licence will squarely fall within scope of disallowances provided under Section 40 (a) (iib). Hence finding of Tribunal in this regard need to be upheld. 13. Licence Fee and Shop Rental (Kist). Licence fee is levied under Section 18 of Abkari act and under provisions of Foreign Liquor Rules. assessee is paying licence fee with respect to FL-9 licence, for warehouses in wholesale trade. They are also paying licence fee with respect to FL-1 shops (retail outlets) wherein foreign liquor in sealed bottles are sold. As discussed above, I.T. Appeal Nos. 135, 146 & 313/2019 -17- business activities under FL-9 licence is monopoly of assessee. Assessee is exclusive licencee with respect to wholesale trade. With respect to FL-1 licence for retail trading in foreign liquor in sealed bottles, it is not in dispute that business activity is exclusively earmarked for two public sector undertakings of State Government, assessee herein as well as Consumer Federation. Assessing Officer found that, in both cases licences are granted only to public sector undertakings and therefore levy of licence fee is 'exclusive levy' on assessee. With respect to Shop Rental (Kist), assessee is liable to pay such levy for each warehouses of wholesale trade authorised under FL-9 licence and for each retail shops dealing with business under FL-1 licences. In this case also, Assessing Officer as well as first appellate authority found that, there is exclusivity with respect to levy on assessee - public sector undertaking. Tribunal found that assessee is paying licence fee and shop rental (kist) in respect of exclusive licences granted by way of FL-1 and FL-9 licences. Finding that there is no dispute with respect to exclusive nature of licence fee and shop rental (kist), disallowance was upheld. Before both I.T. Appeal Nos. 135, 146 & 313/2019 -18- authorities, appellant contended that, licences granted to assessee are under Section 18 (A) of Abkari Act, which deals with granting of exclusive or other privileges for manufacture etc., on payment of rentals. Foreign Liquor Rules stipulates that, for getting such licence to conduct trade in liquor, fee prescribed in Rules has to be paid. Foreign Liquor Rules provide for issue of various type of licences in trade of liquor in state. assessee pointed out that, such licence fee is also payable with respect to right granted in trade of Toddy. There are different kinds of licences granted for sale of different type of spirit products, like rectified spirit, denatured spirit etc., Such licences are issued to persons dealing with such products and to different categories of sellers of foreign liquor and beer. Therefore it was contended that licence fee levied for conducting trade in foreign liquor is not exclusive levy attracting Section 40 (a) (iib). Tribunal discarded above contention on finding that, appellant is paying licence fee and shop rental (kist) in respect of exclusive licences granted, FL-1 and FL-9, issued by State Government. I.T. Appeal Nos. 135, 146 & 313/2019 -19- 14. Before this court, learned counsel for appellant argued that, licence fee as well as shop rental (kist) are also not levies paid directly to State Government and they are not levies imposed exclusively on appellant. Those levis are also imposed on other dealers who are licenced for same type of trade and those are levies charged on other traders by virtue of similar provisions in other statutes. On other hand, learned Assistant Solicitor General of India contended that, licence fee is charged specifically and exclusively on assessee with respect to each premises of business sanctioned under FL-9 licence. Similarly licence fee is levied with respect to FL-1 licences, only from two state government undertakings, appellant and Consumer Federation. Therefore it is contended that licence fee are levied exclusively on state government undertakings, on vesting with them right and privilege of retail trade of foreign liquor. Hence licence fee will squarely fall within ambit and scope of disallowances enumerated under Section 40 (a) (iib). It is on basis of 'exclusivity' provided with respect to state government owned corporations (companies) that levy becomes chargable. Similar contentions were also raised with respect to I.T. Appeal Nos. 135, 146 & 313/2019 -20- shop rental (kist). Since state government undertakings alone have monopoly in wholesale and retail trade in foreign liquor under FL-9 and FL-1 licences, 'exclusivity' with respect to above said levies remains specified, is contention. 15. On assimilation of rival contentions, as already held in case of Gallonage Fee, licence under FL-9 for wholesale trade in foreign liquor is exclusively granted to appellant herein. Therefore licence fee is levy charged exclusively on appellant for conduct of business authorised under FL-9 licence. So also shop rental (kist) as far as FL-9 licence is concerned is levied only on wholesale warehouses of appellant / assessee. Therefore arguments of assessee in this regard cannot be sustained, with respect to levies of licence fee and shop rental (kist) for business conducted based on FL-9 licence, as they are exclusively levied from appellant. 16. With respect to licence fee and shop rental (kist) levied for retail business is concerned, both sides have advanced conflicting arguments. situation is that, business of retail in foreign liquor is restricted to appellant and to I.T. Appeal Nos. 135, 146 & 313/2019 -21- Consumer Federation,both being state government undertakings. trade in toddy or other kind of spirits cannot in any manner be equated with business of retail sale in foreign liquor, for purpose of human consumption. Contention of appellant seems to be that, since said business is permitted also to one another state government undertaking, namely Consumer Federation, exclusivity of levy for purpose of Section 40 (a) (iib) will be lost. It was argued that, provision under Section 40 (a) (iib) makes it abundantly clear that levy imposed or amount appropriated from state government undertaking shall not be allowed as deduction when levy is imposed exclusively on such state government undertakings. Since levy is made from one more state government undertakings, 'exclusivity' is not there. In this regard, findings of Tribunal is that, wordings of Section 40 (a) (iib), which is levied exclusively on indicates that fee or charge should be one exclusively levied from state government undertakings, and it is not any fee or charge which is levied exclusively from assessee by state government. Therefore question is whether 'exclusivity' will be lost if it is levied from more than one State Government I.T. Appeal Nos. 135, 146 & 313/2019 -22- undertaking. Sub-clause (iib) of Clause (a) of Section 40 provides that, any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge which is levied exclusively on state government undertaking by State Government (emphasis supplied) alone will satisfy ingredients for disallowance. statute has not used word; levied exclusively on state government undertakings by State Government. Instead, word used is exclusively on state government undertaking . Therefore, inorder to bring disallowance within ambit and scope of Section 40 (a) (iib), it should be exclusive levy on assessee, which should be state government undertaking. Since licence fee and shop rental (kist) are also levied from Consumer Federation with respect to FL-1 licence granted, it becomes out of purview of term 'levied exclusively on state government undertaking, contained in 40 (a) (iib). Therefore we are persuaded to hold that disallowance made with respect to licence fee and shop rental (kist) paid with respect to FL- 1 licences granted to appellant for retail trade in foreign liquor, cannot be sustained. I.T. Appeal Nos. 135, 146 & 313/2019 -23- 17. Surcharge on Sales Tax and Turnover tax Referring to provisions contained in Kerala Surcharge on Taxes Act, 1957, appellant contended before first appellate authority that, said legislation itself was brought into force when Government considered it necessary to increase taxes. Nowhere it is mentioned that Act is intended to provide any levy on appellant. Before first appellate authority it was pointed out that, surcharge is imposed on agricultural income tax also. There are many assessees in state paying surcharge on agricultural income tax, which include state and central government undertakings as well as many private persons. Hence it is contended that levy of surcharge on taxes is not legislative arrangement made by state to appropriate any profit of appellant / assessee. Section 3 (1) of Kerala Surcharge on Taxes Act, 1957 provides that, taxes payable under Section 5 (1) of Kerala General Sales Tax Act (KGST) by dealer in IMFL shall be increased by surcharge @ 10%. Since it is applicable to agricultural income tax and to other assesses, it is not exclusive levy on appellant and hence it will never come within scope of Section 40 (a) (iib), is argument I.T. Appeal Nos. 135, 146 & 313/2019 -24- advanced. first appellate authority found that there is no dispute that provisions of Section 3 of Surcharge on Taxes Act, 1957 are applicable exclusively to appellant, since it is exclusive levy on state government undertaking, it will fall within provisions of Section 40 (a) (iib), is finding. 18. As observed in foregoing paragraphs, while passing common order in ITA Nos.536 & 537/Coch/2018 on 12-03-2019, Tribunal had omitted to consider contentions raised against disallowance of surcharge on sales tax and turnover tax. After recalling order passed in ITA No.537/Coch/2018, issue was considered by Tribunal elaborately. It was pointed out before Tribunal that, wording of Section 40 (a) (iib), any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge by whatever name called , would clearly indicate that disallowance is intended with respect to 'fee or charges' and it will not take within its ambit and scope any amount collected by way of tax. categorisation of surcharge also under group of 'fee or charges' provided under Section 40 (a) (iib), by Assessing Officer by depending upon wording, by whatever name called cannot be sustained, I.T. Appeal Nos. 135, 146 & 313/2019 -25- because principle of e jusdem generis would apply and it should be of same kind of 'fee or charge'. Surcharge on sales tax is nothing but sales tax and wording of Kerala Surcharge on Taxes Act itself would make it clear that increase with respect to tax payable under Section 5 (1) of KGST Act is only effect of legislation. In other words, surcharge is introduced as increment in sales tax payable, and nothing else. It was also argued that payment of tax is compulsory and refusal to pay would invite punishment. There is no direct quid pro quo between tax payer and levying authority. 'fee or charge' is compulsory payment to be made for special service rendered by Government. It confers specific advantage on person paying it. Therefore 'fee or charge' is payable only for conferring advantage or for agreeing to confer advantage on payer. 'ejusdem generis' principle cannot be applied with respect to surcharge paid on tax, which is totally different in nature and character, is contention. There is no 'exclusivity' as far as surchrage on sales tax and turnover tax is concerned, was another argument raised before Tribunal. It was pointed out that, surcharge on sales tax and turn over tax is payable by persons who are I.T. Appeal Nos. 135, 146 & 313/2019 -26- carrying out sales and purchase of goods. Apart from assessee there are other entities which deals with retail of IMFL who pays surcharge under Kerala Surcharges Act. Hotels which are dealing in liquor are also liable to pay turnover tax and surcharge on sales tax, in connection with sale of liquor. Therefore levy of surcharge is not exclusive 'fee or charge' imposed on state government undertaking, was argument. Tribunal, after considering above said contentions, found that, surcharge is exclusively levied on assessee based on FL-9 licence granted, which is not given to any other undertaking. Being so, appellant had incurred expenditure for obtaining specific benefits from State Government and it cannot be said that there is no element of quid pro quo. Since other assessees pointed out, who are paying surcharge, are not granted with FL-9 licence under Abkari Act, and appellant alone is FL-9 lincencee, surcharge paid will fall within ambit and scope of Section 40 (a) (iib), is finding. argument that surcharge is nothing but sales tax paid by assessee, is rejected by stating that, surcharge is not collectable or recoverable from customers to whom goods are sold, because of express I.T. Appeal Nos. 135, 146 & 313/2019 -27- restrainment contained in provisions of Kerala Surcharge on Taxes Act. Hence surcharge is not equivalent of sales tax, is finding of Tribunal. 19. Before this court, learned counsel for appellant raised contention that, 'tax' is not 'fee or charge'. Section 3 (1) of Kerala Surcharge on Tax Act was reiterated to content that, it provides only increment in 'tax' payable under Sub- Section (1) of Section (5) of KGST Act by dealer in foreign liquor by way of surcharge at 10%. Further, it is provided that, provisions of KGST Act shall apply in relation to surcharge, as they apply in relation to tax payable under KGST Act. It is pointed out that, from plain reading of provision it is clear that surcharge on sales tax is nothing but tax and it partakes all characteristics of tax levied under specific fiscal statute. Hence disallowance is made only by way of rewriting Section 40 (a) (iib), under guise of interpreting said provision, is argument. From plain reading of Section 40 (a) (iib) it is clear that, provision was never intended to apply to taxes levied by state in exercise of its sovereign power. Learned counsel had drawn attention of this court to CBDT Circular No.3 of 2014, which specifically made it clear that, only I.T. Appeal Nos. 135, 146 & 313/2019 -28- privilege fee, licence fee, royalty etc will fall within category of 'fee or charges' and it will not be applicable to 'taxes' such as sales tax. Therefore it is contended that application of Section 40 (a) (iib) in case of surcharge on sales tax would directly goes against aforesaid Circular. 20. Learned Assistant Solicitor General of India pointed out that, on analysis of provisions contained in Kerala Surcharge on Taxes Act, 1957, especially Section 3 thereof, it reveals that feature of surcharge is only increment in sales tax. But it is not sales tax. He placed reliance on Sub- Section (2) of Section 3 which prohibits, passing of liability of surcharge to subsequent purchasers. So also it is pointed out that, Sub-Section (3) & (4) of Section 3 had made it penal offence to pass on such liability to subsequent purchasers. Therefore it is contended that, surcharge cannot be deemed to be sales tax. According to learned ASGI, surcharge necessarily comes under term 'surcharge' and payment in name of 'surcharge' would also fall under Section 40 (a) (iib). Since 'surcharge' being creation under distinct statute and same being not permitted to be passed on to subsequent purchases, unlike sales tax there cannot be any deduction of I.T. Appeal Nos. 135, 146 & 313/2019 -29- 'surcharge' paid from taxable income, is contention. 21. Learned counsel for appellant placed reliance on a Division Bench decision of this court in Income Tax Appeal No.68/2015 and connected cases, dated 10th August, 2016. Those are appeals filed by revenue against appellant herein. While deciding question whether surcharge paid by assessee under Kerala Surcharge on Taxes Act, 1957 and Turnover Tax levied under Section 5 (2) (1) of KGST Act, 1963, are allowable deductions under Section 37 of Income Tax Act or not, it was found that, levy of tax under KGST Act and Surcharge Act on turnover, are not on income and therefore assessment of income tax made by disallowing those payments, is sustainable. Learned counsel had also placed reliance on decision of Hon'ble Supreme Court in Commissioner, Hindu Religious Endowments, Madras V. Sri. Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954 SCR 1005) and on some other cases to emphaise that, tax is not compulsory extraction of money by public authority for public purpose enforcible and is not payment made for services rendered. fee may be I.T. Appeal Nos. 135, 146 & 313/2019 -30- generally defined as charge for special services rendered to individuals by some Governmental agencies. Various decisions of other High Courts are also pressed into service to content that 'tax' and 'dues' are not same as 'cess or fee or charge'. 22. On analysing rival contentions, we take note of fact that surcharge on sales tax was introduced only as increase in tax payable. Merely because statute imposed prohibition with respect to passing on such liability to others, basic characteristics of levy is not changed. As settled through various legal precedents, 'tax' cannot by equated with 'fee or charge'. When provisions contained in Section 40 (a) (iib) is clear in its terms that it will take in only 'fee or charges' enumerated therein or any 'fee or charge by whatever name called, it is clear that any levy of 'tax' is outside ambit and scope of said provision. Inorder to include surcharge on sales tax or turnover tax within sweep of Section 40 (a) (iib), it becomes necessary to read something into provision. Therefore we are inclined to accept view as contended by appellant, that disallowance of surcharge on sales tax and turnover tax cannot be sustained. I.T. Appeal Nos. 135, 146 & 313/2019 -31- 23. While summing up conclusions, we are persuaded to answer question of law raised, partly in favour of revenue and partly in favour of assessee. We hold that levy of Gallonage Fee, Licence Fee and Shop Rental (kist) with respect to FL-9 licences granted to appellant will clearly fall within purview of Section 40 (a) (iib) and amount paid in this regard is liable to be disallowed. amount of Gallonage Fee, Licence Fee, or Shop Rental (kist) paid with respect to FL-1 licences granted in favour of appellant, with respect to retail business in foreign liquor, is not exclusive levy on appellant, which is state government undertaking. Therefore disallowance made with respect to those amounts cannot be sustained. surcharge on sales tax and turnover tax is not 'fee or charge' coming within scope of Section 40 (a) (iib) and is not amount which can be disallowed under said provision. Therefore disallowance made in this regard is liable to be set aside. 24. In result assessment completed against appellants with respect to assessment years 2014-2015, 2015-2016 are hereby set aside. matter is remitted to Assessing Officer to pass revised orders, after computing I.T. Appeal Nos. 135, 146 & 313/2019 -32- liability in accordance with position settled hereinabove, on affording opportunity of hearing to appellant. needful steps in this regard shall be completed at earliest, at any rate, within three months from date of receipt of copy of this judgment. above Income Tax Appeals are hereby disposed of accordingly. Sd/- C.K.ABDUL REHIM JUDGE Sd/- T.V.ANILKUMAR JUDGE AMG I.T. Appeal Nos. 135, 146 & 313/2019 -33- APPENDIX OF ITA 135/2019 APPELLANT'S EXHIBITS: ANNEXURE-A TRUE COPY OF ASSESSMENT ORDER DATED 28.12.2017 FOR YEAR 2015-16 ISSUED TO APPELLANT ANNEXURE-B TRUE COPY OF ARGUMENT NOTE FILED BEFORE COMMISSIONER OF INCOME TAX(APPEALS) ANNEXURE-C TRUE COPY OF ORDER DATED 5.11.2018 OF COMMISSIONER OF INCOME TAX (APPEALS) TO APPELLANT ANNEXURE-D TRUE COPY OF GROUND OF APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL ANNEXURE-E TRUE COPY OF ORDER OF INCOME TAX APPELLATE TRIBUNAL DATED 12.3.2019 I.T. Appeal Nos. 135, 146 & 313/2019 -34- APPENDIX OF ITA 146/2019 APPELLANT'S EXHIBITS: ANNEXURE TRUE COPY OF ORDER DATED 14-12-2016 FOR YEAR 2014-15 ISSUED TO APPELLANT ANNEXURE B TRUE COPY OF ORDER DATED 25-09-2018 OF PRINCIPAL COMMISSIONER OF INCOME TAX TO APPELLANT ANNEXURE C TRUE COPY OF ORDER OF INCOME TAX APPELLATE TRIBUNAL DATED 12-3-2019. I.T. Appeal Nos. 135, 146 & 313/2019 -35- APPENDIX OF ITA 313/2019 APPELLANT'S EXHIBITS: ANNEXURE TRUE COPY OF ASSESSMENT ORDER DATED 28.12.2017 ISSUED BY 1ST RESPONDENT. ANNEXURE B TRUE COPY OF ARGUMENT NOTE FILED BEFORE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C TRUE COPY OF ORDER OF FIRST APPELLATE AUTHORITY DATED 5.11.2018. ANNEXURE D TRUE COPY OF GROUNDS OF APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL. ANNEXURE E TRUE COPY OF ORDER OF INCOME TAX TRIBUNAL DATED 12.3.2019. ANNEXURE F TRUE COPY OF MISCELLANEOUS APPLICATION FILED BEFORE TRIBUNAL. ANNEXURE G TRUE COPY OF ORDER OF INCOME TAX TRIBUNAL DATED 11.10.2019. Kerala State Beverages (Manufacturing and Marketing) Corporation Limited v. Assistant Commissioner of Income-tax Circle-1(I), Trivandrum