2002 (7) TMI 20 - HC - Income Tax

High Court upholds Tribunal decision favoring assessee on sales tax liability exemption under Income-tax Act

The High Court upheld the Tribunal's decision, ruling in favor of the assessee regarding the disallowance under section 43B of the Income-tax Act for ... Application of section 43B - deferred sales tax / sales tax deferment scheme - treatment of deferred sales tax as actually paid - state government resolution deeming deferred tax to be paid - clarificatory statutory amendment deeming tax paid retrospectivelyApplication of section 43B - deferred sales tax / sales tax deferment scheme - treatment of deferred sales tax as actually paid - state government resolution deeming deferred tax to be paid - Whether the unpaid/deferred sales tax of Rs. 2,22,620 for Assessment Year 1985-86 was exigible to disallowance under section 43B of the Income-tax Act, 1961 - HELD THAT: - The Tribunal's deletion of the addition under section 43B was upheld. The Central Board of Direct Taxes' Circular dated September 25, 1987, affords relief only where a State has provided that deferred sales tax under its incentive scheme is to be treated as actually paid. In the present case the Gujarat Government had issued Resolution No. INC/1087/143-1 dated March 21, 1988 made operative from April 1, 1983, which satisfied the condition in the Board's circular for treating deferred sales tax as paid for all purposes. The subsequent statutory insertion of a proviso in section 47(4) of the Gujarat Sales Tax Act by Gujarat Act 5 of 1988 (effective March 24, 1988) is clarificatory and reinforces that deferred sales tax under the scheme is to be deemed paid. Having regard to the combined effect of the Board circular and the State resolution (and the later clarificatory amendment), the unpaid sales tax in question is not hit by the mischief of section 43B.Amount of deferred sales tax for AY 1985-86 is not exigible to disallowance under section 43B; Tribunal was right in deleting the addition.Final Conclusion: Reference answered in the affirmative for the assessee: the deferred sales tax for Assessment Year 1985-86 is not caught by section 43B in view of the Gujarat Government resolution (operative from April 1, 1983) read with the Board's circular and the subsequent clarificatory amendment; reference disposed of with no order as to costs. Issues Involved:Interpretation of Section 43B of the Income-tax Act, 1961 regarding unpaid sales tax liability and applicability of exemptions based on government resolutions and circulars.Analysis:The case involved a dispute over the disallowance under section 43B of the Income-tax Act for an unpaid sum of Rs. 2,22,620 representing deferred sales tax. The assessee contended that the amount was exempt from section 43B due to a scheme by the State Government allowing the return of sales tax collected as an industry growth incentive. The Income-tax Officer initially rejected this claim, leading to an appeal before the Commissioner of Income-tax (Appeals) who referred to Circular No. 496 issued by the Central Board of Direct Taxes and directed the Assessing Officer to verify any amendments to the Gujarat Sales Tax Act. The Tribunal, considering the Board's circular and the State Government resolution clarifying the position, ruled in favor of the assessee, stating that the deferred sales tax amount was not subject to section 43B.The Revenue, aggrieved by the Tribunal's decision, brought the matter to the High Court for opinion. Referring to a Supreme Court decision in a similar case, it was highlighted that the applicability of the Central Board of Direct Taxes Circular dated September 25, 1987, depended on whether the State had amended its Sales Tax Act to treat deferred sales tax as actually paid. The Court noted that the Gujarat Government had indeed passed a resolution in 1988, which, along with the Board's circular, entitled the assessee to claim relief under section 43B. A subsequent amendment to the Gujarat Sales Tax Act was seen as clarificatory and did not impact the assessee's eligibility for the exemption.The Court concluded that the Tribunal's decision to delete the addition made by the Income-tax Officer under section 43B for unpaid sales tax liability was correct. It held in favor of the assessee, stating that the case fell within the exemptions provided by the State Government resolution and subsequent amendment to the Act. The reference was disposed of in favor of the assessee, with no order as to costs.