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

                         [2022] 1 S.C.R. 105                               105


     KERALA STATE BEVERAGES MANUFACTURING &                                A
           MARKETING CORPORATION LTD.
                                   v.
     THE ASSISTANT COMMISSIONER OF INCOME TAX
                     CIRCLE 1(1)
                                                                           B
                     (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
                                                                           C
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        D
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
                                                                           E
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
                                                                           F
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          G
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      H
                                  105
106            SUPREME COURT REPORTS                         [2022] 1 S.C.R.


A     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)
B     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
C     – 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

D           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
E     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.
F     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
G     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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KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.         107
           COMMISSIONER OF INCOME TAX CIRCLE 1(1)


the Government by way of f ees, taxes or similar such                   A
appropriations. From the relevant Memorandum to the Finance
Act, 2013 and underlying object for amendment of Income Tax
Act by Act 17 of 2013, by which Section 40(a)(iib)(A)(B) is inserted,
it is clear that the said amendment is made to plug the possible
diversion or shifting of profits from these undertakings into State’s
                                                                        B
treasury. In view of Section 40(a)(iib) of the Act any amount, as
indicated, 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. [Para 13][121-D-H; 122-A-B]
        2. In the instant case the gallonage fee, licence fee, shop     C
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       D
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 FL-9 and FL-
1. In the impugned order, the High Court has held that the
gallonage fee, licence fee and shop rental (kist) with respect to       E
FL-9 licence are not deductible, as it is an exclusive levy on the
Corporation. Further a distinction is drawn between FL-1 licence
and FL-9 licence, to apply Section 40(a)(iib), only on the ground
that, FL-1 licences are issued not only to the appellant/KSBC
but also issued to one other Government Undertaking, i.e., Kerala       F
State Cooperatives Consumers’ Federation Ltd. High Court has
held that as there is no other player holding licences under FL-9
like KSBC as such the word ‘exclusivity’ used in Section 40(a)(iib)
attract such amounts. At the same time only on the ground that
FL-1 licences are issued not only to the KSBC but also to Kerala
State Co-operatives Consumers’ Federation Ltd., High Court has          G
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,

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108            SUPREME COURT REPORTS                        [2022] 1 S.C.R.


A     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
B
      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
C     Consumers’ Federation Ltd. are undertakings of the State of
      Kerala, therefore, levy is an exclusive levy on the State
      Government Undertakings. Therefore, that any other
      interpretation would defeat the very object behind the amendment
      to Income Tax Act, 1961. [Para 14][122-B-H; 123-A]
D            2. 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
E     and may ultimately say it is not an exclusive undertaking and
      therefore Section 40(a)(iib) is not attracted. The submission for
      the appellant is that the gallonage fee, licence fee and the shop
      rental (kist) are the levies under the Abkari Act on all the licence
      holders, as such it cannot be said that same is an exclusive levy
F     on the appellant/KSBC. It is submitted that because of the Abkari
      Policy in particular year, licences are issued in favour of the
      appellant – State owned Undertaking, as such it cannot be said
      that the statutory levies under the Abkari Act are on the State
      Government Undertaking and such levies are only on the
      licensees but not on the State-owned Undertakings like KSBC.
G     The said submission cannot be accepted for the reason that by
      virtue of licence which is granted in favour of State-owned
      Undertaking, the statutory fees etc., viz., gallonage fees, licence
      fee and shop rental (kist) are payable by the appellant-
      Undertaking, i.e., KSBC. Once the State Government
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KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.        109
           COMMISSIONER OF INCOME TAX CIRCLE 1(1)


Undertaking takes licence, the statutory levies referred above         A
are on the Government Undertaking because it is granted
licences. Therefore, the finding of the High Court that gallonage
fee, licence fee and shop rental (kist) so far as FL-1 licences are
concerned, is not attracted by Section 40(a)(iib), cannot be
accepted and such finding of the High Court runs contrary to
                                                                       B
object and intention behind the legislation. [Para 14.1][123-B-F]
      4. Further, because another State Government
Undertaking, i.e., Kerala State Co- operatives Consumers’
Federation Ltd. was also granted licences during the relevant
years, as such exclusivity mentioned in Section 40(a)(iib) is lost,
also cannot be accepted, for the reason that exclusivity is to be      C
considered with reference to nature of licence and not on number
of State owned Undertakings. If the interpretation, as held by the
High Court, is accepted, the legislative intent can be defeated by
issuing licences in FL-1 to several State Government
Undertakings and then make a contention that exclusivity is lost.      D
Said interpretation runs contrary to the intent of the amendment.
[Para 14.2][123-F-H]
       5. 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        E
tax and Section 40(a) (iib) does not contemplate ‘tax’ and
surcharge on sales tax is not a ‘fee’ 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 revenue
with regard to surcharge on sales tax is two-fold. One is that the
levy of surcharge on sales tax is also an exclusive levy on KSBC,      F
therefore, attracts Section 40(a)(iib) 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      G
KSBC. 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

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110            SUPREME COURT REPORTS                        [2022] 1 S.C.R.


A     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 similar charges and none of
      the terms can possibly cover a tax, like sales tax or surcharge on
B
      sales tax. 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
C     40(a)(iib)(B) of the Act. [Para 14.3][124-A-G]
            6. A reading of preamble and Section 3(1) of the KST Act,
      make it abundantly clear that the surcharge on sales tax levied
      by the said Act is nothing but an increase of the basic sales tax
      levied under Section 5(1) of the KGST Act, as such the surcharge
D     is nothing but a sales tax. It is also settled legal position that a
      surcharge on a tax is nothing but the enhancement of the tax.
      [Para 14.4][125-G-H]
            7. Further, CBDT itself has issued Circular No.3/2018 as a
      measure for reducing litigation, by revision of monetary limits
E     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
F     but the enhancement of sales tax, which is levied under Section
      5(1) of the KGST Act. When on 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
G     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 maintained

H
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.            111
           COMMISSIONER OF INCOME TAX CIRCLE 1(1)


throughout the scheme under Section 40(a) of the Act itself.               A
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
                                                                           B
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   C
things. Further turnover tax is also a tax. The very same reason
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). Thus, gallonage fee, licence fee
and shop rental (kist) with respect to FL-9 and FL-1 licences
                                                                           D
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           E
High Court. [Paras 14.5, 15, 16][126-G-H; 127-A-D; 128-B-D]
      DLF Qutab Enclave Complex Educational Charitable
      Trust v. State of Haryana & Ors. (2003) 5 SCC 622 :
      [2003] 2 SCR 1; Kailash Nath Agarwal & Ors. v.
      Pradeshiya Industrial & Investment Corporation of U.P.               F
      Ltd.& Anr. (2003) 4 SCC 305 : [2003] 1 SCR 1159;
      Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. (2001)
      3 SCC 609 : [2001] 2 SCR 36; C.I.T. v. K. Srinivasan
      (1972) 4 SCC 526 : [1972] 2 SCR 309; Sarojini Tea
      Co. Ltd. v. Collector, Dibrugarh (1992) 2 SCC 156 :
      [1992] 1 SCR 371; Jalkal Vibhag Nagar Nigam & Ors.                   G
      v Pradeshiya Industrial and Investment Corporation and
      Another 2021 SCC OnLine SC 960 – referred to.


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112             SUPREME COURT REPORTS                        [2022] 1 S.C.R.


A                              Case Law Reference
      [1972] 2 SCR 309                referred to        Paras 10 and 14.4
      [1992] 1 SCR 371                referred to        Paras 10 and 14.4
      2021 SCC OnLine SC 960          referred to        Paras 11.2 and 14.3
B
      [2003] 2 SCR 1                  referred to        Para 14.5
      [2003] 1 SCR 1159               referred to        Para 14.5
      [2001] 2 SCR 36                 referred to        Para 14.5
              CIVIL APPELLATE JURISDICTION: Civil Appeal No.11 of
C
      2022.
            From the Judgment and Order dated 30.04.2020 of the High Court
      of Kerala at Ernakulam in ITA No.135 of 2019
              With
D
              Civil Appeal Nos. 12, 13 and 14 of 2022.
            N. Venkataraman, ASG, S. Ganesh, A. K. Panda, Sr. Advs., Anil
      D. Nair, Ms. Beena Victor, Ms. Priya, Jogy Scaria, Mrs. Anil Katiyar,
      Manish Pushkarna, Ms. Preeti Rani, Raj Bahadur Yadav, Advs. for the
      appearing parties.
E
              The Judgment of the Court was delivered by
              R. SUBHASH REDDY, J.
              1. Leave granted.
F            2. These appeals are preferred, by the 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, aggrieved by the common
      judgment and order dated 30.04.2020 passed in I.T.A. No.135; 146 and
      313 of 2019 by the High Court of Kerala at Ernakulam. The Civil Appeal
G     arising out of S.L.P.(C)No.12859 of 2020 is filed by the assessee and
      other three appeals are preferred by the revenue.
             3. For the assessment year 2014-2015, the Deputy Commissioner
      of Income Tax, Circle-2(1), Thiruvananthapuram finalised the assessment
      of income of the appellant under Section 143(3) of the Income-tax Act,
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KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                 113
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


1961 (in short, ‘the Act’) vide Assessment Order dated 14.12.2016. The          A
Principal Commissioner of Income Tax, Thiruvananthapuram has
exercised power of revision as contemplated under Section 263 of the
Act and set aside order of assessment on the ground that same is
erroneous and is prejudicial to the interest of the revenue, to the extent it
failed to disallow the debits made in the Profit & Loss Account of the
                                                                                B
assessee, with respect to the amount of surcharge on sales tax and
turnover tax paid to the State Government, which ought to have been
disallowed under Section 40(a)(iib) of the Act. Against order of the
Principal Commissioner, Income Tax, dated 25.09.2018, the appellant
herein filed appeal before the Income Tax Appellate Tribunal (in short,
‘the Tribunal’) in ITA No.536/Coch/2018.                                        C
       4. With respect to Assessment Year 2015-2016 assessment against
the appellant was completed under Section 143(3) of the Act by the
Assistant Commissioner of Income Tax, Circle-1(1),
Thiruvananthapuram vide order of assessment dated 28.12.2017. Debits
contained in the Profit & Loss Account of the appellant with respect to         D
payment of gallonage fee, licence fee, shop rental (kist) and surcharge
on sales tax, amounting to a total sum of Rs.811,90,88,115/- were
disallowed under Section 40(a)(iib) of the Act. Aggrieved by the said
order, appellant herein has filed appeal before the Commissioner of
Income Tax (Appeals), Thiruvananthapuram and the same was dismissed.
The appellant carried the matter by way of second appeal before the             E
Tribunal in ITA No.537/Coch/2018.
       The Tribunal has dismissed the ITA Nos.536-537/Coch/2018 by a
common order dated 12.03.2019. The appellant herein thereafter has
filed miscellaneous application in MP No.47/Coch/2019 on the ground
that the Tribunal had failed to consider the issue agitated against the         F
disallowance of the surcharge on sales tax. The said miscellaneous
application was allowed by recalling earlier order dated 12.03.2019 passed
in I.T.A.No.537/Coch/2018 and a fresh order was passed on 11.10.2019,
finding the issue against the appellant and dismissing the appeal. Aggrieved
by the aforesaid three orders, the appellant herein has filed Income Tax        G
Appeals before the High Court in ITA Nos.135; 146 and 313 of 2019
which are disposed, by the common impugned order. In the common
impugned order passed by the High Court, the question of law raised,
was answered partly in favour of the assessee/appellant and partly in
favour of the revenue. Para 23 and 24 of the judgment read as under :
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114             SUPREME COURT REPORTS                            [2022] 1 S.C.R.


A            “23. While summing up the conclusions, we are persuaded to
             answer the question of law raised, partly in favour of the revenue
             and partly in favour of the assessee. We hold that the levy of
             Gallonage Fee, Licence Fee and Shop Rental (kist) with respect
             to the FL-9 licences granted to the appellant will clearly fall within
             the purview of Section 40 (a) (iib) and the amount paid in this
B
             regard is liable to be disallowed. The amount of Gallonage Fee,
             Licence Fee, or Shop Rental (kist) paid with respect to FL-1
             licences granted in favour of the appellant, with respect to the
             retail business in foreign liquor, is not an exclusive levy on the
             appellant, which is a state government undertaking. Therefore
C            the disallowance made with respect to those amounts cannot be
             sustained. The surcharge on sales tax and turnover tax is not a
             ‘fee or charge’ coming within the scope of Section 40 (a) (iib)
             and is not an amount which can be disallowed under the said
             provision. Therefore the disallowance made in this regard is liable
             to be set aside.
D
             24. In the result the assessment completed against the appellants
             with respect to the assessment years 2014-2015, 2015-2016 are
             hereby set aside. The matter is remitted to the Assessing Officer
             to pass revised orders, after computing the I.T. Appeal Nos. 135,
             146 & 313/2019 -32- liability in accordance with the position settled
E            hereinabove, on affording an opportunity of hearing to the appellant.
             The needful steps in this regard shall be completed at the earliest,
             at any rate, within three months from the date of receipt of a copy
             of this judgment.”
             5. For the purpose of disposal, we refer to the parties, as arrayed
F     in the appeal filed by Kerala State Beverages Manufacturing &
      Marketing Corporation Ltd. (KSBC).
             6. We have heard Sri S. Ganesh, learned senior advocate for the
      appellant and Sri N. Venkataraman, learned Additional Solicitor General
      appearing for the respondent.
G            7. Section 40 of the Income-tax Act, 1961 is the provision dealing
      with ‘amounts not deductible’. The amounts as detailed in the Section
      are not deductible, in computing the income chargeable under the head
      “Profits and gains of business or profession”. By the Finance Act, 2013
      (Act 17 of 2013), Section 40 of the Act is amended by inserting Section
      40(a)(iib), which has come into force from 01.04.2014. The said provision
H     under Section 40(a)(iib) reads as under :
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                115
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


     “40. Amounts not deductible.- Notwithstanding anything                    A
     contrary in sections 30 to 38, 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) … … … …                                                         B
            …………
           (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            C
                   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                 D
     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           E
                   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);                                         F
           (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       G
                   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;”.                                               H
116             SUPREME COURT REPORTS                            [2022] 1 S.C.R.


A             8. While it is the case of the assessee/appellant that the gallonage
      fees, licence fee and shop rental (kist) for FL-9 licence and FL-1 licence,
      the surcharge on sales tax and turnover tax do not fall within the purview
      of the abovesaid amended Section, the case of the revenue is that all the
      aforesaid amounts are covered under Section 40(a)(iib) as such, such
      amounts are not deductible for the purpose of computation of income,
B     for the assessment years 2014-2015 and 2015-2016.
              9. During the assessment years 2014-2015 and 2015-2016 the
      appellant was holding FL-9 and FL-1 licences to deal in wholesale and
      retail of, Indian Made Foreign Liquor (IMFL) and Foreign Made Foreign
      Liquor (FMFL) granted by the Excise Department. FL-9 licence was
C     issued to deal in wholesale liquor, which they were selling to FL-1, FL-3,
      FL-4, 4A, FL-11, FL-12 licence holders. The FL-1 licence was for sale
      of foreign liquor in sealed bottles, without privilege of consumption within
      the premises. The gallonage fee is payable as per Section 18A of the
      Kerala Abkari Act and Rule 15A of the Foreign Liquor Rules. The
      appellant was the only licence holder for the relevant years so far as
D
      FL-9 licence to deal in wholesale, and so far as FL-1 licences are
      concerned, it was also granted to one other State owned Undertaking,
      i.e., Kerala State Co-operatives Consumers’ Federation Ltd.. By
      interpreting the word ‘exclusively’ as worded in Section 40(a)(iib)(A) of
      the Act, High Court in the impugned order has held that the levy of
E     gallonage fee, licence fee and shop rental (kist) with respect to FL-9
      licences granted to the appellant will clearly fall within the purview of
      Section 40(a)(iib) of the Act and the amounts paid in this regard is liable
      to be disallowed. At the same time the amount of gallonage fee, licence
      fee and shop rental (kist) paid with respect to FL-1 licences granted in
      favour of the appellant for retail business, the High Court has held that it
F     is not an exclusive levy, as such disallowance made with respect to the
      same cannot be sustained. With regard to surcharge on sales tax and
      turnover tax, it is held that same is not a ‘fee’ or ‘charge’ within the
      meaning of Section 40(a)(iib) as such same is not an amount which can
      be disallowed under the said provision.
G             10. Sri Ganesh, learned senior counsel appearing for the appellant
      by referring to Explanatory Note to the Finance Act, 2013, and Section
      40(a)(iib) of the Act, has submitted that the levy of gallonage fees, licence
      fee and shop rental (kist) on FL-9 licence is not on any State Government
      Undertaking but same is a levy on the licensee. It is submitted that the
      levy was on the licence holder whoever he or it might be and only in
H     view of the Abkari Policy of the relevant years licences were granted to
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                117
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


the appellant as such it cannot be said that same was exclusive levy on        A
the appellant attracting Section 40(a)(iib) of the Act so as to disallow the
same. It is submitted that the mere fact that in a particular year, the
licence holder happens to be State Government Undertaking does not
make the levy, one, which is imposed directly and exclusively on the
State Government Undertaking. It is submitted that High Court has failed
                                                                               B
to appreciate that the decision as to whom FL-9 licences are to be granted,
depends only on the State Government’s Abkari Policy, which may vary
from year to year. It is submitted that said submission also holds good
with regard to gallonage fee, licence fee and shop rental for FL-1 licence,
which issue is already decided in favour of appellant, by the High Court.
With regard to surcharge on sales tax and turnover tax, it is submitted        C
that taxes levied, are completely outside the ambit of Section 40(a)(iib)
of the Act. It is submitted that the Kerala Surcharge on Taxes Act, 1957
(for short, ‘KST Act’) is enacted only to increase the taxes, inter alia,
on the sale or purchase of goods, as such it is nothing but an increment
to the basic sales tax levied under Section 5(1) of Kerala General Sales
                                                                               D
Tax Act, 1963 (for short, ‘KGST Act’). It is submitted that surcharge on
sales tax is nothing but an enhancement of tax itself. In support of the
said submission, the learned counsel has placed reliance on the judgments
of this Court in the case of C.I.T. v. K. Srinivasan1 and in the case of
Sarojini Tea Co. Ltd. v. Collector, Dibrugarh2. Reference is also
made on the CBDT Circular No.3/2018 dated 11.07.2018, to buttress              E
the said submission. Learned counsel, by drawing our attention to the
distinction between ‘fee’ and ‘taxes’ which is maintained throughout the
scheme under Section 40(a) has submitted that, the sales tax and turnover
tax is outside the scope of Section 40(a)(iib) of the Act. Lastly it is
submitted that for the assessment year 2014-2015, the assessing officer
                                                                               F
has allowed deductions in respect of surcharge on sales tax and turnover
tax, the Commissioner interfered, in exercise of power of revision under
Section 263 of the Act. It is submitted that the view taken by the assessing
officer was a possible view, as such the very invocation of revisional
power was not permissible, to interfere with the order of the assessing
officer.                                                                       G
       With the aforesaid submissions, learned counsel has submitted to
allow the appeal filed by the assessee and dismiss the appeals filed by
the revenue.
1
    (1972(4) SCC 526
2
    (1992) 2 SCC 156                                                           H
118             SUPREME COURT REPORTS                            [2022] 1 S.C.R.


A            11. Sri Venkataraman, learned ASG appearing for the revenue,
      by drawing our attention to the provisions under Articles 285 and 289 of
      the Constitution of India, has explained the intent behind the amendment
      to Section 40 of the Income-tax Act, 1961, by Act 17 of 2013. It is
      submitted that in terms of Article 289 of the Constitution, the property
      and income of a State is exempted from Union taxation. The constitutional
B
      protection under Article 289 had led the States in shifting income/profits
      from the State Government Undertakings into Consolidated Fund of the
      States. It is submitted that State Government Undertaking – KSBC,
      which in this case is a company like any other commercial concern, is
      engaged in trade and business and commercial activity, therefore, is to
C     be treated like any other business entity. However, when it came to
      filing of Return of Income, the State as the only shareholder or major
      shareholder in this type of undertakings, exercise control over it and
      shift profits by appropriating the whole of the surplus or a part of it by
      way of taxes, fee or similar such appropriations. It is submitted that this
      resulted in erosion of profits in the hands of State Government
D
      Undertakings leading to lesser payment of taxes, since these
      appropriations by the respective States from their State Government
      Undertakings were accounted for as allowable expenditure under Section
      40(a) and these undertakings claimed deduction of the same from the
      income earned, therefore could not be taxed in the hands of the State
E     Government Undertakings. It is further submitted that the shifted profit,
      upon its transfer, went into the Consolidated Fund of the States and on
      this basis constitutional protection under Article 289 were claimed as a
      result of which, these amounts could neither be taxed in the hands of the
      State Government Undertakings nor in the hands of the respective States.
      Precisely the underlined spirit in bringing out the said amendment by
F
      inserting Section 40(a)(iib), is to plug the possible diversion or shifting of
      profits from these undertakings into State’s treasury. Learned counsel
      also referred to the Memorandum attached to the Finance Bill of 2013
      which explains the provisions relating to direct taxes. The relevant portion
      of the Memorandum reads as under :
G              “Disallowance of certain fee, charge, etc. in the case of
                         State Government Undertakings
             The existing provisions of section 40 specifies the amounts which
             shall not be deducted in computing the income chargeable under
             the head “Profits and gains of business or profession”. The non-
H
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                119
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


      deductible expense under the said section also includes statutory        A
      dues like fringe benefit tax, income-tax, wealth-tax, etc.
      Disputes have arisen in respect of income-tax assessment of some
      State Government undertakings as to whether any sum paid by
      way of privilege fee, license fee, royalty, etc. levied or charged by
      the State Government exclusively on its undertakings are                 B
      deductible or not for the purposes of computation of income of
      such undertakings. In some cases, orders have been issued to the
      effect that surplus arising to such undertakings shall vest with the
      State Government. As a result it has been claimed that such
      income by way of surplus is not subject to tax. It is a settled law
      that State Government undertakings are separate legal entities           C
      than the State and are liable to income-tax.
      In order to protect the tax base of State Government undertakings
      vis-à-vis exclusive levy of fee, charge, etc. or appropriation of
      amount by the State Governments from its undertakings, it is
      proposed to amend section 40 of the Income-tax Act to provide            D
      that any amount paid by way of fee, charge, etc., which is levied
      exclusively on, or any amount appropriated, directly or indirectly,
      from a State Government undertaking, by the State Government,
      shall not be allowed as deduction for the purposes of computation
      of income of such undertakings under the head “Profits and gains         E
      of business or profession”. It is also proposed to define the
      expression “State Government Undertaking” for this purpose.
      This amendment will take effect from 1st April, 2014 and will,
      accordingly, apply in relation to the assessment year 2014-15 and
      subsequent assessment years.”                                            F
        11.1. With regard to gallonage fees, licence fee and the shop rental
(kist), it is submitted that High Court has upheld the disallowance in
favour of the revenue with regard to FL-9 licence on the ground that the
appellant – KSBC is the exclusive licence holder, so far as FL-9 licences
are concerned. It is submitted that so far as FL-1 licences are concerned      G
only on the ground that similar licences are also given for another licence
holder, viz., to Kerala State Co-operatives Consumers’ Federation Ltd.,
the High Court has held that there is no exclusivity so far as FL-1 licences
are concerned. It is the contention of the learned counsel that the
disallowance under Section 40(a)(iib) is not contingent upon the nature
of licence. The test should be whether levy under the Abkari Act is            H
120               SUPREME COURT REPORTS                          [2022] 1 S.C.R.


A     exclusive or not and in this case it is exclusive. It is submitted that the
      restricted interpretation made by the High Court to the extent of FL-1
      licences issued in favour of the appellant runs contrary to object and
      intent of Section 40(a)(iib) of the Act and makes the said provision
      redundant and otiose. It is the case of the revenue that the aspect of
      exclusivity used under Section 40(a)(iib) of the Act, has to be viewed
B
      from the nature of undertaking on which levy is imposed and not on the
      number of undertakings on which levy is imposed. It is further submitted
      that the KSBC and the Kerala State Co-operatives Consumers’ Federation
      Ltd. are undertakings of the State of Kerala, therefore, the levy is an
      exclusive levy on such State Government Undertakings which are
C     licensees.
              11.2. So far as surcharge on sales tax is concerned, again it is
      submitted that such a levy is an exclusive levy on KSBC alone, therefore,
      attracts Section 40(a)(iib)(A) itself. Alternatively, it is further submitted
      that even assuming that such tax is not attracted by Section 40(a)(iib)(A),
D     it would fall under Section 40(a)(iib)(B) for the reason that surcharge on
      sales tax is a ‘tax’ and tax is a form of appropriation by the State from
      KSBC. It is submitted that the surcharge levied under Section 3(1) of
      the KST Act is on the tax payable by a dealer in foreign liquor under
      Section 5(1) of the KGST Act. It is the contention of the learned counsel
      that, the cumulative reading of Section 3(1) of the KST Act and Section
E     5(1)(b) of the KGST Act would reveal that surcharge is levied on the
      tax payable by a dealer in foreign liquor under Section 5(1) of KGST
      Act. It is submitted that Section 3(1) does not deal with any other category
      and specifically pertain only to a dealer in foreign liquor. It is submitted
      that as much as Section 5(1)(b) of the KGST Act refers to trade in
F     foreign liquor and it applies specifically and exclusively to KSBC and
      further surcharge levied under Section 3(1) of KST Act is on the sales
      tax, exclusively payable by KSBC under Section 5(1)(b) of KGST Act.
      As such, the inevitable conclusion, therefore is that it qualifies as an
      exclusive levy attracting Section 40(a)(iib) of the Act. To show that the
      distinction between a ‘tax’ and a ‘fee’ has substantially been effaced in
G     the development of constitutional jurisprudence, learned counsel, has
      placed reliance on a recent judgment of this Court in the case of Jalkal
      Vibhag Nagar Nigam & Ors. v Pradeshiya Industrial and
      Investment Corporation and Another3.

      3
H         2021 SCC OnLine SC 960
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                 121
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


       11.3. With regard to turnover tax, it is submitted that unlike           A
surcharge which is an exclusive levy on KSBC, it is fairly submitted that
such tax was imposed not only on KSBC under Section 5(1)(b) of the
KGST Act, but also was being imposed on various other retail dealers
specified under Section 5(2) of KGST Act. It is submitted that as the
issue has not been dealt and examined in detail by the High Court, made
                                                                                B
a request to leave it open for fresh adjudication since facts and figures
need to be verified.
       With the above submissions, learned ASG has pleaded to allow
the appeals filed by the revenue and dismiss the appeal filed by the
KSBC.
                                                                                C
      12. Having heard the learned counsels on both sides we have
perused the impugned order and other material placed on record.
        13. 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              D
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          E
protection granted to the States in terms of the abovesaid 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            F
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 the Government by         G
way of fees, taxes or similar such appropriations. From the relevant
Memorandum to the Finance Act, 2013 and underlying object for
amendment of Income-tax Act by Act 17 of 2013, by which Section
40(a)(iib)(A)(B) is inserted, it is clear that the said amendment is made
to plug the possible diversion or shifting of profits from these undertakings   H
122             SUPREME COURT REPORTS                             [2022] 1 S.C.R.


A     into State’s treasury. In view of Section 40(a)(iib) of the Act any amount,
      as indicated, 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.
              14. In the instant case the gallonage fee, licence fee, shop rental
B     (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
C     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 FL-9 and
      FL-1. In the impugned order, the High Court has held that the gallonage
      fee, licence fee and shop rental (kist) with respect to FL-9 licence are
      not deductible, as it is an exclusive levy on the Corporation. Further a
D     distinction is drawn from FL-1 licence from FL-9 licence, to apply Section
      40(a)(iib), only on the ground that, FL-1 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 FL-9 like KSBC as such the word ‘exclusivity’ used in Section
E     40(a)(iib) attract such amounts. At the same time only on the ground
      that FL-1 licences are issued not only to the KSBC but also to Kerala
      State Co-operatives 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
F     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 Co-
      operatives Consumers’ Federation Ltd. which is also granted licence
G     under FL-1. 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 Co-operatives Consumers’
H     Federation Ltd. are undertakings of the State of Kerala, therefore, levy
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                   123
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


is an exclusive levy on the State Government Undertakings. Therefore,             A
we are of the considered view that any other interpretation would defeat
the very object behind the amendment to Income-tax Act, 1961.
        14.1. 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     B
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 Section 40(a)(iib) is not attracted. The submission of Sri
Ganesh, learned senior counsel for the appellant is that the gallonage
fee, licence fee and the shop rental (kist) are the levies under the Abkari       C
Act on all the licence holders, as such it cannot be said that same is an
exclusive levy on the appellant/KSBC. It is submitted that because of
the Abkari Policy in particular year, licences are issued in favour of the
appellant – State owned Undertaking, as such it cannot be said that the
statutory levies under the Abkari Act are on the State Government                 D
Undertaking and such levies are only on the licensees but not on the
State-owned Undertakings like KSBC. The said submission cannot be
accepted for the reason that by virtue of licence which is granted in
favour of State-owned Undertaking, the statutory fees etc., viz., gallonage
fees, licence fee and shop rental (kist) are payable by the appellant-
Undertaking, i.e., KSBC. Once the State Government Undertaking takes              E
licence, the statutory levies referred above are on the Government
Undertaking because it is granted licences. Therefore, we are of the
view that the finding of the High Court that gallonage fee, licence fee
and shop rental (kist) so far as FL-1 licences are concerned, is not
attracted by Section 40(a)(iib), cannot be accepted and such finding of           F
the High Court runs contrary to object and intention behind the legislation.
       14.2. Further, because another State Government Undertaking,
i.e., Kerala State Co-operatives Consumers’ Federation Ltd. was also
granted licences during the relevant years, as such exclusivity mentioned
in Section 40(a)(iib) is lost, also cannot be accepted, for the reason that       G
exclusivity is to be considered with reference to nature of licence and
not on number of State owned Undertakings. If the interpretation, as
held by the High Court, is accepted, the legislative intent can be defeated
by issuing licences in FL-1 to several State Government Undertakings
and then make a contention that exclusivity is lost. Said interpretation
runs contrary to the intent of the amendment.                                     H
124             SUPREME COURT REPORTS                           [2022] 1 S.C.R.


A             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’ 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
B
      submission of Sri Venkataraman, learned ASG with regard to surcharge
      on sales tax is two-fold. 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
C     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
D
      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
E     such 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
F
      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. The surcharge which is imposed on KSBC is
      under Section 3(1) of the KST Act which reads as under :
            “3. Levy of surcharge on sales and purchase taxes. –
G
            (1) The tax payable under sub-section (1) of section 5 of the
            Kerala General Sales Tax Act, 1963, by a dealer in foreign liquor
            shall be increased by a surcharge at the rate of ten per cent, and
            the provisions of the Kerala General Sales Tax Act 1963 shall
            apply in relation to the said surcharge as they apply in relation to
H           the tax payable under the said Act.
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                125
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


         Provided that where in respect of declared goods as defined in        A
         clause (c) of section 2 of the Central Sales Tax Act, 1956 the
         tax payable by such dealer under the Kerala General Sales
         Tax Act, 1963 together with the surcharge payable under this
         sub-section, exceeds four per centum of the sale or purchase
         price, the rate of surcharge in respect of such goods shall be
                                                                               B
         reduced to such an extent that the tax and the surcharge
         together shall not exceed four per centum of the sale or purchase
         price.”
      Section 5(1)(b) of the Kerala General Sales Tax Act, 1963 reads
as under :
                                                                               C
      5. Levy of tax on sale or purchase of goods: - (1) Every
      dealer (other than a casual trader or agent of a non-resident dealer
      or the Central Government, or Government of Kerala or the
      Government of any other state or of any Union Territory, or any
      local authority) whose total turnover for a year is not less than
      two lakhs rupees and every casual trader or agent of a non-resident      D
      dealer, the Central Government, Government of Kerala, the
      Government of any other state or of any Union Territory, or any
      local authority whatever be its total turnover for the year in respect
      of goods included in the Schedule at the rate mentioned against
      such goods,-                                                             E
      (a) … … … …
      (b) in respect of Foreign liquor, at the point of sale by the Kerala
      State Beverages (Manufacturing and Marketing) Corporation
      Limited and at the point of first sale in the State by a dealer liable
      to tax under this section except where the sale is to the Kerala         F
      State Beverages (Manufacturing and Marketing) Corporation
      Limited.
      (c) … … … …”
       14.4. A reading of preamble and Section 3(1) of the KST Act,
                                                                               G
make it abundantly clear that the surcharge on sales tax levied by the
said Act is nothing but an increase of the basic sales tax levied under
Section 5(1) of the KGST Act, as such the surcharge is nothing but a
sales tax. It is also settled legal position that a surcharge on a tax is
nothing but the enhancement of the tax. In this regard, in support the
said view, ready reference can be made to the judgments of this Court in       H
126             SUPREME COURT REPORTS                           [2022] 1 S.C.R.


A     the case of K. Srinivasan1 and Sarojini Tea Co. Ltd.2. Para 7 of the
      judgment in the case of K. Srinivasan1 reads as under :
            “7. The above legislative history of the Finance Acts, as also the
            practice, would appear to indicate that the term “Income tax” as
            employed in Section 2 includes surcharge as also the special and
B           the additional surcharge whenever provided which are also
            surcharges within the meaning of Article 271 of the Constitution.
            The phraseology employed in the Finance Acts of 1940 and 1941
            showed that only the rates of income tax and supertax were to be
            increased by a surcharge for the purpose of the Central
            Government. In the Finance Act of 1958 the language used showed
C           that income tax which was to be charged was to be increased by
            a surcharge for the purpose of the Union. The word “surcharge”
            has thus been used to either increase the rates of income tax and
            super tax or to increase these taxes. The scheme of the Finance
            Act of 1971 appears to leave no room for doubt that the term
D           “Income tax” as used in Section 2 includes surcharge.”
            Para 20 of the judgment in the case of Sarojini Tea Co. Ltd.2
      reads as under :
            “20. For the reasons aforesaid, we are unable to endorse the view
            of the High Court that surcharge on land revenue payable under
E           the Surcharge Act is not land revenue but a levy which is distinct
            from land revenue. In consonance with the law laid down by this
            Court in Vishwesha Thirtha Swamiar case [(1972) 3 SCC 246 :
            (1972) 1 SCR 137 : AIR 1971 SC 2377] it must be held that the
            surcharge on land revenue levied under the Surcharge Act, being
F           an enhancement of the land revenue, is part of the land revenue
            and has to be treated as such for the purpose of assessing
            compensation under Section 12 of the Ceiling 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
G     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
H     under Section 5(1) of the KGST Act. When the basic sales tax paid by
KERALA STATE BEVERAGES MFG. & MARKETING CORP. LTD. v. THE ASST.                127
 COMMISSIONER OF INCOME TAX CIRCLE 1(1) [R. SUBHASH REDDY, J.]


KSBC under Section 5(1)(b) of the KGST Act, deduction was allowed,             A
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
                                                                               B
the Act. Further a clear distinction between ‘fee’ and ‘tax’ is carefully
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,    C
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
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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.             E
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
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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 of the revenue. Even the
other alternative submission of the learned counsel that it may attract        G
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
4
  (2003) 5 SCC 622
5
  (2003) 4 SCC 305
6
  (2001) 3 SCC 609                                                             H
128              SUPREME COURT REPORTS                          [2022] 1 S.C.R.


A     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 Income-tax 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
B     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).
C
            16. For the aforesaid reasons, we hold that the gallonage fee,
      licence fee and shop rental (kist) with respect to FL-9 and FL-1 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
D     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.
              17. Accordingly, the civil appeal filed by the assessee is dismissed
      and the civil appeals filed by the revenue are partly allowed to the extent
E     indicated above. In result, the assessments completed against the assessee
      with respect to assessment years 2014-2015 and 2015-2016 stand set
      aside. The assessing officer to pass revised orders after computing the
      liability in accordance with the directions as indicated above. As the
      dispute relates to assessment years 2014-2015 and 2015-2016, the
F     assessing officer shall pass appropriate orders, within a period of two
      months from the date of receipt of this judgment.


      Devika Gujral                                             Appeals disposed of.


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