TaxTMI 
TaxTMI 
2020 (6) TMI 587
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....being same though appeals pertain to two different assessment years, those have been heard together and are being disposed of by the present common order. 4. For convenience, Income Tax Appeal No.875 of 2017 is taken up as the lead case. 5. This appeal has been preferred under Section 260A of the Income Tax Act, 1961 (briefly "the Act" hereinafter) assailing the order dated 23rd November, 2016 passed by the Income Tax Appellate Tribunal, Mumbai Bench "F", Mumbai ("Tribunal" for short) in Income Tax Appeal No.6835/Mum/ 2008 for the assessment year 2004-05. 6. The appeal has been preferred proposing the following two questions as substantial questions of law:- "1. Whether on the facts and in the circumstances of the case and in law, Tribunal was justified in upholding the decision of the Commissioner of Income Tax (Appeals) holding that surplus arising on prepayment of deferred sales tax loan at net present value (NPV) is a capital receipt which cannot be termed as remission on cessation of a trading liability under section 41(1) of the Act? 2. Whether on the facts and in the circumstances of the case and in law, Tribunal was justified in confirming the decision of the Commiss....
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....nder the head "other income" which accrued on account of prepayment of sales tax deferment loan and therefore this amount was not covered by section 41(1) of the Act. 11. Assessing Officer referred to section 41(1) of the Act and held that as and when any allowance or deduction is made in the assessment year in respect of any expenditure or trading liability incurred by the assessee and subsequently in any previous year the assessee obtains any benefit in respect of such liability by remission or cessation thereof that is required to be brought to tax. Sales tax collected is a trading receipt. Conversion of sales tax collected into loan and using the expression "sales tax deferment loan" did not change the real character of the receipt as trading receipt. Nomenclature was not decisive; the real character of the receipt was required to be considered. Accordingly, contention of the assessee was rejected. Thus, the amount of Rs. 255.685 crores was brought to tax, the same being added to the income of the assessee vide the assessment order dated 30th October, 2006. By the said assessment order Assessing Officer computed book profit under section 115JB of the Act at Rs. 2,44,63,94,360.....
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.... as remission or cessation of a trading liability so as to attract section 41(1) of the Act. Thus, order of the first appellate authority was affirmed by the Tribunal. 15. On the question of charging of interest under sections 234B and 234C on income taxable under section 115JB of the Act is concerned, Tribunal held that at the relevant time i.e., at the time of making the assessment the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field as per which interest under sections 234B and 234C of the Act was not chargeable with respect to tax liability determined under MAT. Tribunal also noted that in Joint Commissioner of Income Tax Vs. Rolta India Limited, 330 ITR 470, Supreme Court held that where MAT companies defaulted in payment of advance tax in respect of tax payable under section 115JB, it was liable to pay interest under sections 234B and 234C of the Act. However, according to the Tribunal, the judgment of the Supreme Court in Rolta India Limited (supra) was delivered subsequently which would not discredit the bona fide reason entertained by the assessee in not depositing the advance tax on MAT in view of the prevailing judgme....
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....could be charged under sections 234B and 234C of the Act. That was the law applicable at the time of making of assessment. Infact, this decision of the Karnataka High Court was not disturbed, rather affirmed by the Supreme Court in CIT Vs. Kwality Biscuits Limited, 284 ITR 434. This position was clarified by the Bombay High Court in Prime Securities Limited Vs. ACIT, 333 ITR 464 and again in CIT Vs. JSW Energy Limited, 379 ITR 36(Bom). 19. Submissions made by learned counsel for the parties have been considered. Also perused the relevant materials on record as well as considered the decisions cited at the Bar. 20. In so far the first question is concerned as already noticed above, it relates to addition of Rs. 255.685 crores made by the Assessing Officer by invoking the provisions of section 41(1) of the Act. We have already noticed that assessee was granted incentives by the Karnataka Government whereby it availed sales tax deferment for a period of 11 years for phase-I of the refinery and 14 years for phase-II of the refinery. The scheme was called sales tax deferment loan scheme. The sale tax so collected was converted into loan to be repaid by the assessee to the State Govern....
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....on such repayment was not an amount falling for consideration in terms of section 41(1) of the Act. On the other hand, it was contended on behalf of the Revenue that the sales tax collected formed part of the trading receipt as held by the Supreme Court in Chowringhee Sales Bureau P. Ltd. Vs. CIT, 87 ITR 42 and therefore, any cessation or remission in payment of such liability would attract the provisions of section 41(1)of the Act. 23. Tribunal considered the rival submissions and held as follows:- "9. We have carefully considered the rival submissions and find that the conclusion drawn by the CIT (A) on this aspect is fully covered by the judgment of the Hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra). The point argued by the ld. DR, based on the judgment of the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. (supra), is untenable in as much as the same has already been considered by the Hon'ble Bombay High Court in its judgment. There is also no dispute to the assertions made by the learned representative for the assessee that the sales tax deferred scheme under the Package Scheme of 1983 and the Package Scheme of Incentive, 1985 notif....
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....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 trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income tax as the income of that previous year. Explanation 1 - For the purposes of this sub section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub section by way of writing off such liability in his accounts. Explanation 2 - For the purposes of this sub section, "successor in business" means - ....
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....considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the sales tax liability was deferred enables the assessee to remit the sales tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the scheme, then we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by finding out its net present value. If that is the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years, then we do not see how ingredients of sub-section (1) of section 41 can be said to be fulfilled. The obligation to remit to the Government the sales tax amount already recovered and collected from the customers is ....
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....turely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case." 28. As was pointed out before the Tribunal, in the decision in Sulzer India Limited (supra) this court had also considered and adjudicated the appeal in the case of Associated Capsules(P) Limited. Therefore, the decision in Sulzer India Limited (supra) was the decision in Associated Capsules (P) Limited (supra) as well. 29. The question as to whether the differential amount arising on account of premature payment of deferred sales tax liability at net present value (NPV) should be treated as a capital or a revenue/trading receipt and applicability of section 41(1) of the Act thereto came up for consideration before the Supreme Court in Balkrishna Industries Limited (supra) in which the decision of this Court in Sulzer India Limited (supra) was also considered. Supreme Court noted that the main judgment out of which the appeals arose and were considered in the said case w....
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....advance tax in respect of tax leviable on the book profit determined under section 115JB of the Act. The contention was that since at the relevant point of time Karnataka High Court had held that assessee was not required to pay advance tax in respect of minimum alternate tax (MAT), non-payment of advance tax with respect to the liability under MAT would not attract levy of interest under sections 234B and 234C of the Act. 36. Considering the rival submissions, Tribunal held as under :- "24. We have carefully considered the rival submissions. Before we proceed to test the efficacy of the stand of Revenue for charging interest u/s 234B & 234C of the Act in the instant case, the brief relevant facts are to be appreciated which are as follows. In the instant case, in the return of income filed, tax liability was determined on the 'book profits' in terms of Section 115JB of the Act. Even in the assessment finalized u/s 143(3) of the Act, the final tax liability was determined by Assessing Officer based on the book profits determined u/s 115JB of the Act. During the previous year relevant to the assessment year under consideration, the relevant dates for payment of advance tax were -....
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....ese circumstances, we hereby affirm the ultimate decision of CIT (A) in deleting the levy of interest u/s 234B & 234C of the Act, albeit on a different ground. Thus on this aspect also, Revenue fails." 37. Before we analyse the finding of the Tribunal as extracted above, it would be apposite to deal with the provisions contained in sections 234B and 234C of the Act. Section 234B deals with interest for default in payment of advance tax. As per sub-section (1) where in any financial year an assessee who is liable to pay advance tax under section 208 of the Act has failed to pay such tax or where the advance tax paid under section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay simple interest at the percentage determined for every month or part of a month comprised in the period from the first day of April next following such financial year to the date of determination of total income under section 143(1) and where a regular assessment is made, to the date of such regular assessment on an amount equal to the assessed tax or as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. 38. Thus, interest ....
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....t of time i.e. on 7th January, 2011. Therefore, Tribunal held that the later decision of the Supreme Court in Rolta India Limited (supra) being a subsequent decision would not discredit a bonafide reason entertained by the assessee in not depositing advance tax on MAT in view of the decision in Kwality Biscuits Limited (supra). In this context, Tribunal held that contention of Revenue that charging of interest under sections 234B and 234C is mandatory would not be germane in deciding the controversy in as much as the levy can be said to be mandatory only if its payment is attracted per se as per the prevailing legal position. Therefore, Tribunal affirmed the decision of the CIT (Appeals). 41. In Kwality Biscuits Limited (supra) one of the questions for consideration before the Karnataka High Court was whether in an assessment year where the assessee's income is computed by invoking the provisions of section 115J of the Act interest under sections 234B and 234C were leviable? Karnataka High Court referred to the requirements of sections 234B and 234C and also the scheme of section 115J whereafter it was held that since the entire exercise of computing income or book profit could be....
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....ergy limited (supra) this court again referred to the decision of the Supreme Court in Star India Private Limited (supra) and held that liability to pay interest would only arise on default and is really in the nature of a quasi punishment. A liability to pay tax although created retrospectively could not entail the punishment of payment of interest with retrospective effect. It was held that though Explanation to section 234B was introduced by the Finance Act, 2008 with retrospective effect, the assessee could not be termed as a defaulter for non-payment of advance tax because such a provision did not exist at the relevant time mandating payment of advance tax. 46. As noticed, in Rolta India Limited (supra) Supreme Court again examined the provisions of sections 234B and 234C and held that section 115JB is a self contained code pertaining to MAT and all companies were liable for payment of advance tax under section 115JB. Consequently, the provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable. Therefore, the decision of the Karnataka High Court in Kwality Biscuits limited (supra) was overruled. 47. Though in Rolta India ....