Whether the liability has been deferred or not has to be considered not from the simplistic point of the term ‘defer’ but in context of the incentive scheme for deferral, as is evident from the circular issued by Central Board of Direct Taxes. The subject matter of Circular no. 496 dated 25th September, 1987 is Sales Tax Deferral Scheme and applicability of provisions of section 43B of the Act.
The circular would be applicable provided the sales tax due and payable is deferred as an incentive offered by the deferral scheme. This becomes clear from paragraph no. 3 of the circular which states that representations have been received from various State Governments that cases of deferred sales tax payments should be excluded from the purview of section 43B of the Act as otherwise the operation of the provision has the effect of diluting the incentive offered by the deferral schemes. Hence, in the first instance, provisions of section 43B of the Act stand attracted in relation to a statutory liability i.e. the sales tax liability. However, if such liability is deferred, by way of an incentive granted to an assessee by the State Government, in accordance with the circular issued by Central Board of Direct Taxes if the State Government has made a statutory provision to the effect that the sales tax deferred under the scheme shall be treated as actually paid, such a deeming provision would meet the requirements of section 43B of the Act. Therefore, it is apparent that mere deferral of sales tax liability by granting of instalments is not sufficient. The deferral has to be under an incentive scheme. Only then, the circular issued by Central Board of Direct Taxes read with the second proviso appearing under section 47(4) of the Sales Tax Act would become applicable so as to take an assessee out of the purview of provisions of section 43B of the Act. In the present case, admittedly, at no stage has the assessee been granted any incentive under the deferral scheme formulated by the State Government. In the circumstances, the finding recorded by the Tribunal that the liability to pay sales tax by instalments cannot be treated to be beyond the provisions of section 43B of the Act is justified in law and does not warrant interference.
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
INCOME TAX REFERENCE No. 6 of 1998
Saurashtra Cement Limited – Applicant(s)
Versus
The Commissioner of Income Tax – Respondent(s)
Date of Judgement: 16/06/2010
J U D G M E N T
(Per Mr. Justice D.A. Mehta)
1. There are cross-references filed both by the assessee and Income Tax Department for the same assessment year and hence, Income Tax Appellate Tribunal, Ahmedabad Bench ‘B’ has drawn a consolidated statement of case and referred the following questions for opinion of this High Court under section 256(1) of Income Tax Act, 1961 (the Act).
Questions at the instance of the assessee
1. Whether on facts and in the circumstances of the case, the Tribunal was right in law in holding that unpaid Royalty is disallowable u/s. 43B of the Act?
2. Whether on facts and in the circumstances of the case, the Tribunal was right in law in holding sales tax deferred in accordance with the letter dated 30.9.92 of the Government of Gujarat is dis allowable u/s.43B of the Act?
3. Whether on facts and in the circumstances of the case, the Tribunal was right in law in disallowing Rs.2,21,600/- out of expenditure on presentation of articles on the ground of absence of details of beneficiaries?
4. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the depreciation u/s.32 is allowable only to the legal owner of the asset?
Questions at the instance of the Revenue
1. Whether the Appellate Tribunal is right in law and on facts in deleting the dis allowance made u/s.43B in respect of unpaid interest on sales tax amounting to Rs. 3,95,52,722/-?
2. Whether the Appellate Tribunal is right in law and on facts in deleting the dis allowance made in respect of claim of deduction of Rs. 3,38,64,423/- stated to be on account of withdrawal of concession by the State Bank of India?
3. Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in directing the A.O. to allow deductions u/s. 80HH and sec.80I as claimed by the assessee?
2. The assessment year in question is 1992-93, the relevant previous year being financial year commencing on 01st April, 1991 and ending on 31st March, 1992. The assessee is a public limited company. An assessment came to be framed under section 143(3) of the Act where under assessee’s claim for deduction of liability of royalty and sales tax came to be disallowed by invoking provisions of section 43B of the Act; similarly, liability of interest paid/payable also came to be disallowed; an amount payable to State Bank of India was also disallowed. The claim for relief under section 80HH and section 80I of the Act was also disallowed; expenditure on gift articles was also disallowed.
3. The matter was carried in appeal before Commissioner (Appeals) and thereafter before Tribunal. The Tribunal vide impugned order dated 29th November, 1996 has granted partial relief against which Revenue is in reference on some of the issues while issues on which relief has not been granted to the assessee, reference has been made by the Tribunal at the behest of the assessee.
Assessee’s Question No. 1
4. In relation to the first question at the instance of the assessee regarding unpaid royalty, the same has been treated as being hit by section 43B of the Act. On behalf of the assessee, it was submitted that royalty would be disallowable only if the same is treated as a fee as held by the Apex Court in the case of Commissioner of Income-Tax vs. McDowell and Co. Ltd. (No.1), (2009) 314 ITR 167. That the Tribunal has failed to consider and record a finding as to whether the amount of royalty payable is actually in the nature of a fee or not. That though the Tribunal in its impugned order has referred to the amended provision of section 43B of the Act without recording any finding of facts, the Tribunal has upheld the orders of the Assessing Officer and Commissioner (Appeals). In this context, attention was invited to paragraph no.17 of the impugned order of Tribunal to submit that the Tribunal after recording that the facts under which the amount of royalty is being paid have not come on record in full could not have disallowed the amount without recording the correct facts.
5. As against that, on behalf of Revenue, it was submitted that Commissioner (Appeals) had recorded that the amount was payable under the Mines and Minerals (Regulation and Development) Act, 1957 and, therefore, no interference was warranted.
6. Insofar as the law on the subject is concerned, the Apex Court has held that the requirement of section 43B of the Act is actual payment. That the words “tax”, “duty”, “cess” or “fee” constitute a class denoting various kinds of imposts by the State and such power can be exercised only under any law authorising levy and collection. Therefore, in the first instance, the Tribunal shall have to record as to whether on facts, the amount payable as royalty by the assessee is a statutory impost. Only if such a finding is recorded would provisions of section 43B of the Act get attracted. Admittedly, in the facts of the present case, the impugned order of Tribunal in the first sentence of paragraph no.17 records “…It is to be seen that the facts under which the amount of royalty is being paid by the assessee have not come on record in full.”. Once the Tribunal had recorded such a finding, it was not open to the Tribunal to thereafter disallow the claim for deduction without ascertaining facts and recording a finding as to whether the amount was payable as a statutory impost.
7. In the circumstances, question no.1 as referred at the instance of the assessee is left unanswered leaving it open to the Tribunal to decide the issue afresh after considering the law enunciated by the Apex Court as referred to in the case of CIT vs. McDowell and Co. Ltd. (No.1) (supra).
Assessee’s Question No. 2
8. Insofar as the second question referred at the instance of the assessee is concerned, the case of the assessee is that the sales tax liability has been deferred in accordance with the letter dated 30th September, 1992 issued by Government of Gujarat and hence, considering the Circular issued by Central Board of Direct Taxes, the judgment of this High Court in the case of Commissioner of Income Tax Vs. Shree Talal Taluka Sahakari Khand Udyog Mandli Ltd., (2003) (259) ITR 21 and the second proviso appearing under section 47(4) of the Gujarat Sales Tax Act, 1969 (the Sales Tax Act), provisions of section 43B cannot be held to be attracted, and if attracted, the liability is deemed to have been discharged entitling the assessee to the deduction claimed without any disallowance. Learned senior counsel appearing on behalf of the assessee placed reliance on communication dated 30th September, 1992 appearing as Annexure 2 to the assessment order to submit that the State Government had granted facility to discharge sales tax liability in instalments and, therefore, even if the term deferment had not been used it would amount to granting of deferment and the second proviso of section 47(4) of the Sales Tax Act would stand attracted and satisfied entitling the assessee to the deduction claimed for. Attention was also invited to the Circular issued by Central Board of Direct Taxes dated 25th September, 1987 as appearing at (1988) 169 ITR (Statutes) 53 to submit that even the requirement laid down by the said circular stood satisfied and the claim for deduction could not have been disallowed. It was submitted that the Tribunal had erred in holding that this was a statutory liability and provisions of section 43B of the Act got attracted. In fact, the liability in question was a contractual liability. Alternatively, if it was a statutory liability, as submitted earlier, it was deferred in accordance with the requirement of the circular issued by Central Board of Direct Taxes and was governed by the ratio laid down by this High Court in the case of CIT vs. Shri Talal Taluka Sahakari Khand Udyog Mandli Ltd. (supra).
9. On behalf of Revenue, reliance was placed on the findings recorded by the Tribunal to submit that this was a statutory liability and merely because the State Government had granted instalments in exercise of powers under the first proviso of section 47(4) of the Sales Tax Act, the nature of the liability would not change so as to take it out of the purview of section 43B of the Act. The counsel also referred to the communication dated 30th September, 1992 to submit that the State Government had merely granted facility to discharge the sales tax liability in instalments and, therefore, the Tribunal was justified in applying provisions of section 43B of the Act.
10. The communication dated 30th September, 1992 may be reproduced for this issue as well as the issue relating to unpaid interest on sales tax in Revenue’s reference.
“Please refer to your letter dated 15th September, 1992, addressed to the Minister for Industries, Gujarat, regarding the payment of Sales Tax dues.
1. The Government of Gujarat is agreeable to the following arrangements for the clearance of the arrears of sales tax dues along with interest in the manner indicated below:
2. The company had agreed during the discussions with the Minister (Industry) and Minister (Finance) held on 23rd September, 1992, that it will immediately withdraw its petition from the High Court unconditionally. The Company shall accordingly withdraw its petition from the High Court and inform the Government suitably. The facility for payment of sales tax dues in instalments will be operative only after the petition is withdrawn by the Company.
3. By granting the facility for payment of tax and interest in instalments, the Government of Gujarat neither recognises nor accepts any contentions and averments mentioned in the petition filed by the company. The facility agreed upon do not in any way confer any right of incentives to the company under the incentive scheme of Industries and Mines Department or under any other scheme.
4. The company shall make down payment of Rs.9 crores (Rupees nine crores) to be paid in two instalments of equal amounts payable by 1st October, 1992, and 1st November, 1992, respectively.
5. The balance of arrears of Sales tax amount as may be communicated by the Sales Tax Department shall be paid by the Company in ten half yearly installments each of equal amount, payable on or before following dates.
