ANDHRA PRADESH POWER GENRATION CORPORATION LIMITED,VIJAYAWADA vs. DEPUTY COMMISSIONER OF INCOME TAX,, CIRCLE-1(1), VIJAYAWADA

We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities as well as the written submissions made by the assessee. In the instant case, the assessee has made payments towards water charges amounting to Rs. 18.23 Crs and water cess amounting to Rs. 16.34 Crs. Further, the assessee also paid Rs. 35.95 Crs towards Police Guard charges. It was the contention of the Ld. AR that the cost of water is paid to the State Government and the water cess is paid to the Central Government. There is a merit in the argument of the Ld. AR that the assessee is not exclusively enjoying the supply of water by the Irrigation and Water Resources Department of the State Government whereas the water has been supplied to various Government Undertakings and Private Organizations as per the rates fixed by the Government and hence there is no exclusivity to the assessee for the purpose of invoking the disallowance U/s. 40(a)(iib) of the Act. It is further noticed that the Ld. Pr. CIT has erroneously considered the cost of water as ‘royalty’ paid to the State Government. Explanation-2 to section 9(1)(vi) defines the expression ‘royalty’ and in our opinion the water charges are paid by the 8 assessee cannot be considered as royalty as per the definition. Further, section 40(a)(iib) of the Act is extracted herein below for reference: “Sec. 40(a)(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. Explanation.—For the purposes of this sub-clause, a State Government undertaking includes— (i) a corporation established by or under any Act of the State Government; (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty per cent of the paid-up equity share capital is held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together); (iv) a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (v) an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government;”

On a plain reading of section 40(a)(iib)(A) of the Act clearly states amount levied exclusively on the assessee shall be subjected to deduction U/s. 40(a)(iib) of the Act. However, in the instant case, we find that water charges was not levied exclusively on the assessee and hence we find that the Ld. Pr. CIT has erroneously invoked the provisions of section 40(a)(iib) of the Act. Further, from the submissions of the Ld. AR we find regarding the payment of Guard Charges by the assessee to Andhra Pradesh Special Protection Force is not exclusively provided to the 9 assessee but also to other industrial undertakings, temples, banks and Public Sector Undertakings as evidenced by the letter submitted by the assessee in page No. 72 of the paper book. Hence, we are of the opinion that the principle of exclusivity has been wrongly interpreted by the Ld. Pr. CIT on the payments made to the Andhra Pradesh Special Protection Force. The case relied on by the Ld. DR ie., Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd (supra) is with respect to electricity duty paid and cannot be applied to the instant case. The Hon’ble Supreme Court in para 14 of its decision in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd (supra) has held that the aspect of ‘exclusivity’ U/s. 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 and concluded that there is an exclusive levy on the State Government undertakings. Therefore, the reliance placed by the Ld. DR in the decision of the Hon’ble High Court of Kerala in the case of Kerala State Beverages (Manufacturing & Marketing) Corporation Ltd (supra) has been overruled by the Hon’ble Supreme Court and hence cannot be applied to the instant case. In the light of the aforesaid discussions, we are of the considered opinion that the Ld. Pr. CIT has erred in invoking the provisions of section 263 of the Act in the mater of disallowance of water charges and water cess and Police Protection charges by invoking the provisions of section 40(a)(iib)

The Principal Commissioner of Income Tax, आयकरआयुक्त (अपील)/ The Commissioner of Income Tax 4. ववभधगीयप्रनतनिधर्, आयकरअपीलीयअधर्करण, ववशधखधपटणम/ DR,ITAT, 5. Visakhapatnam गधर्ाफ़धईल / Guard file 6. आदेशधिुसधर / BY ORDER