Deemed consent under rehabilitation law barred tax on interest waiver as cessation of liability under income-tax provisions.
A draft rehabilitation scheme circulated in BIFR proceedings drew no objection from the Ministry of Finance or CBDT within the statutory period, so deemed consent operated under section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985. On that basis, waiver of interest under the scheme could not be treated as cessation of liability and taxed under section 41(1) of the Income-tax Act, 1961 merely on an assumption of non-consent. The additions were therefore unsustainable and were deleted.
Issues: Whether the waiver of interest under the rehabilitation scheme could be treated as cessation of liability and taxed under section 41(1) of the Income-tax Act, 1961 in the absence of objection from the Ministry of Finance or the CBDT, giving rise to deemed consent under section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985.
Analysis: The assessee was a sick industrial company under the rehabilitation process before the BIFR. The draft rehabilitation scheme was circulated to the concerned authorities, including the Ministry of Finance and the CBDT, and no objection was received within the stipulated period. The statutory scheme under section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 permits deemed consent in such circumstances. The additions were made on the premise that the interest waiver represented cessation of liability chargeable under section 41(1) of the Income-tax Act, 1961, but the legal effect of the unopposed rehabilitation scheme meant that the Revenue could not ignore the deemed consent arising under the special statute.
Conclusion: The additions under section 41(1) were unsustainable and were deleted.
Final Conclusion: The appeal succeeded and the impugned additions were set aside on the footing that deemed consent under the rehabilitation law operated against the tax treatment adopted by the Revenue.
Ratio Decidendi: Where a draft rehabilitation scheme is duly circulated and no objection is received within the statutory period, deemed consent under section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 prevails for the purpose of the scheme and the related waiver cannot be taxed as cessation of liability under section 41(1) of the Income-tax Act, 1961 merely on the Revenue's assumption of non-consent.
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AI Drafter ✕
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