Case: Kerala State Beverages Manufacturing &amp;  Marketing Corporation Ltd Vs. The Assistant Commissioner of Income Tax Circle 1(1)

showed that income tax which was to be charged was to be increased by a surcharge for the pur- pose of the Union. The word surcharge has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term Income tax as used in Section 2 includes sur- charge. Para 20 of the judgment in the case of Sarojini Tea Co. Ltd. (1992) 2 SCC 156 reads as under : 20. For the reasons aforesaid, we are unable to endorse the view of the High Court that surcharge on land rev- enue payable under the Surcharge Act is not land rev- enue but a levy which is distinct from land revenue. In consonance with the 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 the surcharge on land revenue levied under the Surcharge Act, being an enhancement of the land revenue, is part of the land revenue and has to be treated as such for the purpose of assessing compensation under Section 12 of the Ceiling Act. 14.5. Further, CBDT itself has issued circular in Circular No.3/2018 which is issued, as a measure for reducing litigation, by revision of monetary limits for filing appeals by the Department before the Income- tax Appellate Tribunal, High Courts and SLP/appeals before this Court. In the said circular it is clearly mentioned that for considering tax effect it includes applicable surcharge and cess. Same will also strengthen the stand of the assessee. Thus it is clear that the surcharge which is sought to be levied is nothing but the enhancement of sales tax, which is levied under Section 5(1) of the KGST Act. When the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If the revenue does not consider Section 40(a)(iib) is applicable to the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, it is not known how the surcharge on sales tax, which is nothing but the sales tax, can be brought in the net of Section 40(a)(iib)(A) or 40(a) (iib)(B) of the Act. Further a clear distinction between fee and tax is carefully maintained throughout the scheme under Section 40(a) of the Act itself. Wherever the Parliament intended to cover the tax it specifically mentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically relate to tax related items. Section 40(a)(ic) refers to a sum paid on account of fringe benefit tax. At the 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 a tax or surcharge like sales tax, the distinction so carefully spelt out in Section 40 between a tax and a fee will be obliterated and rendered meaningless. It is settled principle of interpretation that where the same Statute, uses different terms and expressions, then it is clear that Legislature is referring to distinct and different things. To support the said view ready reference can be made to judgments of this Court in the case of DLF Qutab Enclave Complex Educational Charitable Trust v. State of Haryana & Ors. (2003) 5 SCC 622 ; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. (2003) 4 SCC 305 ; and Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609 . The judgment relied on by the learned ASG in the case of Jalkal Vibhag Nagar Nigam and Others 2021 SCC OnLine SC 960 would not render any assistance to support the case of the revenue. The said judgment only considers whether the levy of water tax under Section 52A of the U.P. Water Supply and Sewerage Act is a fee or whether it is a tax covered by Entry 49 of List II of the seventh schedule to the Constitution. The said judgment in fact maintains and does not take away the basic constitutional distinction between fee and tax. Having regard to language used in Section 40(a)(iib), we are of the view that the aforesaid judgment does not support the case of the revenue. Even the other alternative submission of the learned counsel that it may attract Section 40(a)(iib)(B) also cannot be accepted for the reason that wherever the Parliament intended to include tax, referred clearly to taxes clearly in the very Section 40. That itself indicates that the surcharge or tax were never intended to be included in the net of amended Section 40(a)(iib)(A) or 40(a)(iib)(B) of the Income-tax Act, 1961. 15. So far as turnover tax is concerned it is submitted by the learned ASG appearing for the 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 the said Act. Further turnover tax is also a tax. The very same reason which we have assigned above for surcharge, equally apply to the turnover tax also. As such turnover tax is also outside the purview of Section 40(a) (iib)(A) and 40(a)(iib)(B). 16. For the aforesaid reasons, we hold that the gallonage fee, licence fee and shop rental (kist) with respect to FL-9 and FL-1 licences granted to the appellant will, squarely fall within the purview of Section 40(a)(iib) of the Income-tax Act, 1961. The surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard is rightly set aside by the High Court.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]9. During the assessment years 2014--2015 and 2015--2016 the 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 the 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. The FL-1 licence was for sale of foreign liquor in sealed bottles, without privilege of consumption within the premises. The gallonage fee is payable as per Section 18A of the Kerala Abkari Act and Rule 15A of the Foreign Liquor Rules. The appellant was the only licence holder for the relevant years so far as FL- 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 the word exclusively as worded in Section 40(a)(iib)(A) of the Act, High Court in the impugned order has held that the levy of gallonage fee, licence fee and shop rental (kist) with respect to FL-9 licences granted to the appellant will clearly fall within the purview of Section 40(a)(iib) of the Act and the amounts paid in this regard is liable to be disallowed. At the same time the amount of gallonage fee, licence fee and shop rental (kist) paid with respect to FL-1 licences granted in favour of the appellant for retail business, the High Court has held that it is not an exclusive levy, as such disallowance made with respect to the same cannot be sustained. With regard to surcharge on sales tax and turnover tax, it is held that same is not a fee or charge within the meaning of Section 40(a)(iib) as such same is not an amount which can be disallowed under the said provision.In the instant case the KSBC, a State Government Undertaking, is a company like any other commercial entity, which is engaged in the business and trade like any other business entity for the purpose of wholesale and retail business in liquor. As much as these kind of undertakings are under the control of the States as the total shareholding or in some cases majority of shareholding, is held by States. As such they exercise control over it and shift the profits by appropriating whole of the surplus or a part of it to the Government by way of fees, taxes or similar such appropriations. From the relevant Memorandum to the 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 the said amendment is made to plug the possible diversion or shifting of profits from these undertakings into States treasury. In view of Section 40(a)(iib) of the Act any amount, as indicated, which is levied exclusively on the State owned undertaking (KSBC in the instant case), cannot be claimed as a deduction in the books of State owned undertaking, thus same is liable to income tax.14. In the instant case the gallonage fee, licence fee, shop rental (kist), surcharge and turnover tax are the amounts of which assessee claims that they are not attracted by Section 40(a)(iib) of the Act. On the other hand it is the case of the respondent/revenue that all the said components attract the 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 the nature of fee imposed under the Abkari Act of 1902. These are the fees payable for the licences issued under FL-9 and FL-1. In the impugned order, the High Court has held that the gallonage fee, licence fee and shop rental (kist) with respect to FL-9 licence are not deductible, as it is an exclusive levy on the Corporation. Further a distinction is drawn from FL-1 licence from FL-9 licence, to apply Section 40(a)(iib), only on the ground that, FL-1 licences are issued not only to the 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 the word exclusivity used in Section 40(a)(iib) attract such amounts. At the same time only on the ground that FL-1 licences are issued not only to the KSBC but also to Kerala State Co-operatives Consumers Federation Ltd., High Court has held that exclusivity is lost so as to apply the provision under Section 40(a)(iib). If the amended provision under Section 40(a) (iib) is to be read in the manner, as interpreted by the High Court, it will literally defeat the very purpose and intention behind the amendment. The aspect of exclusivity under Section 40(a)(iib) is not to be considered with a narrow interpretation, which will defeat the very intention of Legislature, only on the ground that there is yet another player, viz., Kerala State Co-operatives Consumers Federation Ltd. which is also granted licence under FL-1. The aspect of exclusivity under Section 40(a)(iib) has to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed. If this aspect of exclusivity is viewed from the nature of undertaking, in this particular case, both KSBC and Kerala State Co-operatives Consumers Federation Ltd. are undertakings of the State of Kerala, therefore, levy is an exclusive levy on the State Government Undertakings. Therefore, we are of the considered view that any other interpretation would defeat the very object behind the amendment to Income-tax Act, 1961.14.1. It is fairly well settled 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 licences 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 said submission cannot be accepted for the reason that by virtue of licence which is granted in favour of State-owned Undertaking, the statutory fees etc., viz., gallonage fees, licence fee and shop rental (kist) are payable by the appellant-Undertaking, i.e., KSBC. Once the State Government Undertaking takes licence, the statutory levies referred above are on the Government Undertaking because it is granted licences. Therefore, we are of the view that the finding of the 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 the High Court runs contrary to object and intention behind the legislation.14.2. Further, because another State Government Undertaking, i.e., Kerala State Co-operatives Consumers Federation Ltd. was also granted licences during the relevant years, as such exclusivity mentioned in Section 40(a)(iib) is lost, also cannot be accepted, for the reason that exclusivity is to be considered with reference to nature of licence and not on number of State owned Undertakings. If the interpretation, as held by the High Court, is accepted, the legislative intent can be defeated by issuing licences in FL-1 to several State Government Undertakings and then make a contention that exclusivity is lost. Said interpretation runs contrary to the intent of the amendment.14.3. So far as surcharge on sales tax is concerned, the High Court has held in favour of KSBC and against the revenue. The reasoning of the High Court is that surcharge on sales tax is a tax and Section 40(a) (iib) does not contemplate tax and surcharge on sales tax is not a fee or a charge. Therefore, High Court was of the view that surcharge levied on KSBC does not attract Section 40(a)(iib) of the Act.With regard to surcharge on sales tax, we are in agreement with the submission of Sri Ganesh, learned senior counsel appearing for appellant. The 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 the scope and ambit of Section 40(a)(iib)(A) and Section 40(a)(iib)(B) of the Act.14.4. A reading of preamble and Section 3(1) of the KST Act, make it abundantly clear that the surcharge on sales tax levied by the said Act is nothing but an increase of the basic sales tax levied under Section 5(1) of the KGST Act, as such the surcharge is nothing but a sales tax. It is also settled legal position that a surcharge on a tax is nothing but the enhancement of the tax. In this regard, in support the said view, ready reference can be made to the judgments of this Court in the case of K. Srinivasan 1972 (4) SCC 526  and Sarojini Tea Co. Ltd. (1992) 2 SCC 156. Para 7 of the judgment in the case of K. Srinivasan 1972 (4) SCC 526  reads as under :7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term Income tax as employed in Section 2 includes sur- charge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseol- ogy employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax and supertax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958 the language used showed that income tax which was to be charged was to be increased by a surcharge for the pur- pose of the Union. The word surcharge has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term Income tax as used in Section 2 includes sur- charge.Para 20 of the judgment in the case of Sarojini Tea Co. Ltd. (1992) 2 SCC 156  reads as under :20. For the reasons aforesaid, we are unable to endorse the view of the High Court that surcharge on land rev- enue payable under the Surcharge Act is not land rev- enue but a levy which is distinct from land revenue. In consonance with the 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 the surcharge on land revenue levied under the Surcharge Act, being an enhancement of the land revenue, is part of the land revenue and has to be treated as such for the purpose of assessing compensation under Section 12 of the Ceiling Act.14.5. Further, CBDT itself has issued circular in Circular No.3/2018 which is issued, as a measure for reducing litigation, by revision of monetary limits for filing appeals by the Department before the Income- tax Appellate Tribunal, High Courts and SLP/appeals before this Court. In the said circular it is clearly mentioned that for considering tax effect it includes applicable surcharge and cess. Same will also strengthen the stand of the assessee. Thus it is clear that the surcharge which is sought to be levied is nothing but the enhancement of sales tax, which is levied under Section 5(1) of the KGST Act. When the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed, there is no reason not to allow deduction of surcharge on sales tax. If the revenue does not consider Section 40(a)(iib) is applicable to the basic sales tax paid by KSBC under Section 5(1)(b) of the KGST Act, it is not known how the surcharge on sales tax, which is nothing but the sales tax, can be brought in the net of Section 40(a)(iib)(A) or 40(a) (iib)(B) of the Act. Further a clear distinction between fee and tax is carefully maintained throughout the scheme under Section 40(a) of the Act itself. Wherever the Parliament intended to cover the tax it specifically mentioned as a tax. Section 40(a)(i) and 40(a)(ia) specifically relate to tax related items. Section 40(a)(ic) refers to a sum paid on account of fringe benefit tax. At the 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 a tax or surcharge like sales tax, the distinction so carefully spelt out in Section 40 between a tax and a fee will be obliterated and rendered meaningless. It is settled principle of interpretation that where the same Statute, uses different terms and expressions, then it is clear that Legislature is referring to distinct and different things. To support the said view ready reference can be made to judgments of this Court in the case of DLF Qutab Enclave Complex Educational Charitable Trust v. State of Haryana & Ors. (2003) 5 SCC 622 ; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. (2003) 4 SCC 305 ; and Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001) 3 SCC 609 . The judgment relied on by the learned ASG in the case of Jalkal Vibhag Nagar Nigam and Others 2021 SCC OnLine SC 960 would not render any assistance to support the case of the revenue. The said judgment only considers whether the levy of water tax under Section 52A of the U.P. Water Supply and Sewerage Act is a fee or whether it is a tax covered by Entry 49 of List II of the seventh schedule to the Constitution. The said judgment in fact maintains and does not take away the basic constitutional distinction between fee and tax. Having regard to language used in Section 40(a)(iib), we are of the view that the aforesaid judgment does not support the case of the revenue. Even the other alternative submission of the learned counsel that it may attract Section 40(a)(iib)(B) also cannot be accepted for the reason that wherever the Parliament intended to include tax, referred clearly to taxes clearly in the very Section 40. That itself indicates that the surcharge or tax were never intended to be included in the net of amended Section 40(a)(iib)(A) or 40(a)(iib)(B) of the Income-tax Act, 1961.The very same reason which we have assigned above for surcharge, equally apply to the turnover tax also. As such turnover tax is also outside the purview of Section 40(a) (iib)(A) and 40(a)(iib)(B).16. For the aforesaid reasons, we hold that the gallonage fee, licence fee and shop rental (kist) with respect to FL-9 and FL-1 licences granted to the appellant will, squarely fall within the purview of Section 40(a)(iib) of the Income-tax Act, 1961. The surcharge on sales tax and turnover tax, is not a fee or charge coming within the scope of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such same is not an amount which can be disallowed under the said provision and disallowance made in this regard is rightly set aside by the High Court.