Wa/1007/2018 Of Kerala State Bevearages v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 26TH DAY OF JUNE 2018 / 5TH ASHADHA, 1940 WA.No. 1007 of 2018 IN WPC. 10173/2018 -------------------------------------- AGAINST THE ORDER/JUDGMENT IN WP(C) 10173/2018 of HIGH COURT OF KERALA APPELLANT(S)/PETITIONER: ------------------------ KERALA STATE BEVEARAGES, (MANUFACTURING & MARKETING)CORPORATION LTD., SASTHAKRIPA OFFICE COMPLEX, P.B.NO. 2263, SASTHAMANGALAM, THIRUVANANTHAPURAM - 695 010, REPRESENTED BY ITS GENERAL MANAGER-FINANCE, SUNIL KUMAR S. BY ADVS.SRI.ANIL D. NAIR SRI.R.SREEJITH KUM.MEKHALA M.BENNY SRI.ACHYUT K PADMARAJ RESPONDENT(S)/RESPONDENT: ------------------------ 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM - 695 001. 2. COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAM - 695 001. R1-R2 BY SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX DEPARTMENT THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 26-06-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- W.A. No. 1007 of 2018Dated this the 26[th] day of June, 2018 ------------------------------------------- J U D G M E N T Vinod Chandran, J. The issue raised in the appeal for the assessment year2015-16, is the enhanced demand made on the appellant, far inexcess of what is returned, by reason of the introduction of a newprovision at Section 40(a)(iib) of the Income Tax Act, 1961 (for short'the Act'). The assessee filed return showing a total income ofRs.2,34,39,61,420/-. A disallowance was made to deductionsclaimed as gallonage fee, licence fee, shop rental (kist) andsurcharge on sales tax. This was a deduction allowed over theyears, which stood disallowed in the present year for reason of theintroduction of the aforesaid provision. The disallowance came toRs.8,11,90,88,115/-. 2.We see from the assessment order as also the orderimpugned in the Writ Petition that the disallowance was made based We see from the assessment order as also the order on the provision as introduced in clause (iib) in Section 40(a), which is extracted hereunder: “(iib) any amount.- (A)paid by way of royalty, licence fee, servicefee, privilege fee, service charge or any other fee orcharge, by whatever name called, which is leviedexclusively on; or (B)which is appropriated, directly or indirectly,from,a State Government undertaking by the StateGovernment. Explanation.- For the purposes of this sub-clause,a State Government undertaking includes- (i)a corporation established by or underany Act of the State Government; (ii)a company in which more than fifty percent of the paid-up equity share capital is held by theState Government; (iii)a company in which more than fifty percent of the paid-up equity share capital is held by theentity referred to in clause (i) or clause (ii) (whethersingly or taken together); (iv)a company or corporation in which theState Government has the right to appoint the majorityof the directors or to control the management or policydecisions, directly or indirectly, including by virtue of itsshareholding or management rights or shareholdersagreements or voting agreements or in any othermanner; (v)any authority, a board or an institutionor a body established or constituted by or under any Actof the State Government or owned or controlled by theState Government;” 3 (ii)a company in which more than fifty percent of the paid-up equity share capital is held by theState Government; (iii)a company in which more than fifty percent of the paid-up equity share capital is held by theentity referred to in clause (i) or clause (ii) (whethersingly or taken together); (iv)a company or corporation in which theState Government has the right to appoint the majorityof the directors or to control the management or policydecisions, directly or indirectly, including by virtue of itsshareholding or management rights or shareholdersagreements or voting agreements or in any othermanner; (v)any authority, a board or an institutionor a body established or constituted by or under any Actof the State Government or owned or controlled by theState Government;” 3 3.Definitely, the appellant is a State GovernmentUndertaking. But, however, the dispute is on whether the levy isexclusively on the appellant and whether there is any appropriationdirectly or indirectly, in so far as the various levies imposed on theappellant. The learned Counsel for the appellant submits that thelevy imposed, cannot be said to be exclusive, since it is imposed onany vendor of liquor within the State. The fact remains that theprivilege, as available with the State for vending liquor, has beenconceded to the Corporation, which carries out the same underlicenses issued under the Abkari Act. The retail sales are onlythrough outlets of itself and a Consumer Co-operative Society.There is also sales effected to bars and clubs existing inside theState, who are also licensed under the Abkari Act. The levy oflicense fee at Rs.5,75,00,000/- is with respect to the licensesobtained by individuals or institutions for a single day and the shoprental is applicable to all the retail shops within the Kerala, whichare run either by the appellant-Corporation or by the ConsumerCo-operative Society. The surcharge on sales tax is applicable to allwho sell Indian made foreign liquor inside the State. The gallonage fee is an exclusive levy on the Corporation only by reason of themonopoly and in any event such fee is also levied on distilleries,who supplies spirit to the hospitals within the State. In suchcircumstances, there cannot be said to be an exclusive levy nor anappropriation directly or indirectly by the State Government. 4.The learned Standing Counsel for the Revenue submitsthat the Assessing Officer had considered the issue elaborately andso has the Commissioner considered it in the impugned order. It issubmitted that the learned Single Judge having declined discretion,it may not be appropriate for this Court in appeal to furtherinterfere with the conditional order. 5.Considering the fact that this is an appeal from ajudgment declining interference in a conditional order passed by theCommissioner (Appeals), we would not go into the specificcontentions on merits raised by either side. We are howeverconcerned with the fact that the provision was one introduced in thesubject year and the deductions were allowed in all the earlier years.The income so generated by the Corporation also goes to theexchequer of the State, which definitely is used for welfare 5.Considering the fact that this is an appeal from ajudgment declining interference in a conditional order passed by theCommissioner (Appeals), we would not go into the specificcontentions on merits raised by either side. We are howeverconcerned with the fact that the provision was one introduced in thesubject year and the deductions were allowed in all the earlier years.The income so generated by the Corporation also goes to theexchequer of the State, which definitely is used for welfare purposes. Yet again we are of the view that there is a debatableissue, which has to be considered, especially on the new provisionintroduced in the Income Tax Act. We hence direct theCommissioner (Appeals) to consider the appeal itself and in themeanwhile keep recovery in abeyance. We make it clear that theobservations by this Court or the learned Single Judge need notregulate the consideration by the Appellate Authority. Theobservations, if at all made are only in the nature of prima facieones to invoke the extra-ordinary jurisdiction under Article 226 ofthe Constitution. We, hence, set aside the impugned judgment, asalso the conditional order and direct the Department to act inaccordance with our directions herein above. The Writ Appeal wouldstand allowed. No order as to costs. Sd/-K. VINOD CHANDRANJudge dkr Sd/-ASHOK MENONJudge