TMI Blog2003 (6) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (BIFR). 3. The CIT(A) has grossly erred on facts and in law in not holding that Maharashtra Government had granted deferral of outstanding sales-tax and, therefore, the same should be deemed to have been paid under s. 43B of the IT Act, 1961. 4. The CIT(A) has grossly erred on facts and in law in confirming disallowance of Rs. 8,57,143 on account of premium payable on redemption of non-convertible debentures. 4.1 The CIT(A) has grossly erred on facts and in law in observing inter-alia, that the liability to the premium could be said to arise only in the year of redemption and that till such time that the debentures are redeemed, the same is contingent liability." 3. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. 4. Apropos ground No. 1, it is noticed from the record that while scrutinising the details of travelling expenses, the AO noticed that the assessee had offered a sum of Rs. 8,291 in excess of r. 6D. The AO asked the assessee to give details of travelling expenses as per r. 6D on the basis of each journey undertaken by a person and not on the basis of aggregate of all the journeys u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the assessee and he disallowed the claim of the assessee for following reasons: "(a) The assessee-company was incorporated in the year 1964 and the provisions of deferred sales-tax are not applicable to it for the purpose of deduction without payment of the outstanding dues. Sales-tax deferred scheme clearly lays down that several State Governments have introduced sales-tax deferred schemes as a part of incentives offered to entrepreneurs setting up industries in the backward areas. Under the schemes eligible units are permitted to collect sales-tax and retain such tax for a prescribed period. Thus, its is quite evident that such incentive of deffered scheme is applicable only to the newly set up industries and not to the old and defaulting industries like Ramon Demon Ltd. (b) The submission of the assessee that since the outstanding sales-tax has been funded and is deemed to be paid, is not correct. The assessee is paying the same from time to time as sales-tax and interest thereon and not as a loan as is evident from the photocopies of challans of payment of sales-tax. (c) It is also pertinent to point out here as to what was the intention of the legislature to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice to the aforesaid submissions regarding the disallowance of deduction of Rs. 3.65 crores, if the claim is to be disallowed for any reason, the sum of Rs. 1,10,71,912 paid the assessee during the year be allowed as deduction under s. 43B to the assessee in addition to Rs. 1,13,11,510 representing the amount of waiver. With regard to this alternative plea, the CIT(A) has observed in his order that the AO has already allowed deduction of Rs. 1,10,71,912 subject to the disallowance of Rs. 5,51,697 being penalty. With regard to the main controversial issues whether the sales-tax liability was deferred by the Government of Maharashtra after converting it to be loan liability and whether the deferred sales-tax is deemed to have been paid for the purpose of s. 43B of the Act and the statutory liability is treated to have been discharged, the CIT(A) re-examined the issue in the light of the order of the BIFR, relevant provisions of SICA and the scheme of the Government of Maharashtra but was not convinced with the contentions of the assessee. The CIT(A) confirmed the disallowance after making the following observations: "7.5 I have considered the submissions of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and consented to by the Government of Maharashtra, there was, therefore, no necessity for obtaining a formal eligibility certificate or SICOM to raise a loan liability as envisaged in s. 38 of the Bombay ST Act, 1959. The technical requirement of obtaining an eligibility certificate from the State Department of Industries and creation of other liability by the SICOM stood dispensed with when the State Government of Maharashtra controlling both the Department of Industries and SICOM conveyed its acceptance for the granting of benefit of deferral of sales-tax to the sick unit. Accordingly, 60 instalments of outstanding dues were made which were payable monthly starting from Sept., 1992. In support of his contention, Mr. Vohra has relied upon Circular No. 496 of CBDT and following judgments: 1. Mula Sahakari Sakhar TradingCo.(P) Ltd. vs. ITO (1996) 55 TTJ (Pune) 375 2. Cosmo Films Ltd. vs. IAC (1994) 50 TTJ (Del) 54 3. Central TradingCo.vs. Asstt. CIT (ITA No. 466/Del/1993) 4. CIT vs. Bhagwati Autocast Ltd. (2002) 178 CTR (Guj) 98 : (2002) 124 Taxman 452 (Guj) 5. CIT vs. Shree Talal Taluka Sahakari Khan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repaid in 60 monthly instalments commencing 1st Sept., 1992 in line with the Government of Maharashtra policy guidelines. In this order, BIFR has not certified anywhere that outstanding sales-tax liability is converted into a loan liability of SICOM nor has certified that the outstanding sales-tax is deemed to have been paid. In these circumstances, it cannot be said that by virtue of an order of the BIFR, the outstanding sales-tax has been converted into a loan liability of SICOM or other agencies and outstanding sales-tax is deemed to have been paid and the assessee is entitled for incentive of deferment of sales-tax under s. 43B of the IT Act. As per the orders of the BIFR, the assessee was required to fulfill certain conditions as prescribed by the scheme issued by the State Government by general or special order to obtain the eligibility certificate for claiming an incentive of deferment of sales-tax. Since the assessee neither fulfilled any requisite conditions nor obtained the eligibility certificate, it cannot claim the deferment of sales-tax for the purpose of s. 43B of the Act. With regard to the circular issued by the CBDT, Mr. Awasthi has contended that by this circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents commencing 1st Sept., 1992 in line with the Government of Maharashtra policy guidelines. Consequent to the scheme, Asstt. CST by its order dt.13th March, 1997made 60 instalments of outstanding sales-tax dues under BST Act and the CST Act payable monthly starting from September, 1992. Thereafter, the assessee started making payments of instalments as arrears of sales-tax as admitted by it during the course of hearing. Now, the question posed before us is whether the instalment of sales-tax made by sales-tax authorities amounts to a deferment of sales-tax under s. 38 of the Bombay ST Act and outstanding sales-tax was deemed to have been paid in public interest for claiming deduction under s. 43B of the IT Act. In order to adjudicate the aforesaid question, we have to examine the provisions of s. 38 of the Bombay ST Act, 1959. We therefore, reproduce the same as under: "38. Payment of tax and deferred payment of tax, etc. Tax shall be paid in the manner herein provided, and at such intervals as be prescribed. (1) A registered dealer furnishing return as required by sub-s. (1) of s. 32, shall first pay into a Government treasury, in such manner and at such interval as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom incentives by way of deferment of sales-tax or purchase-tax or both under the 1979 scheme, the 1983 scheme or, as the case may be, the electronic scheme falling under the package scheme of incentives designed by the State Government or of the tax under the 1988 or the 1993 package scheme of incentives designed by the State Government have been granted by virtue of eligibility certificate, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or the relevant Regional Development Corpn. or the District Industries Centre concerned then such tax shall be deemed, in the public interest, to have been paid: Provided also that the dealer referred to in the third proviso may, at his option discharge his loan liability in respect of any period by payment of such reduced amount as may be prescribed. (5) Any tax penalty, interest or sum forfeited which remains unpaid after the service of notice under sub-s. (4), or any instalment not duly paid, shall be recoverable as arrears of land revenue........" 13. From a bare reading of the aforesaid section, we find that according to 3rd proviso below sub-s. (4), the State Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. With the intent to give a fillip the State Government has introduced sub-s. (3B) to s. 22 of MPGST Act vide Act No. 14 of 1988 with retrospective effect from1st April, 1981. According to the new provision, a registered dealer who belongs to any of the specified categories and had been granted the facility of deferment of payment of sales-tax, is liable to pay tax under other sub-sections of s. 22 and where a loan liability equal to the amount of tax payable by the dealer has been created by any specified agency, then such tax shall be deemed to have been paid in accordance with the provisions of other sub-sections of s. 22 of the MPGST Act. For ready reference, we reproduce sub-s. (3B) of s. 22 of the MPGST Act as under: "(3-B) Notwithstanding anything contained in any other provisions of this Act, but subject to such conditions as may be prescribed, a registered dealer who belongs to any of the categories specified in s. 22D and has been granted the facility of deferment of payment of tax, is liable to pay tax under the provisions of sub-s. (2) or sub-s. (3) or sub-s. (4) and where a loan liability equal to the amount of tax payable by the dealer as aforesaid for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt authority shall pass an order in Form D converting the amount of tax assessed by the AO representing the deferred tax into the final loan liability. As per this scheme, the eligible unit has to undergo the entire process for obtaining the conversion certificate of its deferred tax into the loan liability. If the scheme is read in view of the amended sub-s. (3B) of s. 22 of the MPGST Act, one would find that the deferred tax shall only be deemed to have been paid in accordance with the provisions of sub-s. (2) or sub-s. (3) or sub-s. (4) of s. 22 of the MPGST Act, when the deferred sales-tax has been converted into the final loan liability and an order in Form-D is passed by the competent authority as per r. 3(2)(C) of the scheme for conversion of deferred tax into the loan liability. In this scheme, a specific provision has also been made for modification in the conversion certificate if the assessed tax is modified by an order in reassessment appeal revision or by order of any Court. For ready reference, we reproduce the relevant provisions of the aforesaid scheme governing the procedure for conversion of deferred sales-tax into the loan liability: "3. Application for convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Act for any year or part thereof covered by the period of eligibility has been completed by the assessing authority, shall within 60 days of date of receipt of the order of assessment, make a further application in Form A to the competent authority to convert the total tax assessed into a final loan liability. (2)(b) Every such application shall be accompanied by a copy of the assessment order passed by the assessing authority. (2)(c) On receipt of the application in Form A and the certificate in Form B from the appropriate sales-tax officer, the competent authority shall verify the contents in the application in the manner stated in cl. (c) of sub-r. (2) and having satisfied itself that the application is correct and complete and that the deferred tax sought to be converted into final loan liability is the same as indicated in the certificate in Form B received from the appropriate sales-tax officer, the competent authority shall direct the eligible unit, in writing to execute an agreement in Form C within 60 days of the date of receipt of such directions. On execution of the agreement by the eligible unit the competent authority shall pass an order in Form D c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary directions were also issued to all CITs for giving proper effect to the scheme of deferment of sales-tax launched by various State Governments. Later, on, the CBDT has issued another Circular No. 674, dt.29th Dec., 1993clarifying therein that the deferral scheme notified by the State Government, through the Government orders would also meet the requirements of the Board Circular No. 496, dt.25th Sept., 1987though the aforesaid scheme was not brought by amending the Sales-tax Act. The board has also clarified through this circular that the amount of sales-tax liability converted into the loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders. If the amendments brought by the State Government in the MPGST Act, the scheme launched by the Government for giving effect to the amendment and the aforesaid circulars issued by the CBDT are read together, only one and one inference would be drawn that they are inextricably connected with each other. None of them can be read in isolation. The contention of the assessee that Circular No. 674, dt. 29th Dec., 1993 should not be considered in those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n liability of any agency specified by the State Government which may be repaid by the assessee subsequently in instalments, sales-tax due is deemed to have been paid for all purposes and the assessee is entitled to relief and benefit given under s. 43B for unpaid sales-tax liability. Similar is the position in the order of the Tribunal in the assessee s case for the asst. yr. 1993-94 in ITA No. 2162/Del/1992. On careful perusal of all these judgments and orders, we find that neither the Hon ble High Court nor the Tribunal has examined the nitty gritty of the scheme launched by the State Government for conversion of deferred sales-tax into a loan liability. As such, the judgment referred to by the assessee is of no assistance in his favour. 15. Turning to the case in hand, we find that the assessee had claimed the benefit of deferment of sales-tax on the basis of an order passed by the BIFR and sanctioned rehabilitation scheme through which it was directed that the sales-tax dues as on 31st March, 1992, with interest be repaid in 60 monthly instalments commencing from 1st Sept., 1992, in line with the Government of Maharashtra policy guidelines. Consequently, Asstt. CST has grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance, assessee preferred an appeal before the CIT(A) with the submission that deduction for the premium payable on redemption of debentures has been allowed year after year. The CIT(A) re-examined the issue in the light of various decisions quoted by the assessee but finally confirmed the additions made by the AO after holding that in the case of redemption of debentures, the liability to the premium can be said to arise only in the year of redemption and till the debentures are redeemed, it is only a contingent liability. 17. Aggrieved, the assessee has preferred an appeal before the Tribunal and reiterated its earlier submissions. In support of his contentions, he placed heavy reliance upon the judgments of the apex Court in the case of Madras Industrial Corpn. Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC) in which it has been held that the discount issue of debentures would be allowed over a period of debentures. The assessee has also relied upon the judgments of the Calcutta High Court in the case of National Engineering Industries Ltd. vs. CIT (2000) 159 CTR (Cal) 369 : (1999) 236 ITR 577 (Cal) and Universal Cables Ltd. vs. CIT (2000) 161 CTR (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. This judgment of the apex Court was consistently followed by the Calcutta High Court in the case of Universal Cables Ltd. vs. CIT and National Engineering Industries vs. CIT. In the case of Universal Cables Ltd., their Lordships have categorically held that since there was a continuing benefit to the business of the assessee-company over the entire period, the premium payable on redemption of loan convertible secured debentures issued during the year should be spread over the period of debentures. In the case of National Engineering Industries vs. CIT following the judgment of the apex Court in the case of Madras Industrial Investment Corpn. ; their Lordships have categorically held that there is no distinction between a discount and a premium. The result in both is that if something over and above the face value and the specified interest is paid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the assessee. Copy of the order is placed on record at page Nos. 93 to 107 of the compilation of the assessee. Following the aforesaid order, we decide this issue against the assessee. 24. Apropos ground No. 2, it is noticed that the AO has made the ad hoc disallowance of Rs. 1 lakh as hospitality expenses out of the expenditure on advertisement. This claim of the assessee was re-examined by the CIT(A) in its order in the light of judgment of the Tribunal in case of Jay Engineering Works Ltd. and did not find any merit in the disallowance made by the AO. He, accordingly, deleted the addition. We have also carefully examined the orders of the lower authorities on this issue but do not find any merit in the Revenue s contention in this regard. We therefore, uphold the order of the CIT(A). 25. Apropos ground No. 3, it has been contended on behalf of the assessee that this issue is also covered by the order of the Tribunal in the case of Dy. CIT vs. Eicher Tractors Ltd. in ITA No. 2162/D/1997. Copy of the same is appearing at page Nos. 138 to 150 of the compilation of the assessee. On its careful perusal, we find that identical issue was adjudicated by the Tribunal in the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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