Kerala State Beverages (M&M) Corpn Ltd, ... vs Department Of Income Tax

1 ITA No .132-134/Coch/2015

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri V Durga Rao, JM and Shri B.R. Baskaran, AM

I.T.A. No. 132 to 134/Coch/2015 (Assessment years : 2007-08, 2008-09 & 2011-12)

Jt CIT, Special Range vs Kerala State Beverages Trivandrum (M&M) Corporation Ltd Sasthakripa Complex Sasthamangalam Trivandrum-10 PAN : AAACK9431G (Appellant) (Respondent)

Appellant by : Shri M Anil Kumar, CIT Respondent by : None, adj appln filed

Date of hearing : 14-05-2015 Date of pronouncement : 15-05-2015

ORDER Per Shri V Durga Rao, JM

These three appeals filed by the revenue are directed against the

independent orders passed by the Commissioner of Income-tax (Appeals),

Trivandrum for the assessment years 2007-08, 2008-09 and 2011-12.

2. The facts in brief are that the assessee is a company engaged in the

business of wholesale and retail trading of Indian made foreign liquor and beer in

the state of Kerala. The assessing officer made an addition of Rs.230,97,34,191

in respect of surcharge on sales-tax and turnover tax. The assessee carried the

matter in appeal before the CIT(A). The ld.CIT(A) by following the decision of the 2 ITA No .132-134/Coch/2015

co-ordinate bench of the Tribunal in assessee's own case for the assessment

years 2009-10 and 2010-11 deleted the addition made by the assessing officer.

The revenue carried the matter in appeal before this Tribunal.

3. None appeared for the assessee; however, filed an adjournment

application which is rejected. The ld.DR, on the other hand, supported the orders

passed by the assessing officer.

4. After hearing the ld.DR and non careful consideration of the assessment

orders as well as the orders of the CIT(A) we find that the issue involved in this

appeal is covered in favour of the assessee by the decision of the co-ordinate

bench of this Tribunal in assessee's own case for the assessment years 2009-10

and 2010-11. The ld.CIT(A) by following the same has deleted the addition

made by the assessing officer. Relevant portion of the order is extracted below:

"5. The only one issue raised in the grounds of appeal is that the disallowance of Surcharge on Sales Tax and Turnover Tax amounting to Rs.230,97,34,191 is opposed to law and facts of the case. According to Assessing Officer, any payment made on account of Surcharge on Sales Tax and Turnover Tax cannot be claimed s an expenditure allowable u/s 37 of the IT Act as the same is to be collected from the buyer of the product and should necessarily be appropriated out of the profit still left with after offering the income for tax. But, during the course of appellate proceedings, apart from arguing that the payment of Surcharge on Sales Tax and Turnover Tax was made wholly and exclusively for the purpose of the business carried out by the appellant, the appellant's representative has informed that the Hon'ble ITAT, Cochin Bench, Cochin in its order in ITA No.65 & 66/Coch/2014 dated 28.8.2014 in the appellant's own case for the AYs 2009-10 and 2010-11 has already decided the identical issue of Surcharge 3 ITA No .132-134/Coch/2015

on Sales Tax and Turnover Tax in favour of the appellant and thereby requested to follow the decision meticulously for the AY 2007-08 as well. I have gone through the order of the Hon'ble ITAT referred above. To understand rightly, relevant portion of the order of the Hon'ble ITAT is reproduced as under,

15. "We have heard both parties and perused the record. Admittedly, in this case, there is no dispute by the Department that the State Government has made any amendment to the Act so as to write back the entire profit of the assessee to the State Government. Under the State Government Act, part of surcharge on sales tax and turnover tax is to be paid by the assessee to the government. The moment the assessee makes sales which are subject to surcharge on sales tax and turnover tax, the obligation of the assessee is to ay tax and tax is attracted. In the present case, the assessee quantified the liability. If it is paid within the due date, the payment of the same is to be allowed in terms of section 43B of the IT Act. The assessee who follows the mercantile system of accounting I entitled to deduct sales tax from the profit and gains of the business which had accrued during the financial year relevant to the assessment year subject to the provisions of section 43B of the IT Act. While computing the profit and gains of the business, whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of its rights nor can the existence or absence of entries in its books of account be decisive or conclusive in the matter. Since the assessee is following the mercantile system of accounting, the assessee is fully justified in claiming deduction towards surcharge on sale tax and turnover tax which is payable in the financial year corresponding to the relevant assessment year. Accordingly, we are inclined to hold that the claim of the assessee is to be allowed."

6. The appellant is an assessee as per the provisions of the Kerala General Sales Tax Act, 1963 and is bound to follow all the provisions of the above Act. The appellant ought to pay various duties and levies as per the provisions of the above Act. The appellant ought to pay various duties and levies s per the provisions of the above Act as well as Kerala Abkari Act and Allied Rules. Sales Tax, Turnover Tax and Surcharge on Sales Tax are to be paid by the appellant as a wholesale trader of Indian Made Foreign Liquor and Beer in the State of Kerala to the Government of Kerala in accordance with the provisions of the Kerala General 4 ITA No .132-134/Coch/2015

Sales Tax Act, 1963 and the Kerala Surcharge on Taxes Act, 1957. Section 3(1) of the Kerala Surcharge on Taxes Act states that the taxes payable under 5(1) of the Kerala General Sales Tax Act by a dealer in Indian Made Foreign Liquor shall be increased by a surcharge at the rate of 10%. Again, under section 3(2) of the Kerala Surcharge on Taxes Act, no dealer shall be entitled to collect the surcharge payable under the above mentioned section 3(1) from the buyer of foreign liquor. Further, section 3(3) of the Kerala Surcharge on Taxes Act states that any dealer who collect surcharge from the buyer of foreign liquor in contravention of the provisions of the said section 3(2) shall be punishable with fine which may extent upto one thousand rupees and no curt below the rank of First Class Magistrate shall try any such offence. The above provisions of law clearly states that any dealer in foreign liquor is bound to remit surcharge on sales tax and cannot do business without remittance of surcharge. It also clearly states that the surcharge on sales tax cannot be collected from the buyer of foreign liquor and the dealer who collects surcharge on sales tax contravening the provisions of section 3(2) would be exposed to penal provisions.

In the background of the foregoing, it could be easily made out that the appellant is obligated to pay surcharge on sale of Indian Made Foreign Liquor but the same should not be collected from the buyer of foreign liquor. Payment of surcharge is a must to carry out the business. In the meantime surcharge cannot be collected from the buyer. As the business cannot be carried out without remittance of surcharge, the same should necessarily be paid by the appellant and must be paid out of sale proceeds only. Similarly, as per the provisions of section 5(1)(b) of the Kerala General Sales Tax Act, 1963 the appellant is liable to pay Turnover Tax at the point of sale. Further, by virtue of the provisions of section 5(2)(ii) of the said Act, no dealer shall collect from his purchaser of foreign liquor the Turnover Tax payable by him. The above provisions of law clearly states that the appellant is liable to pay Turnover Tax at the point of sale and cannot collect the same from the purchaser. The Turnover Tax the appellant claimed to have been paid therefore is towards discharging the statutory liability vested upon it.

In view of the above, the Surcharge on Sales Tax and Turnover paid by the appellant should necessarily be construed as paid wholly and exclusively for the purpose of business and also to comply with the provisions of statute enacted by the Government of Kerala. Hence, the same is an allowable expenditure u/s 37 of the IT Act. Further, the appellant who follows mercantile system of accounting is also entitled to claim deduction towards surcharge on sales tax and turnover tax in accordance with the provisions of section 43B of the IT Act, the fact of which has already been confirmed by the Hon'ble 5 ITA No .132-134/Coch/2015

ITAT, Cochin Bench in the order passed for the AYs 2009-10 and 2010-11 in the appellant's own case s mentioned in para 5 of this order.

7. In the circumstances, respectfully following the order of the Hon'ble ITAT, Cochin Bench, Cochin passed vide ITA No.65 & 66/Coch/2014 dated 28.08.2014 in the appellant's own case for the AYs 2009-10 and 2010-11, the disallowance made for the year under consideration on account of Surcharge on Sales and Turnover is deleted as the issue is identical."

No material has been brought to our notice to show that the above decision of

the Tribunal has been reversed or modified by the High Court. We find no

infirmity in the orders passed by the ld.CIT(A). These appeals filed by the

revenue are dismissed.

Order pronounced on 15th day of May, 2015.

Sd/- sd/-

( B.R. Baskaran) ( V. Durga Rao) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin, Dt : 15th May, 2015 pkj/-

Copy to: 1. Jt.CIT, Special Range, Trivandrum

2. Kerala State Beverages (M&M) Corporation Ltd, Sasthakripa Complex, Sasthamangalam, Thiruvnanthapuram 695 010

3. The CIT, Trivandrum

4. The CIT(A), Trivandrum

5. The DR (True copy) By order

Asstt. Registrar, ITAT, Cochin Bench