2008 (5) TMI 34 - HC - Income Tax

Court allows deduction for deferred sales tax under Sales Tax Deferment Scheme

COMMISSIONER OF INCOME-TAX Versus RAVINDRA PLATINUM P. LTD.

COMMISSIONER OF INCOME-TAX Versus RAVINDRA PLATINUM P. LTD. - [2008] 302 ITR 229 (Raj) Issues Involved:1. Admissibility of deduction under Section 43B of the Income Tax Act for sales tax deferred under the State Government's Deferment Scheme.Issue-wise Detailed Analysis:1. Admissibility of Deduction under Section 43B:The core issue in these appeals is whether the assessee is entitled to a deduction under Section 43B of the Income Tax Act for sales tax amounts deferred under the Rajasthan Sales Tax Deferment Scheme, 1987.Facts and Procedural History:The appeals relate to the assessment years 1993-94, 1994-95, and 1996-97. The learned Income Tax Appellate Tribunal decided the appeals for 1993-94 and 1994-95 by a common order dated 12.10.2004, and the appeal for 1996-97 was decided by following the earlier judgment.Assessment and Revisions:During the relevant years, the assessee collected sales tax but did not deposit it in the State Treasury due to an Eligibility Certificate under the Rajasthan Sales Tax Deferment Scheme, 1987. The assessee argued that the collected sales tax was deemed to have been paid to the government and disbursed as a loan to the assessee. The Assessing Officer disallowed the deduction, holding that the notification dated 27.3.1995 was not retrospective for 1993-94 and 1994-95, and the conversion of sales tax into a loan did not occur during the financial year for 1996-97.Commissioner's Orders:The Commissioner of Income Tax (Appeals) dismissed the appeals for 1993-94 and 1994-95, holding that the sales tax deferred could be treated as paid only if the State Government amended the Sales Tax Act. The appeal for 1996-97 was allowed, recognizing the conversion of sales tax into a loan based on a certificate from the Industries Department.Tribunal's Decision:The Tribunal upheld the Commissioner's decision for 1993-94 and 1994-95 and followed the same reasoning for 1996-97.Arguments:The Revenue argued that the notification dated 27.3.1995 was not retrospective and that the conversion of sales tax into a loan was not evidenced in the relevant financial year. The assessee contended that the Sales Tax Deferment Scheme, 1987, framed under Section 7(2B) of the Rajasthan Sales Tax Act, 1954, amounted to an amendment in the Act, satisfying the requirements of Section 43B.Court's Analysis:The Court examined the provisions of Section 7(2B) of the Rajasthan Sales Tax Act, 1954, and the Sales Tax Deferment Scheme, 1987. It noted that the scheme was issued under the authority of Section 7(2B), which allows the State Government to defer the payment of tax. The Court also considered CBDT Circular No. 674, which clarified that sales tax liabilities converted into loans under State Government schemes could be allowed as deductions under Section 43B.Precedents:The Court referred to the Supreme Court's judgment in Commissioner of Income-Tax Vs. Gujarat Polycrete Pvt Ltd., which required an amendment in the Sales Tax Act for deferred sales tax to be treated as paid. The Court distinguished this case based on the specific provisions of the Rajasthan Sales Tax Act and the Deferment Scheme, which satisfied the requirements of the CBDT circular.The Court also referred to the Gujarat High Court's judgment in Commissioner of Income Tax Vs. Shree Talal Taluka Sahakari Khand Udyog Mandli Ltd., which held that amendments clarifying the conversion of sales tax into loans were applicable retrospectively.Conclusion:The Court concluded that the Sales Tax Deferment Scheme, 1987, and the subsequent notification satisfied the requirements of Section 43B. It held that the assessee was entitled to the deduction for the deferred sales tax, as the scheme effectively treated the deferred tax as paid.Judgment:The question of law was answered in the affirmative, against the Revenue and in favor of the assessee. Consequently, the appeals were dismissed.