TASMAC moves High Court against demand of ₹8,310.07 crore towards income tax 

Claims, its unfair to not permit deduction of VAT payment of over ₹14,000 crore to Tamil Nadu Govt. from the ambit of taxable income 

The dispute between Income Tax (I-T) department and Tamil Nadu State Marketing Corporation (TASMAC), which holds exclusive licence for wholesale and retail sale of liquor, is far from over. The TASMAC has approached the Madras High Court against a demand of ₹8,310.07 crore for the financial year 2016-17.

Justices R. Mahadevan and Mohammed Shaffiq have granted time to Hema Muralikrishnan, standing counsel for I-T department, to respond to an appeal preferred by the corporation against Justice R. Suresh Kumar’s refusal to quash the assessment order passed on March 30 this year. The single judge had directed the corporation to approach the appellate authority under the I-T Act of 1961.

Assailing his order, TASMAC counsel R. Vijayaraghavan contended the assessing officer had erred in including over ₹14,000 crore paid by the corporation to the State government, towards Value Added Tax (VAT) in 2016-17, as its taxable income. He cited a Supreme Court judgement delivered, in a case from Kerala, on January 3 to support his contention.

On the other hand, the assessment order stated it to be a settled law that State government undertakings were separate legal entities liable to pay income tax. However, to circumvent such payment, the State government had been appropriating the profits of Tasmac under guise of levying a special privilege fee for providing monopoly over sale of liquor.

To curb such practice, the Parliament amended the I-T Act and inserted Section 40a(ii)(b) which states that deduction would not be allowed if a State government appropriates either directly or indirectly the profits of its undertakings by way of a fee, charge or by “whatever name it was called.” The amendment came into effect from the assessment year 2014-15 onwards.

To overcome this legal provision too, the Tamil Nadu government amended the Tamil Nadu VAT Act in November 2013 and increased exorbitantly the levy of VAT on sale of liquor from as low as 38% to as high as 270% with retrospective effect from April 2013. Subsequently, Tasmac filed the I-T returns for 2016-17 declaring a loss of ₹11.85 crore.

On finding that it had “wrongly” claimed deduction of ₹14,003.74 crore towards VAT expense, the assessment was reopened and show cause notices were issued. Tasmac filed a reply and claimed that Section 43B of the I-T Act permits deduction of any sum payable by an assessee by way of tax, duty, cess or fee.