2010 (11) TMI 728 - ITAT, MUMBAI

Remmission - Deferred sales tax liability - Board Circular No. 496, dated 25-9-1987 - 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 sale tax liability should be regarded as having obtained any benefit within the meaning of clause (a) of the sub-section (1) of section 41 - in the present case, section 41(1) has been invoked on the alleged ground that the assessee has obtained some benefit in respect of a trading liability by way of remission or cessation thereof - In the present case the assessee has itself been treating the sales tax collected as part of trading and not as capital receipts in its books of account and returns of income filed by it, even during the period when it was eligible for the benefits of sales tax deferral under the “Package of Incentive” Schemes - aggregate deferral amount under 1983 and 1988 schemes was Rs. 7,52,01,338 (Rs. 3,29,93,863 + Rs. 4,22,07,575)

There was an amendment made under the Bombay Sales Tax Act, 1959, (the Sales tax Act) by insertion of the third proviso to section 38(4) of the Sales Tax Act, wherein SICOM or the relevant Regional Development Corporation or the District Industries Centre concerned was to convert the deferred sales tax into a loan and thereafter as per 2002 amendment, fourth provision to section 38(4) of the Sales tax Act by which the earlier 4th proviso was substituted, which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed, in public interest, to have been paid

Regarding Capital expenditure Vs. Business income - It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account - The other requirement of section 41(1) is that the assessee must have subsequently (i) obtained any amount in respect of such loss and expenditure or (ii) obtained any benefit in respect of such trading liabilities by way of remission or cessation thereof - in this situation, it cannot be construed as remission of liability; because the Sate Government has not waived any of the liability as given in the illustrations - such payment of net present value of the future liability cannot be, classify as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) of the Income-tax Act, 1961

Deferred sales tax liability Rs. 4,14,87,984 being the difference between the payment of net present value Rs. 3,37,13,393 against the future liability of Rs. 7,52,01,378 credited by the assessee under the capital reserve account in its books of account is a capital receipt and cannot be termed as remission/cessation of liability and consequently no benefit has arisen to the assessee in terms of section 41(1)(a) of the Income-tax Act, 1961 - Decided in the favour of the assessee