2015 (1) TMI 470 - HC - Income Tax

Court clarifies timing of sales tax deduction under Income Tax Act, overturns Tribunal decision

The court held that under Section 43B of the Income Tax Act, the deduction of sales tax is required only upon remittance to the State Exchequer. In cases ... Section 43B of the Income Tax Act, 1961 - Held that:- It is, no doubt, true that Section 43B of the Act prohibits the deduction of component of sales tax transactions of an assessee, unless it has been remitted to the State Exchequer. It is almost common that whenever an assessee receives any amount in the form of sales tax, it would be under obligation to remit it to the State Government and on filing proof thereof, the deduction is allowed. The case on hand presents some typical features. The appellant has been extended the benefit of Deferment of Sales Tax. The appellant is not exempted from paying the sales tax. The only facility extended to it was that it can retain with it, the amount representing the sales tax for a period of six years, but it would be under obligation to remit the accumulated amount at the end of the sixth year without interest. For all practical purposes, the assessee in such cases would be holding the amount. Neither it can be treated as income nor does it become liable to be taxed in any other manner. It represents an expenditure deemed to have been incurred. - Decided in favor of assessee. Issues: Interpretation of Section 43B of the Income Tax Act, 1961 regarding deduction of sales tax component.Analysis:The judgment revolves around the interpretation of Section 43B of the Income Tax Act, 1961, specifically concerning the deduction of the sales tax component by an assessee. The appellant, an industry operating a jute mill, was granted the benefit of Sales Tax Deferment under a scheme, allowing the payment of sales tax at the end of the sixth year, treating the corresponding amount as an interest-free loan. The appellant maintained separate accounts for sales tax and claimed exemption for the amount, which was disallowed by the Assessing Officer citing non-remittance to the State Exchequer. The matter proceeded to the Commissioner of Income Tax (Appeals), where the appeal was allowed. Subsequently, the Income Tax Appellate Tribunal allowed the department's appeal, leading to the further appeal by the assessee under Section 260A of the Act.The court observed that Section 43B of the Act mandates the deduction of sales tax transactions only upon remittance to the State Exchequer. However, in cases like the present one, where the appellant was granted a deferment of sales tax, the appellant was obligated to remit the accumulated amount at the end of the sixth year without interest. The court emphasized that such amounts held by the assessee do not constitute income and are not subject to taxation until the end of the deferment period. Failure to remit the amount at the end of the period could lead to taxation, penalties, and interest.The court noted that the Assessing Officer's decision was influenced by a previous rejection of a similar claim for a different assessment year. However, the Tribunal subsequently reconsidered the matter, leading to the Commissioner allowing the deduction that was previously denied. Consequently, the court allowed the appeal, setting aside the Tribunal's order and reinstating the Commissioner's decision. No costs were awarded, and miscellaneous petitions related to the appeal were disposed of.