High Court Of Bombay
SI Group India Ltd. vs. Assistant Commissioner Of Income Tax & Anr.
Section 41(1)
Assessment years 2000-01 & 2001-02
Dr. D.Y. Chandrachud & J.P. Devadhar, JJ.
IT Appeal Nos. 1511 & 1512 of 2009 and Writ Petn. Nos. 2368 & 2369 of 2009
10th June, 2010
Counsel appeared :
Soli E. Dastur with Niraj Sheth, Sanjiv M. Shah & Atul K. Jasani, for the Assessee : Vimal Gupta, for the Revenue
JUDGMENT
Dr. D.Y. CHANDRACHUD, J. :
This judgment will govern two appeals instituted by the assessee under s. 260A of the IT Act, 1961 and two petitions under Art. 226 of the Constitution. Although several questions are raised in the appeals, for the purposes of these proceedings it would be sufficient to deal with the following question of law on which the appeals are admitted :
“Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in completely disregarding the contention of the appellant that there was no remission or cessation of the sales-tax liability on account of payment of the present value thereof being made to SICOM since the sales-tax authorities had not given credit of the said payment against the sales-tax liability;”
2. The petitioner has an industrial unit in the District of Raigad which is a notified backward area. The Government of Maharashtra issued a package scheme of incentives in 1993 by which a scheme for the deferral of sales-tax dues was announced. The petitioner had during the period 1st May, 1999 and 31st March, 2000 collected an amount of Rs. 1,79,68,846 towards sales-tax. Under the scheme the amount was payable in five annual instalments commencing from April, 2010 and the liability was treated as an unsecured loan in the books of account of the assessee. The State Industrial and Investment Corporation of Maharashtra Ltd. (SICOM) offered to the assessee an option for the settlement of the deferred sales-tax liability by an immediate one-time payment. The assessee paid an amount of Rs. 50,44,280 to SICOM which according to the assessee represented the net present value as determined by SICOM. Payment was made by the assessee to SICOM on 26th June, 2000. The difference between the deferred sales-tax and its present value amounting to Rs. 1.29 crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account. The Asstt. CIT, Range 3(3), in the assessment order for asst. yr. 2000-01 brought the aforesaid difference of Rs. 1.29 crores to tax under s. 41(1) of the IT Act 1961. The appeal filed by the assessee before the CIT(A) for 2000-01 as well as the appeal for 2001-02 came to be dismissed by the appellate authority. The Tribunal dismissed the appeals filed by the assessee for these two assessment years by a common order dt. 6th Jan., 2009. The assessee then moved the Tribunal in a miscellaneous application under s. 254 which was dismissed on 10th Sept., 2009. Accordingly the assessee has filed two appeals before this Court under s. 260A to challenge the principal order of the Tribunal dismissing the appeals for asst. yrs. 2000-01 and 2001-02. The petitions under Art. 226 questioned the correctness of the order passed by the Tribunal dismissing the applications under s. 254. During the course of the proceedings, we have heard submissions on behalf of counsel appearing on behalf of the assessee and counsel appearing on behalf of the Revenue on the merits of the appeals filed before this Court under s. 260A and which as noted earlier have been admitted. In the view which we are inclined to take on the appeals, the petitions under Art. 226, challenging the order of the Tribunal under s. 254 would be rendered redundant. On behalf of the assessee, learned senior counsel submitted that the principal requirement for the applicability of s. 41 is that the assessee must obtain a benefit in respect of a trading liability by way of a remission or cessation thereof. The two submissions which have been urged on behalf of the assessee are that (i) there was no cessation of the liability of the assessee in the present case in respect of the payment of the sales-tax dues and (ii) assuming that there was a cessation, no benefit was obtained by the assessee. The submission which has been urged on behalf of the assessee is that as a matter of fact the issue pertaining to the sales-tax liability was decided by the Sales-tax Tribunal by its judgment dt. 8th Feb., 2008 and the Tribunal specifically upheld the orders passed by the lower authorities declining to give credit to the assessee of the payment which was made to SICOM.
The matter, the Court is informed, is pending in reference and consequently at this stage, so long as the order of the Tribunal continues to hold the field, it cannot be inferred that there was a remission or cessation of liability. Insofar as the second submission is concerned, the argument before the Court is that the assessee in paying the net present value of the deferred liability to pay the sales-tax dues of Rs. 1.29 crores has not obtained any benefit as such within the meaning of s. 41(1) since the payment of Rs. 50.44 lacs represents only the present value of the liability to make a deferred payment of Rs. 1.79 crores in future. On the other hand, it was urged on behalf of the Revenue that the order of the Sales-tax Tribunal upon which reliance has been placed by the assessee would in fact indicate that the payments which were made by the assessee were regarded as having a nexus towards payment of the salestax dues and liberty was granted to the assessee upon obtaining a valid document under the package scheme of incentives to be considered for the relevant period towards payment of the deferred amount. Sec. 41(1)(a) of the Act provides as follows : “41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently during any previous year— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not;”
In order that the provisions of sub-s. (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales-tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under s. 43B. However, under cl. (a) of sub-s. (1) it is inter alia required that the assessee ought to have obtained “some benefit in respect of such trading liability by way of remission or cessation thereof”. This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee. In the present case, the dispute between the assessee and the Revenue is as to whether there was a remission or cessation of the liability on account of sales-tax. The assessee had collected an amount of Rs. 1.79 crores towards sales-tax dues during the period 1st May, 1999 and 31 March, 2000. Under the package scheme of incentives announced by the Government of Maharashtra in 1993 the sales-tax dues had to be paid in five instalments commencing from April, 2010. SICOM as the implementing agency quantified, according to the assessee, the net present value of the deferred liability of the assessee at Rs. 50.44 lacs which was paid by the assessee to SICOM. However, the STO while passing the assessment order on 18th March, 2004 did not consider the amount paid to SICOM as repayment of the deferred liability of the assessee to the extent of Rs. 1.79 crores under the Bombay Sales-tax Act, 1959 and Central Sales-tax Act, 1956. The appeals filed by the assessee before the Dy. Commr. of Sales-tax were dismissed upon which the assessee filed a second appeal before the Maharashtra Sales-tax Tribunal. The Tribunal, by its judgment dt. 8th Feb., 2008 upheld the orders of the lower authorities of not giving credit of the payment made by the assessee to SICOM. In these proceedings, neither the validity of the orders passed by the Sales-tax Tribunal nor for that matter the correctness of the reasons that weighed with the Tribunal can be called into question. The Tribunal observed that though the assessee had made a premature payment of the deferred tax in accordance with the scheme issued by the Department of Industries of the State Government under the package scheme of incentives of 1993, the payment of the net present value was to be made in the challan prescribed under the Sales-tax Act which constituted the lawful mode of making payment and the payment which was made to SICOM would nonetheless have to follow the procedure prescribed under the Act. The Tribunal was of the view that the decision of the assessing authority and of the Dy. Commr. of Sales-tax not to give credit to the payment made to SICOM would have to be upheld, but left it open to the assessee to procure a valid document under the scheme which would be “considered for relevant period for relevant deferred amount”.
The net result of the order of the Sales-tax Tribunal dt. 8th Feb., 2008 is to uphold the decision of the assessing authority declining to grant credit of the payment made by the assessee to SICOM towards discharge of the deferred sales-tax liability. As a matter of fact, on 22nd July, 2008 a notice of demand was issued under s. 38 of the Bombay Sales-tax Act of 1959 to the assessee by the Dy. Commr. of Sales-tax, Navi Mumbai, in the total amount of Rs. 1,33,13,555. Having regard both to the order passed by the Sales-tax Tribunal on 8th Feb., 2008 and the notice of demand issued on 22nd July, 2008, it is not possible for the Court to accept the contention that there was a remission or cessation of liability. Since the record before the Court does not disclose that there was a remission or cessation of liability, one of the requirements spelt out for the applicability of s. 41(1)(a) has not been fulfilled in the facts of the present case.
11. In the view that we have taken it is not necessary for the Court to address itself to the wider issue as to whether the assessee, in paying the net present value of the deferred sales-tax liability should be regarded as having obtained any benefit within the meaning of cl. (a) of sub-s. (1) of s. 41. The aforesaid issue is kept open to be adjudicated upon at the appropriate stage in appropriate proceedings. The Tribunal, in our view, was in error in proceeding on the basis that there was a remission or cessation of liability. The attention of the Tribunal was drawn to the order passed by the Sales-tax Tribunal. The fact that the order of the Sales-tax Tribunal was placed for consideration before the Tribunal emerges from the order of the Tribunal itself. Consistent with the order passed by the Sales-tax Tribunal which continues to hold the field, the Tribunal could not have come to the conclusion that there had occurred a remission or cessation of liability during the assessment years in question. For the aforesaid reasons, the appeals filed by the assessee are allowed and the question of law as framed is answered in favour of the assessee and against the Revenue. In the view which we have taken it is not necessary for the Court to enquire into the correctness of the order passed by the Tribunal on the application under s. 254. Both the petitions shall accordingly stand disposed of. In the circumstances of the case, there shall be no order as to costs.
[Citation : 326 ITR 117]
