Case Law Details
CIT Vs. M/S Mcdowell & Co Ltd Now Known As United Spirits Ltd (Karnataka High Court)
In the instant case, as per the scheme he was allowed to retain the sales tax as determined by the competent authority and pay the same 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the assessee is in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The said loan had to be repaid after 15 years. Again it is an incentive. However, by a subsequent scheme, a provision was made for premature payment. When the assessee had the benefit of making the payment after 15 years, if he is making a premature payment, the said amount equal to the net present value of the deferred tax was determined at Rs. 4,25,79,684/- and on such payment the entire liability to pay tax/loan stood discharged. Again it is not a benefit conferred on an assessee. Therefore, Section 41 (1) of the Act is not attracted to the facts of this case. Hence, the Tribunal was justified in holding that there is no liability to pay tax. Under these circumstances, we do not see any error committed by the Tribunal in passing the impugned order. The substantial question of law is answered in favour of the assessee and against the revenue.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The Revenue has preferred this appeal against the order passed by the Tribunal holding that the deferred tax can be taxed neither under Section 41(1) nor under Section 28(4) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. The assessee is a listed Public Company. The assessee filed return of income for the assessment year 2004-05 on 29.10.2004 declaring total income of Rs. 42,16,81,790/-. In the computation of income for income tax purposes filed along with the return of income, the assessee has deducted an amount of Rs.9,52.61,916/- from the book profit as the amount representing Sales Tax deferral Loan Incentive Scheme and has not offered the same as tax. As per the provisions of Section 43B of the Act, the Sales Tax collected and not paid before the due date for filing the return of income should have been offered for tax as a part of total income for the assessment year 2003-04. The assessee did not offer the same for the assessment year 2003-04. The stand of the assessee was as per the circulars 496 dated 25.9.1987 and 612 dated 29.12.1993, such deferment of tax is considered as deemed to have been paid and therefore, provisions of Section 43B would not be applicable. In March, 2004 during the previous assessment year 2004-05 assessee opted for a Scheme under the Bombay Sales Tax Act wherein it could pay the net present value against premature payment of the amount of the deferred tax under an incentive scheme and settled the amount. Accordingly, an amount of Rs.4,25,79,684/- was paid to the Sales Tax Department on 29.3.2004 and the amount got settled. According to the Incentive Scheme balance amount of deferred sales tax was waived. In other words, liability to pay deferred sales tax ceased to exist. Therefore, the assessee while finalizing the account recognized this waiver of Rs.9,52,61,916/- as revenue and in the computation of income has deducted the same as not taxable. However, the Assessing Authority did not accept the said contention. Therefore, the Assessing Authority held the alleged subsidy is relatable to Sales Tax collected and not paid, being revenue in nature even without applying the provisions of Section 41(1) of the Act, the amount would be taxable as revenue as per the decision of the Supreme Court.
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