In Brief
Kerala State Beverages Manufacturing & Marketing Corporation (KSBC), a State-owned liquor company, challenged income tax assessments for 2014-15 and 2015-16 that disallowed deductions for gallonage fees, license fees, shop rentals, and surcharges on sales and turnover taxes under Section 40(a)(iib) of the Income Tax Act. The Supreme Court held that gallonage fees, license fees, and shop rentals for both FL-9 and FL-1 licenses are non-deductible, as they are levied exclusively on State Government undertakings. However, surcharges on sales tax and turnover tax are outside Section 40(a)(iib) because they are taxes, not fees or charges. The Court distinguished between taxes and fees, noting that if basic sales tax is deductible, surcharge on sales tax must also be deductible.
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