C.A.@S.L.P.(C)No.12859 of 2020 etc. REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 11 OF 20 22 [Arising out of S.L.P.(C) No.12859 of 2020] Kerala State Beverages Manufacturing & Marketing Corporation Ltd. ...Appellant v. Assistant Commissioner of Income Tax Circle 1(1) ...Respondent W I T H CIVIL APPEAL NO. 12 OF 20 22 [Arising out of S.L.P.(C) No.12162 of 2020] CIVIL APPEAL NO. 13 OF 20 22 [Arising out of S.L.P.(C) No.12768 of 2020] AND CIVIL APPEAL NO. 14 OF 20 22 [Arising out of S.L.P.(C) No.14150 of 2020] JUDGMENT R. SUBHASH REDDY, J. Signature Not Verified 1. Leave granted. Digitally signed by Rajni Mukhi Date: 2022.01.03 2. These appeals are preferred, by State owned Undertaking, 16:37:04 IST Reason: Kerala State Beverages Manufacturing & Marketing Corporation Ltd., 1 C.A.@S.L.P.(C)No.12859 of 2020 etc. company registered under Companies Act, 1956, engaged in wholesale and retail trade of beverages, aggrieved by common judgment and order dated 30.04.2020 passed in I.T.A. No.135; 146 and 313 of 2019 by High Court of Kerala at Ernakulam. Civil Appeal arising out of S.L.P.(C)No.12859 of 2020 is filed by assessee and other three appeals are preferred by revenue. 3. For assessment year 2014 2015, Deputy Commissioner of Income Tax, Circle 2(1), Thiruvananthapuram finalised assessment of income of appellant under Section 143(3) of Income tax Act, 1961 (in short, Act ) vide Assessment Order dated 14.12.2016. Principal Commissioner of Income Tax, Thiruvananthapuram has exercised power of revision as contemplated under Section 263 of Act and set aside order of assessment on ground that same is erroneous and is prejudicial to interest of revenue, to extent it failed to disallow debits made in Profit & Loss Account of assessee, with respect to amount of surcharge on sales tax and turnover tax paid to State Government, which ought to have been disallowed under Section 40(a)(iib) of Act. Against order of Principal Commissioner, Income Tax, dated 2 C.A.@S.L.P.(C)No.12859 of 2020 etc. 25.09.2018, appellant herein filed appeal before Income Tax Appellate Tribunal (in short, Tribunal ) in ITA No.536/Coch/2018. 4. 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 vide order of assessment dated 28.12.2017. Debits contained in Profit & 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/ were disallowed under Section 40(a)(iib) of Act. Aggrieved by said order, appellant herein has filed appeal before Commissioner of Income Tax (Appeals), Thiruvananthapuram and same was dismissed. appellant carried matter by way of second appeal before Tribunal in ITA No.537/Coch/2018. Tribunal has dismissed ITA Nos.536 537/Coch/2018 by common order dated 12.03.2019. appellant herein thereafter has filed miscellaneous application in MP No.47/Coch/2019 on ground that Tribunal had failed to consider issue agitated against disallowance of surcharge on sales tax. said miscellaneous application was allowed by recalling earlier order dated 12.03.2019 passed in I.T.A.No.537/Coch/2018 and fresh order was passed on 3 C.A.@S.L.P.(C)No.12859 of 2020 etc. 11.10.2019, finding issue against appellant and dismissing appeal. Aggrieved by aforesaid three orders, appellant herein has filed Income Tax Appeals before High Court in ITA Nos.135; 146 and 313 of 2019 which are disposed, by common impugned order. In common impugned order passed by High Court, question of law raised, was answered partly in favour of assessee/appellant and partly in favour of revenue. Para 23 and 24 of judgment read as under : 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 & 4 C.A.@S.L.P.(C)No.12859 of 2020 etc. 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. 5. For purpose of disposal, we refer to parties, as arrayed in appeal filed by Kerala State Beverages Manufacturing & Marketing Corporation Ltd. (KSBC). 6. We have heard Sri S. Ganesh, learned senior advocate for appellant and Sri N. Venkataraman, learned Additional Solicitor General appearing for respondent. 7. Section 40 of Income tax Act, 1961 is provision dealing with amounts not deductible . amounts as detailed in Section are not deductible, in computing income chargeable under head Profits and gains of business or profession . By Finance Act, 2013 (Act 17 of 2013), Section 40 of Act is amended by inserting Section 40(a)(iib), which has come into force from 01.04.2014. said provision under Section 40(a)(iib) reads as under : 40. Amounts not deductible. Notwithstanding any thing contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession , 5 C.A.@S.L.P.(C)No.12859 of 2020 etc. (a) in case of any assessee (i) (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 Gov ernment. 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 en tity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) company or corporation in which State Gov ernment 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; 6 C.A.@S.L.P.(C)No.12859 of 2020 etc. (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;". 8. While it is case of assessee/appellant that gallonage fees, licence fee and shop rental (kist) for FL 9 licence and FL 1 licence, surcharge on sales tax and turnover tax do not fall within purview of abovesaid amended Section, case of revenue is that all aforesaid amounts are covered under Section 40(a)(iib) as such, such amounts are not deductible for purpose of computation of income, for assessment years 2014 2015 and 2015 2016. 9. During assessment years 2014 2015 and 2015 2016 appellant was holding FL 9 and FL 1 licences to deal in wholesale and retail of, Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign Liquor (FMFL) granted by Excise Department. FL 9 licence was issued to deal in wholesale liquor, which they were selling to FL 1, FL 3, FL 4, 4A, FL 11, FL 12 licence holders. FL 1 licence was for sale of foreign liquor in sealed bottles, without privilege of consumption within premises. gallonage fee is payable as per Section 18A of Kerala Abkari Act and Rule 15A of Foreign Liquor Rules. appellant was only licence holder for relevant years so far as FL 7 C.A.@S.L.P.(C)No.12859 of 2020 etc. 9 licence to deal in wholesale, and so far as FL 1 licences are concerned, it was also granted to one other State owned Undertaking, i.e., Kerala State Co operatives Consumers Federation Ltd.. By interpreting word exclusively as worded in Section 40(a)(iib)(A) of Act, High Court in impugned order has held 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) of Act and amounts paid in this regard is liable to be disallowed. At same time amount of gallonage fee, licence fee and shop rental (kist) paid with respect to FL 1 licences granted in favour of appellant for retail business, High Court has held that it is not exclusive levy, as such disallowance made with respect to same cannot be sustained. With regard to surcharge on sales tax and turnover tax, it is held that same is not fee or charge within meaning of Section 40(a)(iib) as such same is not amount which can be disallowed under said provision. 10. Sri Ganesh, learned senior counsel appearing for appellant by referring to Explanatory Note to Finance Act, 2013, and Section 40(a)(iib) of Act, has submitted that levy of gallonage fees, licence fee and shop rental (kist) on FL 9 licence is not on any State Government Undertaking but same is levy on licensee. It is 8 C.A.@S.L.P.(C)No.12859 of 2020 etc. submitted that levy was on licence holder whoever he or it might be and only in view of Abkari Policy of relevant years licences were granted to appellant as such it cannot be said that same was exclusive levy on appellant attracting Section 40(a)(iib) of Act so as to disallow same. It is submitted that mere fact that in particular year, licence holder happens to be State Government Undertaking does not make levy, one, which is imposed directly and exclusively on State Government Undertaking. It is submitted that High Court has failed to appreciate that decision as to whom FL 9 licences are to be granted, depends only on State Government s Abkari Policy, which may vary from year to year. It is submitted that said submission also holds good with regard to gallonage fee, licence fee and shop rental for FL 1 licence, which issue is already decided in favour of appellant, by High Court. With regard to surcharge on sales tax and turnover tax, it is submitted that taxes levied, are completely outside ambit of Section 40(a)(iib) of Act. It is submitted that Kerala Surcharge on Taxes Act, 1957 (for short, KST Act ) is enacted only to increase taxes, inter alia, on sale or purchase of goods, as such it is nothing but increment to basic sales tax levied under Section 5(1) of Kerala General Sales Tax Act, 1963 (for short, KGST Act ). It is submitted that surcharge on 9 C.A.@S.L.P.(C)No.12859 of 2020 etc. sales tax is nothing but enhancement of tax itself. In support of said submission, learned counsel has placed reliance on judgments of this Court in case of C.I.T. v. K. Srinivasan1 and in case of Sarojini Tea Co. Ltd. v. Collector, Dibrugarh2. Reference is also made on CBDT Circular No.3/2018 dated 11.07.2018, to buttress said submission. Learned counsel, by drawing our attention to distinction between fee and taxes which is maintained throughout scheme under Section 40(a) has submitted that, sales tax and turnover tax is outside scope of Section 40(a) (iib) of Act. Lastly it is submitted that for assessment year 2014 2015, assessing officer has allowed deductions in respect of surcharge on sales tax and turnover tax, Commissioner interfered, in exercise of power of revision under Section 263 of Act. It is submitted that view taken by assessing officer was possible view, as such very invocation of revisional power was not permissible, to interfere with order of assessing officer. With aforesaid submissions, learned counsel has submitted to allow appeal filed by assessee and dismiss appeals filed by revenue. 1 (1972(4) SCC 526 2 (1992) 2 SCC 156 10 C.A.@S.L.P.(C)No.12859 of 2020 etc. 11. Sri Venkataraman, learned ASG appearing for revenue, by drawing our attention to provisions under Articles 285 and 289 of Constitution of India, has explained intent behind amendment to Section 40 of Income tax Act, 1961, by Act 17 of 2013. It is submitted that in terms of Article 289 of Constitution, property and income of State is exempted from Union taxation. constitutional protection under Article 289 had led States in shifting income/profits from State Government Undertakings into Consolidated Fund of States. It is submitted that State Government Undertaking KSBC, which in this case is company like any other commercial concern, is engaged in trade and business and commercial activity, therefore, is to be treated like any other business entity. However, when it came to filing of Return of Income, State as only shareholder or major shareholder in this type of undertakings, exercise control over it and shift profits by appropriating whole of surplus or part of it by way of taxes, fee or similar such appropriations. It is submitted that this resulted in erosion of profits in hands of State Government Undertakings leading to lesser payment of taxes, since these appropriations by respective States from their State Government Undertakings were accounted for as allowable expenditure under Section 40(a) and these undertakings 11 C.A.@S.L.P.(C)No.12859 of 2020 etc. claimed deduction of same from income earned, therefore could not be taxed in hands of State Government Undertakings. It is further submitted that shifted profit, upon its transfer, went into Consolidated Fund of States and on this basis constitutional protection under Article 289 were claimed as result of which, these amounts could neither be taxed in hands of State Government Undertakings nor in hands of respective States. Precisely underlined spirit in bringing out said amendment by inserting Section 40(a)(iib), is to plug possible diversion or shifting of profits from these undertakings into State s treasury. Learned counsel also referred to Memorandum attached to Finance Bill of 2013 which explains provisions relating to direct taxes. relevant portion of Memorandum reads as under : Disallowance of certain fee, charge, etc. in case of State Government Undertakings existing provisions of section 40 specifies amounts which shall not be deducted in computing income chargeable under head Profits and gains of business or profession . non deductible expense under said section also includes statutory dues like fringe benefit tax, income tax, wealth tax, etc. Disputes have arisen in respect of income tax assessment of some State Government undertakings as to whether any sum paid by way of privilege fee, license fee, royalty, etc. levied or charged by State Government exclusively 12 C.A.@S.L.P.(C)No.12859 of 2020 etc. on its undertakings are deductible or not for purposes of computation of income of such undertakings. In some cases, orders have been issued to effect that surplus arising to such undertakings shall vest with State Government. As result it has been claimed that such income by way of surplus is not subject to tax. It is settled law that State Government undertakings are separate legal entities than State and are liable to income tax. In order to protect tax base of State Government undertakings vis vis exclusive levy of fee, charge, etc. or appropriation of amount by State Governments from its undertakings, it is proposed to amend section 40 of Income tax Act 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 . It is also proposed to define expression State Government Undertaking for this purpose. This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014 15 and subsequent assessment years. 11.1. With regard to gallonage fees, licence fee and shop rental (kist), it is submitted that High Court has upheld disallowance in favour of revenue with regard to FL 9 licence on ground that appellant KSBC is exclusive licence holder, so far as FL 9 licences are concerned. It is submitted that so far as FL 1 licences are concerned only on ground that similar licences are also given for 13 C.A.@S.L.P.(C)No.12859 of 2020 etc. another licence holder, viz., to Kerala State Co operatives Consumers Federation Ltd., High Court has held that there is no exclusivity so far as FL 1 licences are concerned. It is contention of learned counsel that disallowance under Section 40(a)(iib) is not contingent upon nature of licence. test should be whether levy under Abkari Act is exclusive or not and in this case it is exclusive. It is submitted that restricted interpretation made by High Court to extent of FL 1 licences issued in favour of appellant runs contrary to object and intent of Section 40(a)(iib) of Act and makes said provision redundant and otiose. It is case of revenue that aspect of exclusivity used under Section 40(a)(iib) of Act, has to be viewed from nature of undertaking on which levy is imposed and not on number of undertakings on which levy is imposed. It is further submitted that KSBC and Kerala State Co operatives Consumers Federation Ltd. are undertakings of State of Kerala, therefore, levy is exclusive levy on such State Government Undertakings which are licensees. 11.2. So far as surcharge on sales tax is concerned, again it is submitted that such levy is exclusive levy on KSBC alone, therefore, attracts Section 40(a)(iib)(A) itself. Alternatively, it is further submitted that even assuming that such tax is not attracted by Section 14 C.A.@S.L.P.(C)No.12859 of 2020 etc. 40(a)(iib)(A), it would fall under Section 40(a)(iib)(B) for reason that surcharge on sales tax is tax and tax is form of appropriation by State from KSBC. It is submitted that surcharge levied under Section 3(1) of KST Act is on tax payable by dealer in foreign liquor under Section 5(1) of KGST Act. It is contention of learned counsel that, cumulative reading of Section 3(1) of KST Act and Section 5(1)(b) of KGST Act would reveal that surcharge is levied on tax payable by dealer in foreign liquor under Section 5(1) of KGST Act. It is submitted that Section 3(1) does not deal with any other category and specifically pertain only to dealer in foreign liquor. It is submitted that as much as Section 5(1)(b) of KGST Act refers to trade in foreign liquor and it applies specifically and exclusively to KSBC and further surcharge levied under Section 3(1) of KST Act is on sales tax, exclusively payable by KSBC under Section 5(1)(b) of KGST Act. As such, inevitable conclusion, therefore is that it qualifies as exclusive levy attracting Section 40(a)(iib) of Act. To show that distinction between tax and fee has substantially been effaced in development of constitutional jurisprudence, learned counsel, has placed reliance on recent judgment of this Court 15 C.A.@S.L.P.(C)No.12859 of 2020 etc. in case of Jalkal Vibhag Nagar Nigam & Ors. v Pradeshiya Industrial and Investment Corporation and Another3. 11.3. With regard to turnover tax, it is submitted that unlike surcharge which is exclusive levy on KSBC, it is fairly submitted that such tax was imposed not only on KSBC under Section 5(1)(b) of KGST Act, but also was being imposed on various other retail dealers specified under Section 5(2) of KGST Act. It is submitted that as issue has not been dealt and examined in detail by High Court, made request to leave it open for fresh adjudication since facts and figures need to be verified. With above submissions, learned ASG has pleaded to allow appeals filed by revenue and dismiss appeal filed by KSBC. 12. Having heard learned counsels on both sides we have perused impugned order and other material placed on record. 13. Section 40 of Income tax Act, 1961 is provision which deals with amounts which are not deductible while computing income chargeable under head Profits and gains of business or profession . Section 40 of Act is amended in year 2013, and 40(a)(iib) is inserted by Amending Act 17 of 2013, which has come into force from 01.04.2014. In terms of Article 289 of Constitution of 3 2021 SCC OnLine SC 960 16 C.A.@S.L.P.(C)No.12859 of 2020 etc. India, property and income of State shall be exempt from Union taxation. Therefore, in terms of Article 289, Union is prevented from taxing States on its income and property. It is constitutional protection granted to States in terms of abovesaid Article. This protection has led States in shifting income/ profits from State Government Undertakings into Consolidated Fund of respective States to have protection under Article 289. In instant case KSBC, State Government Undertaking, is company like any other commercial entity, which is engaged in business and trade like any other business entity for purpose of wholesale and retail business in liquor. As much as these kind of undertakings are under control of States as total shareholding or in some cases majority of shareholding, is held by States. As such they exercise control over it and shift profits by appropriating whole of surplus or part of it to Government by way of fees, taxes or similar such appropriations. From relevant Memorandum to Finance Act, 2013 and underlying object for amendment of Income tax Act by Act 17 of 2013, by which Section 40(a)(iib)(A)(B) is inserted, it is clear that said amendment is made to plug possible diversion or shifting of profits from these undertakings into State s treasury. In view of Section 40(a)(iib) of Act any amount, as indicated, which is 17 C.A.@S.L.P.(C)No.12859 of 2020 etc. levied exclusively on State owned undertaking (KSBC in instant case), cannot be claimed as deduction in books of State owned undertaking, thus same is liable to income tax. 14. In instant case gallonage fee, licence fee, shop rental (kist), surcharge and turnover tax are amounts of which assessee claims that they are not attracted by Section 40(a)(iib) of Act. On other hand it is case of respondent/revenue that all said components attract ingredients of Section 40(a)(iib)(A) or Section 40(a)(iib)(B), as such they are not deductible. Broadly these levies can be divided into three categories. Gallonage fee, licence fee and shop rental (kist) are in nature of fee imposed under Abkari Act of 1902. These are fees payable for licences issued under FL 9 and FL 1. In impugned order, High Court has held that gallonage fee, licence fee and shop rental (kist) with respect to FL 9 licence are not deductible, as it is exclusive levy on Corporation. Further distinction is drawn from FL 1 licence from FL 9 licence, to apply Section 40(a)(iib), only on ground that, FL 1 licences are issued not only to appellant/KSBC but also issued to one other Government Undertaking, i.e., Kerala State Co operatives Consumers Federation Ltd. High Court has held that as there is no other player holding licences under FL 9 like KSBC as such word exclusivity 18 C.A.@S.L.P.(C)No.12859 of 2020 etc. used in Section 40(a)(iib) attract such amounts. At same time only on ground that FL 1 licences are issued not only to KSBC but also to Kerala State Co operatives Consumers Federation Ltd., High Court has held that exclusivity is lost so as to apply provision under Section 40(a)(iib). If amended provision under Section 40(a) (iib) is to be read in manner, as interpreted by High Court, it will literally defeat very purpose and intention behind amendment. aspect of exclusivity under Section 40(a)(iib) is not to be considered with narrow interpretation, which will defeat very intention of Legislature, only on ground that there is yet another player, viz., Kerala State Co operatives Consumers Federation Ltd. which is also granted licence under FL 1. aspect of exclusivity under Section 40(a)(iib) has to be viewed from nature of undertaking on which levy is imposed and not on number of undertakings on which levy is imposed. If this aspect of exclusivity is viewed from nature of undertaking, in this particular case, both KSBC and Kerala State Co operatives Consumers Federation Ltd. are undertakings of State of Kerala, therefore, levy is exclusive levy on State Government Undertakings. Therefore, we are of considered view that any other interpretation would defeat very object behind amendment to Income tax Act, 1961. 19 C.A.@S.L.P.(C)No.12859 of 2020 etc. 14.1. It is fairly well settled that interpretation is to be in manner which will subserve and promote object and intention behind legislation. If it is not interpreted in manner as aforesaid it would defeat very intention of legislation. To defeat said provision, State Governments may issue licences to more than one State owned undertakings and may ultimately say it is not exclusive undertaking and therefore Section 40(a)(iib) is not attracted. submission of Sri Ganesh, learned senior counsel for appellant is that gallonage fee, licence fee and shop rental (kist) are levies under Abkari Act on all licence holders, as such it cannot be said that same is exclusive levy on appellant/KSBC. It is submitted that because of Abkari Policy in particular year, licences are issued in favour of appellant State owned Undertaking, as such it cannot be said that statutory levies under Abkari Act are on State Government Undertaking and such levies are only on licensees but not on State owned Undertakings like KSBC. said submission cannot be accepted for reason that by virtue of licence which is granted in favour of State owned Undertaking, statutory fees etc., viz., gallonage fees, licence fee and shop rental (kist) are payable by appellant Undertaking, i.e., KSBC. Once State Government Undertaking takes licence, statutory levies referred 20 C.A.@S.L.P.(C)No.12859 of 2020 etc. above are on Government Undertaking because it is granted licences. Therefore, we are of view that finding of High Court that gallonage fee, licence fee and shop rental (kist) so far as FL 1 licences are concerned, is not attracted by Section 40(a)(iib), cannot be accepted and such finding of High Court runs contrary to object and intention behind legislation. 14.2. Further, because another State Government Undertaking, i.e., Kerala State Co operatives Consumers Federation Ltd. was also granted licences during relevant years, as such exclusivity mentioned in Section 40(a)(iib) is lost, also cannot be accepted, for reason that exclusivity is to be considered with reference to nature of licence and not on number of State owned Undertakings. If interpretation, as held by High Court, is accepted, legislative intent can be defeated by issuing licences in FL 1 to several State Government Undertakings and then make contention that exclusivity is lost. Said interpretation runs contrary to intent of amendment. 14.3. So far as surcharge on sales tax is concerned, High Court has held in favour of KSBC and against revenue. reasoning of High Court is that surcharge on sales tax is tax and Section 40(a) (iib) does not contemplate tax and surcharge on sales tax is not fee 21 C.A.@S.L.P.(C)No.12859 of 2020 etc. or charge . Therefore, High Court was of view that surcharge levied on KSBC does not attract Section 40(a)(iib) of Act. submission of Sri Venkataraman, learned ASG with regard to surcharge on sales tax is two fold. One is that levy of surcharge on sales tax is also exclusive levy on KSBC, therefore, attracts Section 40(a)(iib) (A) itself. Secondly, it is submitted, as alternative submission that if same is not covered by Section 40(a)(iib)(A) it would fall under Section 40(a)(iib)(B) of Act, for reason that surcharge on sales tax is tax and tax is form of appropriation by State from KSBC. learned counsel placed reliance on recent judgment of this Court in case of Jalkal Vibhag Nagar Nigam and Others3. On other hand it is case of appellant/assessee that sales tax is outside scope of Section 40(a)(iib) and surcharge is nothing but is enhancement of tax. By referring to words used in Section 40(a)(iib), learned counsel Sri Ganesh has submitted that said provision is to be interpreted by applying doctrine of ejusdem generis. It is submitted that words any other fee or charge immediately following words royalty, licence fee, service fee, privilege fee, service charge relate to such similar charges and none of terms can possibly cover tax, like sales tax or surcharge on sales tax. With regard to surcharge on sales tax, we are in agreement with 22 C.A.@S.L.P.(C)No.12859 of 2020 etc. submission of Sri Ganesh, learned senior counsel appearing for appellant. fee or charge as mentioned in Section 40(a)(iib) is clear in terms and that will take in only fee or charge as mentioned therein or any fee or charge by whatever name called, but cannot cover tax or surcharge on tax and such taxes are outside scope and ambit of Section 40(a)(iib)(A) and Section 40(a)(iib)(B) of Act. surcharge which is imposed on KSBC is under Section 3(1) of KST Act which reads as under : 3. Levy of surcharge on sales and purchase taxes. (1) tax payable under sub section (1) of section 5 of Kerala General Sales Tax Act, 1963, by dealer in foreign liquor shall be increased by surcharge at rate of ten per cent, and provisions of Kerala General Sales Tax Act 1963 shall apply in relation to said surcharge as they apply in relation to tax payable under said Act. Provided that where in respect of declared goods as defined in clause (c) of section 2 of Central Sales Tax Act, 1956 tax payable by such dealer under Kerala General Sales Tax Act, 1963 together with surcharge payable under this sub section, exceeds four per centum of sale or purchase price, rate of surcharge in respect of such goods shall be reduced to such extent that tax and surcharge together shall not exceed four per centum of sale or purchase price. Section 5(1)(b) of Kerala General Sales Tax Act, 1963 reads as under : 23 C.A.@S.L.P.(C)No.12859 of 2020 etc. 5. Levy of tax on sale or purchase of goods: (1) Every dealer (other than casual trader or agent of non resident dealer or Central Government, or Government of Kerala or Government of any other state or of any Union Territory, or any local authority) whose total turnover for year is not less than two lakhs rupees and every casual trader or agent of non resident dealer, Central Government, Government of Kerala, Government of any other state or of any Union Territory, or any local authority whatever be its total turnover for year in respect of goods included in Schedule at rate mentioned against such goods, (a) (b) in respect of Foreign liquor, at point of sale by Kerala State Beverages (Manufacturing and Marketing) Corporation Limited and at point of first sale in State by dealer liable to tax under this section except where sale is to Kerala State Beverages (Manufacturing and Marketing) Corporation Limited. (c) 14.4. reading of preamble and Section 3(1) of KST Act, make it abundantly clear that surcharge on sales tax levied by said Act is nothing but increase of basic sales tax levied under Section 5(1) of KGST Act, as such surcharge is nothing but sales tax. It is also settled legal position that surcharge on tax is nothing but enhancement of tax. In this regard, in support said view, ready reference can be made to judgments of this Court in case 24 C.A.@S.L.P.(C)No.12859 of 2020 etc. of K. Srinivasan1 and Sarojini Tea Co. Ltd.2. Para 7 of judgment in case of K. Srinivasan1 reads as under : 7. above legislative history of Finance Acts, as also practice, would appear to indicate that term Income tax as employed in Section 2 includes sur charge as also special and additional surcharge whenever provided which are also surcharges within meaning of Article 271 of Constitution. phraseol ogy employed in Finance Acts of 1940 and 1941 showed that only rates of income tax and supertax were to be increased by surcharge for purpose of Central Government. In Finance Act of 1958 language used showed that income tax which was to be charged was to be increased by surcharge for pur pose of Union. word surcharge has thus been used to either increase rates of income tax and super tax or to increase these taxes. scheme of Finance Act of 1971 appears to leave no room for doubt that term Income tax as used in Section 2 includes sur charge. Para 20 of judgment in case of Sarojini Tea Co. Ltd.2 reads as under : 20. For reasons aforesaid, we are unable to endorse view of High Court that surcharge on land rev enue payable under Surcharge Act is not land rev enue but levy which is distinct from land revenue. In consonance with law laid down by this Court in Vish wesha Thirtha Swamiar case [(1972) 3 SCC 246 : (1972) 1 SCR 137 : AIR 1971 SC 2377] it must be held that surcharge on land revenue levied under Surcharge Act, being enhancement of land revenue, is part of land revenue and has to be treated as such for 25 C.A.@S.L.P.(C)No.12859 of 2020 etc. purpose of assessing compensation under Section 12 of Ceiling Act. 14.5. Further, CBDT itself has issued circular in Circular No.3/2018 which is issued, as measure for reducing litigation, by revision of monetary limits for filing appeals by Department before Income tax Appellate Tribunal, High Courts and SLP/appeals before this Court. In said circular it is clearly mentioned that for considering tax effect it includes applicable surcharge and cess. Same will also strengthen stand of assessee. Thus it is clear that surcharge which is sought to be levied is nothing but enhancement of sales tax, which is levied under Section 5(1) of KGST Act. When basic sales tax paid by KSBC under Section 5(1)(b) of KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If revenue does not consider Section 40(a)(iib) is applicable to basic sales tax paid by KSBC under Section 5(1)(b) of KGST Act, it is not known how surcharge on sales tax, which is nothing but sales tax, can be brought in net of Section 40(a)(iib)(A) or 40(a) (iib)(B) of Act. Further clear distinction between fee and tax is carefully maintained throughout scheme under Section 40(a) of Act itself. Wherever Parliament intended to cover tax it specifically mentioned as tax. Section 40(a)(i) and 40(a)(ia) specifically 26 C.A.@S.L.P.(C)No.12859 of 2020 etc. relate to tax related items. Section 40(a)(ic) refers to sum paid on account of fringe benefit tax. At same time, Section 40(a)(iib) refers to royalty, licence fee, service fee, privilege fee or any other fee or charge. If these words are considered to include tax or surcharge like sales tax, distinction so carefully spelt out in Section 40 between tax and fee will be obliterated and rendered meaningless. It is settled principle of interpretation that where same Statute, uses different terms and expressions, then it is clear that Legislature is referring to distinct and different things. To support said view ready reference can be made to judgments of this Court in case of DLF Qutab Enclave Complex Educational Charitable Trust v. State of Haryana & Ors.4; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 5; and Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd.6. judgment relied on by learned ASG in case of Jalkal Vibhag Nagar Nigam and Others3 would not render any assistance to support case of revenue. said judgment only considers whether levy of water tax under Section 52A of U.P. Water Supply and Sewerage Act is fee or whether it is tax covered by Entry 49 of List II of seventh schedule 4 (2003) 5 SCC 622 5 (2003) 4 SCC 305 6 (2001) 3 SCC 609 27 C.A.@S.L.P.(C)No.12859 of 2020 etc. to Constitution. said judgment in fact maintains and does not take away basic constitutional distinction between fee and tax . Having regard to language used in Section 40(a)(iib), we are of view that aforesaid judgment does not support case of revenue. Even other alternative submission of learned counsel that it may attract Section 40(a)(iib)(B) also cannot be accepted for reason that wherever Parliament intended to include tax, referred clearly to taxes clearly in very Section 40. That itself indicates that surcharge or tax were never intended to be included in net of amended Section 40(a)(iib)(A) or 40(a)(iib)(B) of Income tax Act, 1961. 15. So far as turnover tax is concerned it is submitted by learned ASG appearing for revenue that such tax was imposed not only on KSBC in terms of Section 5(1)(b) of KGST Act, but it is imposed on various other retail dealers specified under Section 5(2) of said Act. Further turnover tax is also tax. very same reason which we have assigned above for surcharge, equally apply to turnover tax also. As such turnover tax is also outside purview of Section 40(a) (iib)(A) and 40(a)(iib)(B). 16. For aforesaid reasons, we hold that gallonage fee, licence fee and shop rental (kist) with respect to FL 9 and FL 1 licences 28 C.A.@S.L.P.(C)No.12859 of 2020 etc. granted to appellant will, squarely fall within purview of Section 40(a)(iib) of Income tax Act, 1961. surcharge on sales tax and turnover tax, is not fee or charge coming within scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not amount which can be disallowed under said provision and disallowance made in this regard is rightly set aside by High Court. 17. Accordingly, civil appeal filed by assessee is dismissed and civil appeals filed by revenue are partly allowed to extent indicated above. In result, assessments completed against assessee with respect to assessment years 2014 2015 and 2015 2016 stand set aside. assessing officer to pass revised orders after computing liability in accordance with directions as indicated above. As dispute relates to assessment years 2014 2015 and 2015 2016, assessing officer shall pass appropriate orders, within period of two months from date of receipt of this judgment. J. [R. Subhash Reddy] J. [Hrishikesh Roy] New Delhi. January 03, 2022. 29 Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. Assistant Commissioner of Income Tax Circle 1(1)