High Court Of Punjab & Haryana
CIT vs. Maha Luxmi Bricks Mfg., Moulding & Fabricating Industries (P) Ltd.
Asst. Year 1987-88, 1988-89
G.S. Singhvi & Ajay Kumar Mittal, JJ.
IT Ref. Nos. 96 & 97 of 1995
11th October, 2004
Rajesh Bindal, for the Revenue : None, for the Assessee
Ajay Kumar Mittal, J. :
At the instance of the Revenue, the Income-tax Appellate Tribunal, ChandigarhBench, Chandigarh (for short âthe Tribunalâ), has referred the following questions of law under s. 256(1) of the IT Act, 1961 (for short, âthe Actâ), for the opinion of this Court : “Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing deduction of sales-tax liability under s. 43B of the IT Act, 1961, though the assessee had collected but not paid the amount of sales-tax within the accounting period relevant to the assessment year under reference on the ground that the assessee was authorised to retain the amount for a prescribed period under the “deferred payment scheme” of the Excise and Taxation Department of the State Government of Haryana.” Briefly stated, the facts are that the assessee is a private limited company deriving its income from manufacturing, moulding and fabricating bricks and sale thereof. The return for the asst. yr. 1987-88 was filed on 29th June, 1987, on behalf of the company declaring a loss of Rs. 1,56,680 and for the asst. yr. 1988-89, the return was filed on 28th June, 1988, declaring a loss of Rs. 6,25,420. The assessee claimed deduction of Rs. 1,23,252 for the asst. yr. 1987-88 and Rs. 91,225 for the next assessment year on the sales-tax payable for these years. The AO made addition of the aforesaid amounts under s. 43B of the Act. The CIT(A), Karnal, did not agree with the assessee and confirmed the disallowance. The assessee preferred second appeal before the Tribunal, which reversed the decision of the CIT(A) and deleted the additions. On two separate applications filed by the Revenue for the asst. yrs. 1987-88 and 1988-89, the question of law as mentioned in para 1 has been referred for the opinion of this Court.
It is not disputed that the Sales-tax Department of the Haryana Government has formulated a scheme called “Deferred Payment Scheme”. Under that scheme, the assessee was allowed to retain the amount of sales-tax collected by it as incentive for setting up industry in the backward area and the payment was to be made after certain number of years. The amount was to be paid to the Government either in lump sum or in instalments in accordance with the scheme. The scheme came into force w.e.f. 6th May, 1986. The assessee, who was eligible under the scheme, was permitted to retain the collected amount of tax on excise by Excise and Taxation Department, Government of Haryana. The CBDT has issued a Circular No. 496, dt. 25th Sept., 1987 [published in (1988) 68 CTR (St) 109 : (1988) 169 ITR 53 (St)]. The same reads as under : “Circular No. 496, dt. 25th Sept., 1987 Subject : Sales-tax deferral schemeâProvisions of s. 43B of the IT Act, 1961âClarification regarding.
Several State Governments have introduced sales-tax deferral schemes as a part of the incentives offered to entrepreneurs setting up industries in backward areas. Under these schemes, eligible units are permitted to collect sales-tax and retain such tax for a prescribed period. After this period, the sales-tax is to be paid to the Government either in lump sum or in instalments. Sec. 43B of the IT Act, 1961, introduced by the Finance Act, 1983, w.e.f. 1st April, 1984, provides, inter alia, that a deduction in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed from the income of the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay such sum was incurred. Since the introduction of this provision, assessees who collect sales-tax; but do not pay the amounts to the Government during the previous year, under the deferral schemes provided by the State Governments, are not entitled to the benefit of deduction from their income. Representations have been received from various State Governments and others that cases of deferred sales-tax payments should be excluded from the purview of s. 43B as the operation of this provision has the effect of diluting the incentive offered by the deferral schemes.
The matter has been examined in consultation with the Ministry of Law and the various State Governments. The Ministry of Law has opined that if the State Governments make an amendment in the Sales-tax Act to the effect that the sales-tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirements of s. 43B. The Government of Maharashtra have by the Bombay Sales-tax (Amendment) Act, 1987, made the amendment accordingly. The Board have decided that where amendments are made in the sales-tax laws on these lines, the statutory liability shall be treated to have been discharged for the purposes of s. 43B of the Act. The CITs may bring the contents or this circular to the notice of the officers working under them. [F. No. 201/34/86-ITA. II]”
5. The Tribunal while dealing with this matter in para 10 of its order has observed as under : “10. We may look to the rules framed by the State Government under the Haryana General Sales-tax Act, 1973. The deferment scheme was introduced by way of inserting new rr. 17A to 170 in the Haryana General Sales-tax Rules, 1975. As per r. 170, industrial units with fixed capital of Rs. 50 lakhs were required to apply for the issue of eligibility certificate and first voucher to the Director of Industries, Government of Haryana. The units with capital below Rs. 50 lakhs were to make application to the General Manager, District Industries Centre of the district concerned. On that application, facts were required to be verified regarding genuineness and the eligibility. Thereafter, the matter was required to be put up before committee for the grant of eligibility certificate to the industrial unit, the matter was also to get a screening committee for approval letter of intent is required to be issued to the taxation department which shall enter into an agreement with the industrial unit concerned and thereafter, the General Manager of the District Industries Centre or the Director of the Industries, as the case may be, shall issue the requisite certificate and the first voucher to the industrial unit. Rule required the eligible industrial unit to make application every year for the second and subsequent annual vouchers. These vouchers are to be issued by the officers of the industries department on the recommendation of the committee. Under r. 17, the Dy. Commr. of Excise and Taxation is required to make an enquiry and thereafter to demand a mortgage deed or to enter into an agreement with the industrial unit for the purposes of security. The security is to cover the amount of tax. The unit is also permitted to furnish a bank guarantee. The Dy. Commr. of Excise and Taxation is required to issue an entitlement certificate for one year. The industrial unit is restrained from disposing of fixed asset except with the prior concurrence of the taxation department under r. 17 of the Rules. The entitlement certificate can be cancelled in certain circumstances as provided in the r. 17H. The deferment is admissible only after the issue or eligibility certificate and the voucher by the industries department and after the grant of entitlement certificate by the Dy. Commr., Excise and Taxation, vide r. 17H of the Rules. The eligible industrial unit is also required to furnish certain particulars from time to time to the excise and taxation department under r. 17K. Payment of tax is to be made after the expiry of five years under r. 17M and in accordance with the Schedule given in the Rules. No interest required to be payable by the industrial unit on the deferred tax nor any penalty shall be imposed for nonpayment of tax under r. 17K. The Dy. Commr. is required under r. 17P to review the performance of the unit with the help of the AO of the Sales-tax Deptt. every month.”
6. The Gujarat High Court had the occasion to consider similar matter in CIT vs. Bhagwati Autocast Ltd. (2002) 178 CTR (Guj) 98 : (2003) 261 ITR 481 (Guj) and it held as under : “Here, in the present case, as already observed hereinabove, the Gujarat Government has passed a resolution bearing No. INC/1087/143-1, dt. 21st March, 1988, and the said resolution was made operative from 1st April, 1983. The period involved in the present assessment is, therefore, covered by the said resolution. The benefit as given vide circular dt. 25th Sept., 1987 [see (1988) 68 CTR (St) 109 : (1988) 169 ITR 53 (St)], wherein the Board has made it clear that if the sales-tax due to the Government is converted as a loan which may be repaid by the assessee subsequently by instalments, the department shall treat the sales-tax as actually paid for all purposes, is available to the assessee. The combined reading of this circular of the CBDT as well as the resolution issued by the State Government would make it clear that the assessee is entitled to relief and, benefit given under s. 43B can be claimed by the assessee.” Thus, the provisions having been made in the Sales-tax Rules framed by the State Government, the assessee was not required to make the payment under the relevant Sales-tax laws. The Tribunal was thus right in allowing deduction to the assessee.
7. In view of decision in Bhagwati Autocast Ltd.âs case (supra), we answer the question of law against the Revenue and in favour of the assessee.
[Citation : 273 ITR 190]