Sales tax liability and section 41(1)(a): no remission or cessation where the liability remained outstanding on the record.

Payment of the net present value of deferred sales tax to SICOM did not, on the stated facts, amount to remission or cessation of the sales tax liability under section 41(1)(a) of the Income-tax Act, 1961. The liability had earlier been allowed as a trading liability, but the record showed that credit for the SICOM payment was refused, that refusal was upheld by the Sales Tax Tribunal, and that a later demand notice under the Bombay Sales Tax Act, 1959 was issued. As the liability was neither discharged nor extinguished, the statutory condition for invoking section 41(1)(a) was not satisfied, and the assessee succeeded.

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Issues: (i) Whether the payment of the net present value of deferred sales tax to SICOM resulted in a remission or cessation of the sales tax liability so as to attract section 41(1)(a) of the Income-tax Act, 1961.

Analysis: The sales tax liability was a trading liability in respect of which deduction had earlier been allowed. For section 41(1)(a) to apply, there must be a remission or cessation of that liability and a corresponding benefit to the assessee. The contemporaneous sales tax proceedings showed that credit for the payment made to SICOM had been refused, the order of the Sales Tax Tribunal upheld that refusal, and a later demand notice under the Bombay Sales Tax Act, 1959 was also issued. On that record, the liability had neither been discharged nor extinguished.

Conclusion: The requirement of remission or cessation was not satisfied, and section 41(1)(a) could not be invoked; the finding was in favour of the assessee.

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