COURT: The Supreme Court of India

CORAM:R. Subhash Reddy, J.

DATE OF JUDGMENT: 3 January 2022


The appellant, a State owned Undertaking, Kerala State Beverages Manufacturing & Marketing Corporation Ltd., a company registered under the Companies Act, 1956, engaged in the wholesale and retail trade of beverages, it’s income was finalised under Section 143(3) of the Income-tax Act, 1961 (in short, ‘the Act’) for the assessment year 2014–2015 by the Deputy Commissioner of Income Tax, Circle 2(1), Thiruvananthapuram via Assessment Order dated 14.12.2016. The Principal Commissioner of Income Tax, Thiruvananthapuram, has exercised the power of revision provided by Section 263 of the Act and set aside the order of assessment on the ground that it is erroneous and prejudicial to the revenue’s interests, to the extent that it failed to disallow the assessee’s debits in the Profit & Loss Account with respect to the amount of surcharge on sales tax and turnover tax paid to the State Government, which should have been disallowed under S. 40 (a)(iib).

The appellant first filed an appeal against this order in the Income Tax Appellate Tribunal twice and aggrieved by their order which was against him, he approached the High Court of Kerala.

Later it has filed these appeals, aggrieved by the common judgement and order dated 30.04.2020 passed by the High Court of Kerala at Ernakulam in I.T.A. No.135; 146 and 313 of 2019. The assessee has filed a Civil Appeal originating from S.L.P.(C)No.12859 of 2020, whereas the revenue has preferred the other three appeals.


Whether surcharge on sales tax is liable to be disallowed u/s 40(a)(iib) of Income-tax Act,1961.


The Hon’ble Court decided, after hearing the parties, that the gallonage fee, licence fee, and shop rental (kist) with respect to the appellant’s FL9 and FL1 licences will fall squarely 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 falling within the meaning of Section 40(a)(iib)(A) or 40(a)(iib)(B), as such it is not an amount that can be excused under the abovementioned provision, and the disallowance is rightfully set aside by the High Court. As a result, the assessee’s civil appeal is dismissed, and the revenue’s civil appeals were partly authorised. As a result, the assessments made against the assessee in the assessment years 2014-2015 and 2015-2016 have been set aside. After computing the liability in line with the above- mentioned directions, the assessing officer must issue updated orders. Due to the fact that the disagreement concerns assessment years 2014-2015 and 2015-2016, the assessing officer must issue appropriate instructions within two months of receiving this judgement.

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