2014 (11) TMI 272 - HC - Income Tax

Tribunal Decides Deferred Tax Not Taxable as Income under Income Tax Act

THE COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s McDOWELL & CO LTD NOW KNOWN AS UNITED SPIRITS LTD

THE COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s McDOWELL & CO LTD NOW KNOWN AS UNITED SPIRITS LTD - [2014] 369 ITR 684 ... Issues:1. Deferred tax treatment under Sections 41(1) and 28(4) of the Income Tax Act, 1961.Analysis:1. The case involved an appeal by the Revenue against the Tribunal's decision that deferred tax cannot be taxed under Sections 41(1) or 28(4) of the Income Tax Act, 1961. The appellant, a listed Public Company, deducted an amount representing Sales Tax deferral Loan Incentive Scheme from book profit and did not offer it for tax. The Assessing Authority held the amount should be taxable as revenue, even without applying Section 41(1) of the Act, following a Supreme Court decision.2. The Commissioner of Income tax (Appeals) upheld the Assessing Authority's decision, stating that if treated as revenue, the amount could be taxed over a period until 2017. The Tribunal, considering statutory provisions and precedents, ruled that when the deferred sales tax was deemed paid, there was no remission or benefit to the assessee, and hence, Sections 41(1) and 28(4) could not be applied. The Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal.3. The key question was whether the assessee was liable to pay tax on the amount waived under the Sales Tax Incentive Scheme. The Government of Maharashtra introduced a scheme allowing deferment of taxes, and the assessee opted for premature payment under an incentive scheme, extinguishing the liability. The Revenue argued that the amount partakes the character of income and is taxable under Section 41(1), while the assessee contended that no income accrued due to the scheme's nature.4. The Tribunal's decision was based on the understanding that the deferred tax was not income but a loan given as an incentive. The premature payment extinguished the liability, and no benefit accrued to the assessee. Therefore, Section 41(1) was not applicable. The Court upheld the Tribunal's decision, stating that the deferred tax retained by the assessee was akin to a loan, and the premature payment discharged the liability, thus not attracting Section 41(1) of the Act.