THE DEPUTY COMMISSIONER OF INCOME TAX, vs. CHHATTISGARH STATE BEVERAGES CORPORATION LIMITED

CGHC010186102023

2026:CGHC:36918-DB

NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 102 of 2023 1. The Pr. Commissioner Of Income Tax, Raipur-1, Chhattisgarh.

--- Petitioner versus 1. Chhattisgarh State Beverages Corporation Limited, Aabkari Bhavan, Chokra Nala, Labhandi, Raipur, Chhattisgarh Pin- 492001................(Pan Aaccc316b, A.Y. 2015-16)

--- Respondent TAXC No. 205 of 2024 1. The Deputy Commissioner Of Income Tax, Raipur (C.G.)

---Petitioner Versus 1. Chhattisgarh State Beverages Corporation Limited Aabkari Bhavan, Chokra Nala, Labhandi, Raipur- 492001, Pan- Aaccc3163e, A.Y. 2020-2021

--- Respondent TAXC No. 100 of 2023 1. The Pr. Commissioner Of Income Tax, Raipur-1, (CG).

---Petitioner Versus SYED ROSHAN ZAMIR ALI Digitally signed by SYED ROSHAN ZAMIR ALI

2 1. Chhattisgarh State Beverages Corporation Limited, Aabkari Bhavan, Chokra Nala, Labhandi, Raipur, Chhattisgarh, Pin- 492001............(Pan Aaccc3163b, A.Y.- 2015-16)

--- Respondent TAXC No. 114 of 2023 1. The Pr. Commissioner Of Income Tax, Raipur - 1 (C.G.)

---Petitioner Versus 1. Chhattisgarh State Beverages Corporation Limited, Aabkari Bhavan, Chokra Nala, Labhandi, Raipur - 492001, Pan - Aaccc3163b, A.Y. - 2015-16

--- Respondent For Petitioner : Mr. Ajay Kumarani, Advocate For Respondent : Mr. Somil Agrawal, Mr. Rakesh Gupta (through virtual mode) and Mr. S. Rajeshwar Rao, Advocates. DB:

Hon’ble Mr. Justice Parth Prateem Sahu,J

& Hon’ble Mr. Justice Sachin Singh Rajput, J Order on Board Per Parth Prateem Sahu, J 18.08.2026 1. As the issue involved in the above appeals is one and same, therefore, they are heard together and are being disposed of by this common order. 2. The above appeals under Section 260 of the Income Tax Act 1961 ( for short ‘the Act of 1961’), at the instance of appellant- revenue are filed against the order of the Income Tax Appellate Tribunal, Raipur Bench, Raipur (for short ‘the

3 Tribunal’) allowing appeals of the assessee filed against the order of the Principal Commissioner of Income Tax-1, Raipur (for short ‘Commissioner of Appeals’) with respect to assessment years 2015-16, 2016-17 to 2017-18 directing the Assessment Officer to disallow claim of the assessee for deduction of Value Added Tax (VAT) in the return of income. 3. For the sake of convenience, Tax Case No.102/2023 is being taken up as a lead case and the facts of the same are being referred to herein above. 4. Briefly stated, facts of the case are that respondent is a State Government of Chhattisgarh undertaking and involved in wholesale trading of foreign / Indian made foreign liquor/wine/beer etc. across the State. Respondent electronically filed its return of income for the assessment year 2015-16 on 30.9.2015 declaring total income of Rs.22,84,04,100/-, which was subsequently revised on 30.3.2016. Case of assessee was selected for ‘limited scrutiny’ under CASS on the ground of large deduction claimed under Chapter VI-A, other expenses claimed in the Profit & Loss Account and mismatch in sales turnover reported in audit report. A notice under Section 142 (1) of the Income Tax Act, 1961 (for short ‘the Act of 1961’) and the questionnaire in terms of Section 142 (1) (ii) / (iii) was issued to assessee intimating reasons on the basis of which case was selected for scrutiny. Pursuant thereto, the respondent

4 appeared and filed written submissions. In course of verification, it is found that claim of assessee under Section 80G of the Act of 1961 towards donation to CM Relief Fund and towards penalty and interest TDS/TCS were not allowable, therefore, notice under Section 37 (1) of the Act of 1961 was issued to which assessee submitted reply. The Assessing Officer (AO) passed the assessment order on 30.10.2017 and disallowed deductions towards donation of Rs.25,42,26,775/- claimed under Section 80G of the Act of 1961 and Rs.1,01,790/- in terms of Section 37 of the Act of 1961. 5. After culmination of assessment proceeding, the Commissioner of Appeals gone through assessment records and found that an amount of Rs.57,32,23,861/- has been debited under sub-head ‘VAT’ under “Administrative Selling and other expenses”, which were allowed as an expenditure in the assessment order dated 30.10.2017. It was also found that AO without raising any query as regards the assessee’s entitlement for claim of deduction of aforesaid expenditure has accepted the same without conducting any inquiry. Hence, an inquiry was conducted to find out whether VAT was leviable on sale of liquor in Chhattisgarh and it was found that according to Notification dated 07.08.2013 issued by the Government of Chhattisgarh, VAT is leviable on sale of foreign / Indian made foreign liquor by FL-10 Licensee

5 Distributor. Accordingly, the Commissioner of Appeals issued notice under Section 263 of the Act of 1961 on 8.4.2016 to show cause as to why the assessment order passed under Section 143 (1) of the Act of 1961 should not be treated as erroneous and prejudicial to the interest of the Revenue for the reason that large deductions claimed under Chapter VI-A; large other expenses claimed in the profit and loss account and mismatch in sales turnover reported in ITR. 6. In response, the respondent submitted reply that payment of VAT cannot be treated as appropriation of profit nor it is an exclusive tax to the assessee only and therefore, the same be allowed as expenditure. Provision of Section 40 (a) (iib) of the Act of 1961 deals with any amount paid by way of royalty license fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called, which is levied exclusively on, or, any amount which is appropriated, directly or indirectly, from a State Government undertaking by the State Government. Hence, the VAT would not fall within Section 40 (a) (iib) of the Act of 1961. 7. The Commissioner of Appeals, vide order dated 28.3.2021, has held that in view of Explanation 2 of Section 263 of the Act of 1961, the claim of deduction for VAT in return of income is not allowable and directed the AO to disallow the claim of appellant assessee for deduction towards VAT. Aggrieved therewith assessee preferred an appeal before the Tribunal

6 and by the order impugned, the Tribunal has set aside the order of the the Commissioner of Appeals disallowing the assessee’s claim for deduction towards VAT and restore the order of the AO. 8. Learned counsel for appellant-revenue would submit that the VAT expense levied on the assessee is an exclusive levy by the State Government squarely covered by Section 40(a)(iib) of the Act of 1961 and therefore VAT is not allowable as deduction in accordance with Section 40(a)(iib) of the Act of 1961, while computing the income of assessee. The learned Commissioner of Appeals, after examining the relevant material and finding that the assessment had been completed by the Assessing Officer without the requisite enquiry and verification, has arrived at a conclusion that VAT on sale of liquor was imposed exclusively upon the State Government undertaking (respondent) and was not recovered from the consumer or incorporated in sale price and therefore, the assessment order is erroneous and prejudicial to the interests of the Revenue and accordingly, directed to disallow the respondent’s claim for deduction of VAT in sale of liquor under Section 40 (a) (iib) of the Act of 1961. However, well-reasoned order of the Commissioner of Appeals has been erroneously interfered with by the Tribunal merely observing that the VAT levied by the State Government is a ‘tax’.

7 9. He further submits that the term ‘VAT’ is a misnomer, as the same, in substance, is not a tax but license fee, privilege fee etc. which in the preceding years was collected by the State Government from the respondent company. Merely because, in the relevant assessment year, the State Government changed the nomenclature and described the collection/fee as “VAT” cannot, by itself, change the substantive character of the payment or take the same outside the statutory mischief contemplated by Section 40(a)(iib) of the Act of 1961. 10. He next contended that reliance placed by learned Tribunal on the judgment passed in Civil Appeal No.11/2022, parties being Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd. vs ACIT, decided on 03.01.2022, is misconceived and misplaced. Said decision was rendered in the context of gallonage fee, licence fee and shop rental, as well as surcharge on sales tax and turnover tax, which were considered in the peculiar facts of that case. 11. On the other hand, learned counsel appearing on behalf of the respondent supports the order passed by the Tribunal and submits that the VAT is a statutory levy on the respondent- assessee in the nature of tax and respondent has no option but to discharge the same. Since the sale rates are fixed considering the levy of VAT, the same is deemed to be collected from the customer, hence, levy of VAT cannot be

8 termed as appropriation either directly or indirectly. He also submits that deduction of VAT is allowable on actual payment as per provisions of Section 43B of the Act of 1961, according to which, any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for time being in force, shall be allowed on actual payment while computing the income. 12. He further submits that learned Commissioner of Appeals has wrongly interpreted and applied Section 40 (a) (iib) of the Act of 1961 to the facts of present case. This provision states that certain expenses are not liable to be taken into account for the grant of deduction in computing taxable income. One such category is enumerated under clause (iib) thereof, being any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge by whatever name called which is levied exclusively on or which is appropriated directly or indirectly from a State Government undertaking by the State Government. According to him, the Value Added Tax (VAT) remitted by the respondent does not find place in the list of exclusions and would hence stand outside the reach of the Section. In support of the contention, learned counsel for respondent relied upon the decision of Hon’ble Supreme Court in case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd. (supra).

9 13. Heard learned counsel for the parties and perused the documents available in record of tax case. 14. Tax Case Nos.100/2023, 102/2023 and 114/2023 were admitted on following substantial question of law: “1.Whether on law and in the facts and circumstances of the case, the ITAT was justified in setting aside the order passed by the PCIT under Section 263 of the Income Act, 1961 and restoring the order passed by the AO under Section 143 (1) of the Income Tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in setting aside the impugned order under Section 263, on the ground that intimation under Section 143 (1) is not an order revisable under Section 263 of the Income-tax Act? 15. Tax Case Nos.205/2024 was admitted on following substantial question of law: “1. Whether the Income Tax Appellate Tribunal is justified in holding that the value added tax paid by the assessee under the provisions of the Chhattisgarh Value Added Sales Tax Act 2003 fall under Section 40 (a) (iib) of the Income Tax Act 1961? 16. During the course of hearing, learned counsel appearing in Tax Case Nos.100/2023 and 102/2023 would submit that they do not press the second question of law and restricted their arguments to the first question only. Since the appellant does

10 not wish to press second question, we do not propose to deal with this issue in the judgment. 17. The principal question involved is whether the VAT paid by the assessee, a State Government undertaking, to the State Government is liable to be disallowed under Section 40 (a) (iib) of the Income-tax Act, 1961 by treating it as a ‘fee’ or ‘charge’ within the meaning Section 40(a)(iib)? 18. Perusal of the order passed by the Commissioner of Appeals would show that he has set aside the assessment order of the AO and disallowed claim of respondent assessee for deduction towards VAT under Section 40 (a) (iib) of the Act of 1961 observing that the assessment order is passed without conducting proper inquiry on the claim of deduction towards VAT in the return of income and as such it is erroneous insofar as it is prejudicial to the interest of the revenue in view of Explanation-2 of Section 263 of the Act of 1961. 19. The order of the Commissioner of Appeals was challenged by filing an appeal before the Tribunal on the ground that Section 40 (a) (iib) of the Act of 1961 does not contemplate ‘tax’ and VAT on sale of liquor is not a ‘fee’ or ‘charge’, therefore, disallowance directed by the Commissioner of Appeals was uncalled for. Relying on decision in case of Kerala State Beverages (supra) wherein it was held that Section 40 (a) (iib) of the Act of 1961 will not apply to surcharge on sales-tax and Turnover tax as they constitute tax and not fees, learned

11 Tribunal has held that provisions of Section 40 (a) (iib) of the Act of 1961 would not be applicable to the case of assessee qua ‘VAT’ paid by it and accordingly, set aside the order of the Commissioner of Appeals disallowing deduction of VAT and restored the order of AO. 20. For better appreciation of question involved, it is necessary to set out Section 40 (a) (iib) of the Act of 1961:- "40. Amounts not deductible.--Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession'- (a) in the case of any assessee--...... (i) … … … … ………… (iib) any amount- (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (B) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government. 21. Reading of above makes it clear that any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on a State Government undertaking by the State Government, or any amount which is appropriated, directly or indirectly, from a State Government

12 undertaking by the State Government, shall not be allowed as a deduction while computing income chargeable under the head “Profits and gains of business or profession. 22. The Chhattisgarh Value Added Tax Act, 2005 (for short ‘the Act of 2005’) has been enacted with a purpose to impose and regulate value-added tax on the sale and purchase of goods within the State of Chhattisgarh. Section 2 (z) of the Act of 2005 defines “Value Added Tax” as a tax on sale or purchase of goods payable under the Act. Section 2 (z) is reproduced herein below for ready reference:- “(z) “Value Added Tax” means a tax on sale or purchase of goods payable under this Act. 23. Section 8 of the Act of 2005 deals with levy of tax, which reads as under:- “(1) There shall be levied on goods specified in Schedule, a tax at the rate mentioned in the corresponding entry in column (3) thereof; and such tax shall be levied on the taxable turnover of a dealer liable to pay tax under the Act.] (2) Notwithstanding anything contained in sub-section (1), on the sale of goods specified in serial number I and 2 of of Schedule, there may be levied a rate of tax under sub- section (1) and a specific amount per litre as may be notified by the State Government, from time to time.”

13 24. From perusal of Section 8 quoted above, it is clear that it is the charging provision under which tax is levied on the sale of goods specified in Schedule appended to this Section. The provision, as amended, provides that there shall be levied on the goods specified in Schedule a tax at the rate mentioned in the corresponding entry in column (3) thereof, and such tax shall be levied on the taxable turnover of a dealer liable to pay tax under the Act. In other words, a levy imposed under Section 8 of the Act of 2005 cannot, merely by reason of its being payable by a State Government undertaking to the State Government, be characterized as a “fee” or “charge”. The charging provision itself describes the levy as tax, and Section 2(z) reinforces that statutory character by defining ‘Value Added Tax’ as a tax on sale or purchase of goods payable under the Act. Thus, the levy under Section 8 of the Act of 2005 is consequently a compulsory fiscal exaction arising by operation of law and is not a payment made by the dealer to the State in consideration of any particular service, privilege or facility. 25. At this juncture, the distinction between a ‘tax’ and a ‘fee’ is also material in the context of Section 40(a)(iib) of the Act of 1961. A tax is imposed as a compulsory contribution towards public revenue, whereas a fee ordinarily bears a relationship with a service, privilege or regulatory activity. In the present case, the levy under Section 8 is attracted on the taxable

14 turnover and not on account of any service or privilege extended by the State Government to the respondent. 26. In case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd. (supra), Hon’ble Supreme Court while dealing with sales tax and considering the scope of Section 40(a)(iib) of the Act of 1961, has held that the fee or charge as mentioned in Section 40(a)(iib) is clear in terms and that will take in only the fee or charge as mentioned therein or any fee or charge by whatever name called, but cannot cover the tax or surcharge on tax and such taxes are outside the ambit and scope of Section 40(a)(iib) of the Act. Relevant portion of the judgment is reproduced herein below for ready reference:- “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 FL9 and FL1. In the impugned order, the High Court has held that the gallonage fee, licence fee and shop rental (kist) with respect to FL9 licence are not deductible, as it is an exclusive levy on

15 the Corporation. Further a distinction is drawn from FL1 licence from FL9 licence, to apply Section 40(a)(iib), only on the ground that, FL1 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 FL9 like KSBC as such the word ‘exclusivity’ C.A.@S.L.P.(C)No.12859 of 2020 etc. used in Section 40(a)(iib) attract such amounts. At the same time only on the ground that FL1 licences are issued not only to the KSBC but also to Kerala State Cooperatives 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 Cooperatives Consumers’ Federation Ltd. which is also granted licence under FL1. 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 Cooperatives 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

16 that any other interpretation would defeat the very object behind the amendment to Income tax Act, 1961. 14.1. xxxxx 14.2. xxxxx 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’ etc. 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. The submission of Sri Venkataraman, learned ASG with regard to surcharge on sales tax is twofold. One is that the levy of surcharge on sales tax is also an exclusive levy on KSBC, therefore, attracts Section 40(a)(iib) (A) itself. Secondly, it is submitted, as an alternative submission that if the same is not covered by Section 40(a)(iib)(A) it would fall under Section 40(a)(iib)(B) of the Act, for the reason that the surcharge on sales tax is a tax and tax is a form of appropriation by the State from KSBC. The learned counsel placed reliance on a recent judgment of this Court in the case of Jalkal Vibhag Nagar Nigam and Others3. On the other hand it is the case of the appellant/ assessee that the sales tax is outside the scope of Section 40(a)(iib) and the surcharge is nothing but is an enhancement of the tax. By referring to words used in Section 40(a)(iib), learned counsel Sri Ganesh has submitted that the said provision is to be interpreted by applying the doctrine of ejusdem generis. It is submitted that the words ‘any other fee or charge’ immediately following the words ‘royalty, licence fee, service fee, privilege fee, service charge’ relate to such

17 similar charges and none of the terms can possibly cover a tax, like sales tax or surcharge on sales tax. 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……” 14.5. 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

18 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.4; Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 5; and Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd.6. The judgment relied on by the learned ASG in the case of Jalkal Vibhag Nagar Nigam and Others3 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

19 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 Incometax 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 FL9 and FL1 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. 27. Reading of above decision of Hon’ble Supreme Court would demonstrate that Hon’ble Supreme Court, while examining the scope and applicability of Section 40(a)(iib) of the Act of 1961, has drawn a clear distinction between a ‘tax’ and a ‘fee’

20 or ‘charge’. In paragraph 15 of the judgment, it was held that turnover tax is a tax and, for that reason, falls outside the purview of Section 40(a)(iib)(A) and (B). In paragraph 16, the Court further held that surcharge on sales tax and turnover tax are not a “fee or charge” coming within the scope of Section 40(a) (iib) (A) or Section 40(a) (iib) (B), and consequently the same could not be disallowed under the said provision. 28. In case at hand, admittedly under sub-head ‘VAT/Sales Tax’ at Sr. No.7 (vi) of Part A, Profit & Loss Account of return of income, respondent assessee has raised the claim for deduction of VAT. As per definition of ‘VAT’ given in Section 2 (z) of the Act of 2005, VAT is a tax on sale or purchase of goods payable under the Act of 2005. As per ratio laid down by Hon’ble Supreme Court in Kerala State Beverages (supra), a tax cannot be brought within the expression “fee or charge” employed in Section 40(a)(iib). Hence, in light of the decision of Hon’ble Supreme Court in Kerala State Beverages (supra) we are of the considered view that the VAT payable by respondent – assessee could not be brought within the dis- allowances contemplated under Section 40(a)(iib) of the Act of 1961, particularly when there is no material on record to establish that, independently of VAT liability, the State Government appropriated any amount belonging to the assessee. The payment is, therefore, a discharge of statutory

21 tax liability and not an appropriation within the meaning of Section 40(a)(iib)(B) of the Act of 1961. 29. In view of above, first question of law framed is answered in negative i.e. in favour of respondent assessee and against the appellant-revenue. Second question of law framed in Tax Case Nos.100/2023, 102/2023. 114/2023 is not pressed by learned counsel for the appellant. Order passed by the Tribunal setting aside the order of the Commissioner of Appeals disallowing the assessee’s claim for deduction of VAT is affirmed. 30. Cumulative effect of the discussion in forgoing paragraphs as also the answer to the question of law framed is that, we find no merit in these appeals, the same are liable to be and are hereby dismissed leaving the parties to bear their own costs. Sd/- Sd/- (Parth Prateem Sahu) (Sachin Singh Rajput) Judge Judge roshan/-