TMI Blog2008 (1) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... nverted into a loan liability. The total amount of loan liability was not at all paid by the assessee as it was settled under the different scheme launched by SICON. Since the entire liability was settled and discharged at a lesser amount, the assessee got certain benefits in terms of money and the difference between the settled amount and total loan liabilities is the income of the assessee of previous year. We do not find any force in the arguments of the assessee that the said difference or the benefit accrued to the assessee is a capital receipt because it was accrued on account of cessation or remission of part of the trading liability which was created on account of conversion of sales tax collected into a loan liability under a deferral scheme. We have also examined the Order of the CIT(A) and we find that CIT(A) has examined the claim of the assessee in the light of provisions of section 41(1) of the Act in a right perspective. Since we do not find any infirmity in the Order of the CIT(A) we confirm the same in this regard. We have also examined the other arguments of the assessee with regard to the disputes between the Government and SICON on settlement of this loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58 being premature repayment of sales tax loan by treating as income under section 41(1) of the Income-tax Act, 1961 ( the Act ). 2.The CIT(A) erred in treating discounting of interest free loan as discounting of deferral sales tax liability and as such erred in upholding the action of the ACIT by treating as benefit obtained by the appellant by way of discounting under section 41(1) of the Act. 3.The appellant prays that it be held that sales tax deferral was in the form of a loan and as such was not a trading receipt liable to be taxed under section 41(1) of the Act. 4.Without prejudice to the above, the appellant prays that it be held that no benefit had accrued to it on account of remission in the sales tax deferral liability." 2. Though the assessee has raised various grounds of appeal, but, they all relate to an issue whether the benefit accrued to the assessee on account of premature payment of sales tax loan is chargeable to tax as a revenue receipt under section 41(1) of the Income-tax Act. 3. The facts in nut shell borne out from the record are that the assessee is a company and has set up its unit at District Raigad which is notified backward area, thus has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged. 5. Being not convinced with the explanation of the assessee, the Assessing Officer rejected these explanations and he observed that assessee has never treated deferral payment of sales tax liability as unsecured loan in the books of account. Therefore, the contention of the assessee that amount received is a capital receipt, cannot be accepted. The Assessing Officer further noticed that sales tax liability was allowed as deduction in financial years 1998-99 and 1999-2000. Therefore, the first condition of section 41(1) are met in this case. The Assessing Officer further held that since assessee is now liable to pay only an amount of Rs. 50,40,288 as against Rs. 1,79,68,846, it obtained benefit of Rs. 1,29,24,558 Thus, the second condition of section 41(1) is also met. The Assessing Officer accordingly held that since there is cessation of liability, the benefit accrued to the assessee is to be treated as income and chargeable to tax. 6. The assessee preferred an appeal before the CIT(A) and reiterated its contention as raised before the Assessing Officer. Besides, it was con-tended that since the sales tax deferral loan is not nature of the trading receipt, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the judgment of the Apex Court in the case of Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434 1 in support of his contention that unilateral action on the part of the assessee in writing back the provisions of a liability could not have the effect of extinguishing the statutory liability if the dispute between the parties was going on. In the instant case, since the liability has not been fully discharged and the sales tax department has raised a claim, the difference between the deferral tax liability and the payment to M/s. SICON Ltd. cannot be considered to the benefit accrued to the assessee and is chargeable to tax under section 41(1) of the Income-tax Act. 9. The learned Departmental Representative on the other hand has placed a reliance upon the Order of the CIT(A). The learned Departmental Representative, further invited our attention that the sales tax liability is a trading liability and is chargeable to tax as held in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC). Moreover, the entries made in the books of account are not relevant to determine the character of the receipt. Placing sales tax collected in a separate acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged for the purpose of section 43B. For the sake of reference, we extract the relevant portion of Circular No. 674, dated 29-12-1993 issued by the CBDT as under : "1.The scope of application of the provisions of section 43B to the sales tax collected but not actually paid under deferral scheme of the State Government was considered in Board s Circular No. 496, dated 25-9-1987 (Clarification 2), and it was decided that, where 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 the statutory liability shall be treated as discharged for the purpose of section 43B. 2.It has since been brought to the notice of the Board that some State Governments, instead of amending the Sales tax Act, have issued Government Orders notifying schemes under which sales tax is deemed to have been actually collected and disbursed as loans. Such Government Orders also provide that entries shall be made in the Government accounts giving effect to deemed collections by crediting the appropriate receipt-heads relating to sales tax collections and debiting the heads relating to disbursal of loans. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of deferral scheme launched by the Government of Maharashtra, this trading receipt was not chargeable to tax as the liability to make the payment of the same under section 43B was considered to be deemed to have been discharged on account of Board s Circular and the sales tax received was converted into loan liabilities payable in five annual instalments with effect from 2010. The nature of receipt of sales tax collected from the customers, cannot be changed on account of deferral scheme or the circular issued by the Board for allowing deduction under section 43B of the Act. 12. Now the question arise when the assessee has settled the converted loan liability for a lesser amount under a different scheme launched by the State Government through SICON the agency appointed by the Government to implement the sales tax deferral scheme, what would be the nature of receipt/benefit accrued to the assessee on account of lesser payment of total loan liability. The assessee considered it to be the capital receipt not chargeable to tax, whereas, the revenue, treated the same to be revenue receipt and is exigible to tax. In order to decide the nature of receipt or benefit, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year. For the sake of reference, we extract section 41(1) as under : "41. Profits chargeable to tax. (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; or ( b )the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it would be chargeable to tax. But, it was not deposited and benefit of section 43B was claimed by the assessee on account of deferral scheme of the State Government and the Circular of the CBDT and this sales tax liability which is a trading liability was converted into a loan liability payable from April 2010 in five annual equal instalments. But, in fact, the entire amount of liabilities was not at all paid by the assessee and it was settled on payment of lesser amount. On payment of the lesser amount, the entire trading liabilities seized to exist. 15. According to the provisions of section 41(1) when 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 and subsequently during any previous year, the first mentioned person, i.e., the original assessee has obtained whether cash or 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 the benefit accruing to him shall be deemed to be the profits and gains of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisement was published in news paper on 20-5-2000 to this effect and offers were invited from eligible units to quote the rate of discount and outstanding amount on these accounts. The appellant, who was also eligible under the scheme and responded to the advertisement by way of letter dated 5-3-2000 addressed to SICON, expressing its willingness to get the deferral Sales-tax liability discounted at the rate of 16 per cent in respect of liability up to December, 1999 and also agree to discount any future liability at the rate of 16 per cent discount. To this offer of the appellant, SICON responded by letter dated 17-3-2000 and appellant was required to furnish details of sales tax deferral and year wise payment schedule as finalized by the sales tax department. The requisite information was furnished by the appellant to SICON on 29-3-2000. Thereafter, appellant wrote another letter dated 14-6-2000 bringing to the notice of SICON, the amount of sales tax deferral payable and its present value at the rate of discounting of 11.52 per cent. The amount required to be paid was Rs. 50,44,288 on the total sales tax deferral of Rs. 1,79,68,846. This proposal was accepted by SICON. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g convinced with the explanation of the assessee form of a loan which is not a trading receipt therefore even on this account provision of section 41(1) are not applicable. It is claimed that a sales tax deferral loan, which is not in the nature of trading receipt does not become trading receipt by subsequent process of remission. This argument is also not acceptable. The appellant has filed no evidence that at any stage the sales tax deferral has been converted into interest free loan by any authority. Under the incentives scheme of Govt. of Maharashtra, issued in 1993 the assessee was entitled to a deferral payment of sales tax of eligible units to be paid after ten years. On going through the advertisement published in Economic Times on 26-5-2000 by SICON (implementing agency) it is clear that Govt. of Maharashtra has formulated a proposal for premature payment of incentives. Even the scheme floated was named as Package Scheme of Incentives - Premature payment . All the correspondence carried on by the appellant and SICON, talks about Sales-tax deferral benefit. In none of the correspondence there is any mentioned of the word Interest free loans . For this purpose reference ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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