Case Law Details
Prepayment of sales tax deferral loan on payment of net present value of future liability cannot be classified as remission or cessation of trading liability
In brief :-In a recent ruling, in the case of Sulzer India Ltd. Vs. Jt. CIT [2010-TIOL-670-ITAT-MUM-SB] , the Special Bench of the Mumbai Income-tax Appellate Tribunal (the “Tribunal”) held that prepayment of deferred sales tax liability on the Net Present Value (“NPV”) of the future liability cannot be classified as remission or cessation of the trading liability, so as to attract the provisions of section 41(1)(a) of Income-tax Act, 1961 (“the Act”).
Facts
The assessee company had obtained incentives by way of sales tax deferral schemes under the package scheme of incentives 1983 (“1983 scheme”) and package scheme of incentives 1988 (“1988 scheme”), notified by the Government of Maharashtra. Under the 1983 scheme, the assessee’s unit at Kondhapuri was entitled to defer the payment of sales tax collected during the period of 1 November, 1989 to 30 October, 1996 (seven years) and this amount would become payable after 12 years in six equal installments. The assessee collected sales tax of INR 32.99 million during the period to be repaid after 12 years in six equal installments. Under the 1998 scheme, which was similar to 1983 scheme, the amount of sales tax deferred was INR 42.21 million Thus, the aggregate deferred sales tax amount under the 1983 and 1988 schemes was INR 75.20 million. The deferred sales tax collected by the assessee was treated as an unsecured loan in its books of account.
The sales tax collected was claimed and allowed as a deduction under section 43B of the Act in view of the Central Board of Direct Taxes (“CBDT”) Circular No. 496 dated 25 September, 1987, which provides that deferral of sales tax under the 1983 and 1988 schemes shall be treated as paid for the purpose of section 43B of the Act.
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