To determine State Monopoly for disallowance of certain fee, charge, etc. in case of State Government Undertakings aspect of ‘exclusivity’ to be viewed from nature of undertaking on which levy is imposed and not on the number of undertakings, rules SC

The Supreme Court ruled that to determine State Monopoly for disallowance of certain fee, charge, etc. in case of State Government Undertakings aspect of ‘exclusivity’ to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings.

Background 

For the assessment year 2014­-2015, the Deputy Commissioner of   Income   Tax,   Circle­2(1),   Thiruvananthapuram   finalized   the assessment of income of the appellant under Section 143(3) of the Income­tax Act, 1961.

The Principal Commissioner of   Income Tax, Thiruvananthapuram has exercised power of revision as contemplated under Section 263 of the Act and set aside order of assessment.

On the ground that same is erroneous and is prejudicial to the interest of the revenue, to the extent it failed to disallow the debits made in the Profit & Loss Account of the assessee, with respect to the amount of surcharge on sales tax and turnover tax paid to the State Government, which ought to have been disallowed under Section 40(a)(iib) of the Act.

Against order of the Principal Commissioner, Income Tax, the appellant herein filed an appeal before the Income Tax Appellate Tribunal in ITA.

Arguments

Advocate Ganesh, appearing for the appellant by referring to Explanatory Note to the Finance Act, 2013, and Section 40(a)(iib) of the Act, contended that the levy of gallonage fees, licence fee and shop rental (kist) on FL­9 license is not on any State Government Undertaking but same is a levy on the licensee.

Advocate Venkataraman, ASG appearing for the revenue, by drawing the court’s attention to the provisions under Articles 285 and 289 of the Constitution of India, explained the intent behind the amendment to Section 40 of the Income­tax Act, 1961, by Act 17 of 2013. 

Decision

The division bench of Justice R. Subhash Reddy and Justice Hrishikesh Roy stated that  the interpretation is to be in the manner which will subserve and promote the object and intention behind the legislation. If it is not interpreted in the manner as aforesaid it would defeat the very intention of the legislation.

To defeat the said provision, the State Governments may issue licenses to more than one State owned undertakings and may ultimately say it is not an exclusive undertaking and therefore Section 40(a)(iib) is not attracted.

The court dismissed the appeal filed by the assessee and allowed the civil appeals filed by the revenue to a certain extent indicated.  

The court set aside the assessments completed against the assessee with respect to assessment years 2014­2015 and 2015­ 2016.

The court directed the assessing officer to pass revised orders after computing the liability in accordance with the directions and as the dispute relates to assessment years 2014­-2015 and 2015­-2016, the assessing officer should pass appropriate orders, within a period of two months.

Case title: Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v/s The Assistant Commissioner of Income Tax Circle 1(1) 

Citation: CIVIL APPEAL NO.  11 OF 2022 

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