KERALA STATE BEVERAGES MANUFACTURING & MARKETING CORPORATION LTD. versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)

Citation: [2022] 1 S.C.R. 105 · Decided: 03-01-2022 · Supreme Court of India · Bench: R. SUBHASH REDDY · Disposal: Disposed off

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Judgment (excerpt)

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[2022] 1 S.C.R. 105
105
KERALA STATE BEVERAGES MANUFACTURING &
MARKETING CORPORATION LTD.
v.
THE ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE 1(1)
(Civil Appeal No. 11 of 2022)
JANUARY 03, 2022
[R. SUBHASH REDDY AND HRISHIKESH ROY, JJ.]
Income Tax Act, 1961: s.40(a)(iib) – Purpose of amendment
of Income Tax Act by Act 17 of 2013, by which s.40(a)(iib)(A), (B)
is inserted – Held: The said amendment is made to plug the possible
diversion or shifting of profits from state owned undertakings into
State’s treasury – In view of s.40(a)(iib) of the Act any amount,
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 – 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 s.40(a)(iib) is not attracted
– Abkari Act, 1902 – Constitution of India – Art.289.
Income Tax Act, 1961: s.40(a)(iib) – Gallonage fee, licence
fee and shop rental (kist) with respect to FL-9 and FL-1 licences
squarely fall within the purview of s.40(a)(iib) of the Act .
Income Tax Act, 1961: s.40(a)(iib) – ‘fee’ or ‘charge’ as
mentioned in s.40(a)(iib) – Held: It 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 – Surcharge on sales tax
is nothing but an increase of the basic sales tax levied under s.5(1)
of the KGST Act, as such the surcharge is nothing but a sales tax –
It is nothing but the enhancement of the tax – It falls outside the
purview of s.40(a)(iib)(A) and s.40(a)(iib) (B) of the Act – Same
reason shall apply to the turnover tax also – As such turnover tax is
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SUPREME COURT REPORTS
[2022] 1 S.C.R.
also outside the purview of s.40(a)(iib)(A) and s.40(a)(iib)(B) of
the Act.
Income Tax Act, 1961: s.40(a)(i), 40(a)(ia), 40(a)(iib),
40(a)(ic) – Wherever the Parliament intended to cover the tax, it
specifically mentioned as a tax – s.40(a)(i) and s.40(a)(ia)
specifically relate to tax related items – s.40(a)(ic) refers to a sum
paid on account of fringe benefit tax – At the same time, s.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 s.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.
Disposing of the appeals, the Court
Held: 1. Section 40 of the Income tax Act, 1961 is a
provision which deals with the amounts which are not deductible
while computing the income chargeable under the head ‘Profits
and gains of business or profession’. Section 40 of the Act is
amended in the 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 the Constitution of India, the property
and income of a State shall be exempt from Union taxation.
Therefore, in terms of Article 289, the Union is prevented from
taxing the States on its income and property. It is the constitutional
protection granted to the States in terms of the above said Article.
This protection has led the States in shifting income/ profits from
the State Government Undertakings into Consolidated Fund of
the respective States to have a protection under Article 289. 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
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