The Chennai bench of the Income Tax Appellate Tribunal (ITAT) VAT collected separate from customers different from charges u/s 40 (a) (iib) of the Income Tax Act,1961 and deductionis allowable.
M/s. Tamilnadu State Marketing Corporation Ltd., the assessee challenged the revision order passed by PCIT by holding the assessment framed as erroneous and prejudicial to the interest of Revenue on account of Value Added Tax paid by the assessee and claimed as deduction u/s.37 r.w.s. 43B of the Income Tax Act and allowed.
The assessee is a State-owned undertaking engaged in trading and retail vending of liquor. The original assessment was completed u/s.143(3) of the Act, after scrutinizing the accounts of the assessee by the AO vide order dated 30.12.2016.
The assessee has claimed VAT expenses of Rs.11,491.97 crores in the profit & loss account during the previous year 2013-14 relevant to this assessment year 2014-15 and this being unusual VAT expenditure needs to be examined.
The PCIT examined the provisions of section 40 of the Act and noted that this provision specified the amounts which shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession”.
It was contended that in Section 17C(1A)(a) and Section 17C(1B)(b) of the TamilNadu Prohibition Act, 1937, the assessee has the exclusive privilege of supply by wholesale and retail of Indian Made Foreign Spirit (IMFS) for the whole State of TamilNadu.
He further submitted that the assessee retails alcoholic liquor through retail vending shops across the state of Tamil Nadu and collects from its customers (buyers of liquor) the sale price of the liquor bottle along with the Value Added Tax (VAT) as per Section 3(5) of the Tamil Nadu Value Added Tax Act, 2006 read with the Second Schedule to said Act.
A Coram comprising of Shri Mahavir Singh, Vice President and Dr Dipak P Ripote, Accountant Member observed that the State derives power to levy sales tax (VAT) on liquor under entry 54 and power to levy fees in connection with production, manufacture, transportation etc. is derived under Entry no 69 of the List II of VII schedule the Constitution of India.
It was observed that the power of the State Government to levy tax on the sale and purchase of liquor and the power to levy fees are two different powers and are derived from two different entries in the State list. The fees levied under the power granted under Entry 69 cannot encompass tax levied by Entry 54. The appeal of the assessee was allowed.
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