TaxTMI 
TaxTMI 
2010 (11) TMI 728
X X X X Extracts X X X X
X X X X Extracts X X X X
....re were diversion of views of the Co-ordinate Benches of the Tribunal on the above issue. In the case of Dy. CIT v. Sterlite Optical Technologies Ltd. and vice versa in [ITA No. 7136 & 7177/M/2004 for assessment year 2001-02 order dated 8-1-2008] the Tribunal has treated the difference between the deferred Sales Tax and its present value as capital receipt, not chargeable to tax, whereas in the case of Schenectady Specialities Asia (P.) Ltd. v. Asstt. CIT [2009] 29 SOT 1 (Mum.) relied on by the ld. DR wherein it has been held that the same is chargeable to tax under section 41(1) of the Act. He further submits that on an appeal filed by S.I. Group India Ltd., formerly known as Schenectady Specialities Asia (P.) Ltd.'s case (supra) recently, the Hon'ble Jurisdictional High Court in S.I. Group India Ltd. v. Asstt. CIT [2010] 192 Taxman 91 (Bom.); on the question of law "Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in completely disregarding the contention of the Appellant that there was no remission or cessation of the sales-tax liability on account of payment of the present value thereof being made to SICOM since the sales tax authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whether the assessee, in paying the net present value of the deferred sale tax liability should be regarded as having obtained any benefit within the meaning of clause (a) of the sub-section (1) of section 41. The aforesaid issue is kept open to be adjudicated upon at the appropriate stage in appropriate proceedings." Since the issue raised for the Special Bench has not been decided and kept open by Their Lordships to be adjudicated upon at the appropriate stage in appropriate proceedings, we do not find any merit in the plea of the ld. Sr. Counsel for the assessee that there is no requirement to constitute the Special Bench on the question referred and, accordingly, we reject the said objection raised by the ld. Sr. Counsel for the assessee. However, at the same time we find force in the submissions of the ld. Sr. Counsel for the assessee that the question needs to be re-drafted because the present question before the Special Bench starts with the presumption that it is a case of remission. In fact the ld. Sr. Counsel stressed that most of his arguments will be on the facts of the case that no remission at all is involved and consequently is there no benefit as envisaged by se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all be paid by the unit after twelve years/in one lump sum or in instalments, subject to such conditions as may be prescribed pursuant to the provisions of the Bombay Sales tax Act, 1959, the Bombay Sales Tax Rules, 1959. The Central Sales Tax Act, 1956, the Central Sales Tax (Bombay) Rules, 1957, and Central Sales Tax (Registration and Turnover) Rules, 1957, as amended from time to time." Assessee opted for the said deferral scheme. Government of Maharashtra again brought a scheme vide Resolution No. IDL-1088/(6603)-IND-8, dated 30-9-1988. According to this scheme, the benefit was available even on expansion or diversification of the existing unit. Assessee accordingly, again opted for deferral scheme in respect of its expansion. In 2002, Government of Maharashtra brought Trade Circular No. PSI-2002/91/Adm-13/B-1041/Circular No. 39T of 2002, dated 12-12-2002. The subject of this Trade Circular reads as follows : "Sub. : Premature Repayment of the amount of deferred taxes by the Eligible Units at Net Present Value (NPV)." Trade Circular has mentioned sub-section (4) of section 38 of B.S.T. Act, 1959 which was amended as follows : "Provided also that, notwithstanding any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting to Rs. 4,14,87,795 was treated as capital receipt and was credited in the books of account of the assessee to the capital reserve account. 8. Before the Assessing Officer the assessee while relying on CBDT Circulars No. 496, dated 25-9-1987 and 674, dated 29-12-1993, submitted that deferral sales-tax under the Deferral Scheme is required to be treated as actually paid so that statutory liability will be taken to have been discharged for the purpose of section 43B. It was further submitted that as per Board Circular conversion of sales-tax liability into loan shall be taken to be the discharge of liability for sales-tax. It was further submitted that though the sales tax collected from customers was a trading receipt, the same is taken to have been paid to the Government under the deferral scheme. After such deemed payment, the unpaid sales tax is by way of deferral loan and not a trading receipt and, hence, the remission of loan cannot be taxed as income of the assessee. However, the Assessing Officer observed that the Circular relied on by the assessee has been followed in the earlier years in the assessee's case by not making any disallowance under section 43B of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the present case does not arise. The reliance was also placed on various decisions for the proposition that the notional income should not be subject to tax and provisions creating a deeming fiction are to be construed strictly. Relying on the ratio of the decisions as referred in the order of the ld. CIT(A) at pages 11 to 13 and CBDT Circular as referred above it was, therefore, submitted that nothing has been accrued to the assessee and, therefore, question of adding anything to its income does not arise and, hence, the provisions of section 41(1) are not applicable. 10. The ld. CIT(A) after considering the assessee's submission in the light of the 1983 and 1988 schemes and also the CBDT Circulars and the ratio of decisions relied on by the assessee observed that the combined reading of documents, proves beyond a shadow of doubt that appellant had collected sales tax which was not paid earlier, which remained as deferred sales tax liability, it was never converted into a loan and even if it is presumed that deferred sales tax liability was converted into loan, the amount was paid at Net Present Value of the deferred sales liability resulting into remission within the ambit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the 3rd proviso to section 38(4) of the Bombay Sales tax Act, 1959, the Maharashtra Government made such an amendment, SICOM an implementiong agency was authorised to convert the deferred sales tax in to a loan. In 1995, a fourth proviso was inserted entitling an assessee to prepay such loan. Thereafter, as per the 2002 amendment, 4th proviso to section 38(4) (By which the earlier 4th proviso was substituted) provided that where the net present value of the deferred tax was paid, the deferred tax would be deemed, in the public interest, to have been paid. Detailed procedure for such prepayment was prescribed vide Circular dated 12-12-2002 (Pgs. 174-186). The assessee made the prepayment on 30-12-2002 (Pgs. 188-189 and 207-208). He further submits that the fourth proviso to section 38(4) of the Bombay Sales-tax Act provides that the Eligible Unit to whom an Entitlement Certificate has been granted for availing the deferment incentives may prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax and on making such payment, the deferred tax shall be deemed to have been paid. Pursuant to the said fourth proviso, Trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation. Every debtor would have his own concept and point of view on whether to prepay depending on his present value for money, his view of the future, his use for money, etc. He further submits that when the full present value of a liability is paid there is no remission. Since there is no benefit, the question whether the liability is a trading liability or a loan becomes irrelevant and, hence, the prepayment benefit if at all is in the capital field. 14. He further submits that in Dy. CIT v. Reliance Industries Ltd. [2004] 88 ITD 273 (Mum.)(SB), the Special Bench of the Mumbai Tribunal took the view that an incentive received under the 1979 Package Scheme of Incentive is a capital receipt. The purpose and object and terms of the 1979 Scheme is so far as are relevant are the same as under the 1983/1988 Schemes. The form is not relevant but only that it is an incentive for dispersal of industries and setting up of industries in the less developed parts of the State. According to him similarities between the 1979 Scheme (with which Reliance was concerned) and 1983/1988 schemes (with which the present case is concerned.) are as under :- 1979 Scheme 1983 Scheme 1988 Schem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f excise duty. It is for this reason that the Hon'ble Supreme Court stated that even a subsidy to acquire raw materials may be in the capital field depending on the object of the Scheme. He further submits that the purpose of the 1983 and 1988 schemes are the same as the object and purpose of the 1979 scheme with which Reliance Industries Ltd., Special Bench (supra), was concerned, viz., dispersal of industries outside the Bombay-Thane-Pune belt. In Reliance Industries Ltd.'s case (supra), the subsidy opted for was exemption from payment of sales-tax and the sales tax deemed to have been collected by assessee (which was not to be paid to the Government) was held to be on capital account or in the capital field. It was held that the sales tax ought to be regarded as paid to the Government and returned to Reliance in the form of a subsidy (in the present case a subsidized loan). So also the sales tax collected in the present case was on capital account and the subsequent payment to the Government whether in the period prescribed in the scheme or the prepayment would be on capital account, i.e., one has to determine the character of the subsidy in the form of sales-tax collection. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liability on the due date.). In the Appellant's case, it has not been accepted that there is a remission. In Sterlite Optical Technologies Ltd.'s case (supra), Everest Industries Ltd.'s case (supra) & Associated Capsule Ltd.'s case (supra) the assessee did not urge that there was no benefit and that there was no remission of a liability. Moreover, in Cartini India Ltd.'s case (supra), the assessee was entitled to an incentive only to the extent of 15 per cent of the fixed capital investment, which is a material difference between that case and the Appellant's case, whereas the Appellant is entitled to an incentive to the extent of 85 per cent of the fixed capital investment. He further submits that an incentive of Rs. 18,93,750 on a fixed capital investment of Rs. 1,26,25,000 (15 per cent) can hardly be regarded as an incentive for setting up the unit and incurring the cost of fixed capital investment, whereas in the appellant's case there can be no doubt that the incentive was for setting up the unit in a backward area. Also, in Cartini India Ltd.'s case (supra), the assessee did not at all argue that (1) the incentive was on capital account (in view of Reliance Special Bench and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 29-12-1993 read with Circular No. 496 dated 25-9-1987 have been fulfilled. Assuming that there was some doubt in the matter it must be resolved in favour of the appellant. An authority must be regarded as having done that which ought to have been done, otherwise the assessee would be denied a benefit to which it was legitimately entitled for no fault of its own. Reliance was also placed on CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom.) wherein it was held that if the assessee had done all he/she could to purchase the house but the purchase could not be finalized for no fault of his/her, the assessee could not be denied exemption under section 54. In that case the investment of a small sum of Rs. 8,000 out of the total sum of Rs. 2,59,238 in the house still had to be done, nevertheless the Hon'ble Bombay High Court held that substantially the entire cost of construction had been paid by the assessee within the stipulated period and therefore deduction under section 54 was allowed. The present case stands on a much stronger footing where everything that the appellant could do was done and the process of conversion could not be completed because the sales-tax authorities did....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion of sales-tax liability into loan by SICOM. Since in the present case, SICOM has given its consent for the conversion, the conversion by SICOM has been done and the requirement of third proviso to section 38(4) is also fulfilled. Therefore, the sales-tax liability on the facts of the present case is to be regarded as having been converted into a loan and the prepayment thereof ought to be regarded as prepayment of such converted loan liability. Therefore, the benefit, if any, on such prepayment is on capital account. Reliance was placed on the recent decision of Hon'ble Jurisdictional High Court in S.I. Group India Ltd. case (supra), wherein on the similar facts and circumstances, it has been held that there was no remission or cessation of liability, one of the requirements spelt out for the applicability of section 41(1)(a) has not been fulfilled. Reliance was also placed on the decision of the Hon'ble Bombay High Court in Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501, wherein it has been held that section 41(1) does not apply to a benefit received on capital account. The said decision of the Bombay High Court has been followed by Delhi High Court in CIT v. Tosha Interna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh Court of Rajasthan in the case of Wolkem (P.) Ltd. v. CIT [2003] 259 ITR 430 (Guj.). 24. In the present case the assessee has itself been treating the sales tax collected as part of trading and not as capital receipts in its books of account and returns of income filed by it, even during the period when it was eligible for the benefits of sales tax deferral under the "Package of Incentive" Schemes. In support he placed on record the copy of audit report under section 44AB of the Income-tax Act, 1961 for the assessment years 2000-01, 2001-02 and 2002-03. He further submits that in column 13(e) of the Tax Audit Report, in respect of "amounts not credited to the Profit and Loss A/c., being capital receipts, if any, the auditor has categorically stated "Nil". This clearly shows that it is accepted position that sales tax receipts have not been treated as capital receipts. The assessee, in the proceedings before the Assessing Officer and ld. CIT(A) has admitted that the receipts on account of sales tax was a trading receipt, and the liability to the State Government on account of the sales tax was a trading liability. The returns of income for the assessment years, including the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disclosed as trading receipt, relate to the earlier assessment years, the assessments of which stand completed and have attained finality, and not related to the assessment year 2003-04 which is the subject-matter of appeal. 26. He further submits that while deciding the case of S.I. Group India Ltd. (supra), the Hon'ble Bombay High Court, after considering the facts of the case, has categorically held that "the liability of the assessee to pay sales tax is indisputably a trading liability in respect of which an allowance or deduction has been made under section 43B". In this case also, the facts are identical and the assessee had availed benefits of sales tax deferral under the "Package of Incentive" Schemes of the Maharashtra Government. In view of the above, it is clear that the assessee has incurred a trading liability, which has been deferred under the Schemes. It is important to appreciate that the trading liability had been incurred and had accrued the moment sales were effected by the assessee. 27. Another argument which was taken by the ld. Counsel for the assessee was that the receipts on account of sales tax were capital receipts in view of the decision of the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... subsidy to be capital in nature. According to him on perusal of the 1983 and 1988 "Package of Incentive" Schemes nowhere show that the incentives with respect to the sales tax were given for the purpose of funding a part of cost of setting up of the factory or that the units became eligible/entitled for the sales tax incentive even before the commencement of the production. It could not be pointed out by the ld. Counsel for the assessee as to which clause in the Schemes even suggests that the subsidies were given for the purpose of funding a part of cost of setting up of the factory or that the units became eligible/entitled for the sales tax incentive even before the commencement of the production. The only reason given by the ld. Counsel for the assessee in support of his claim is his reliance on decision of Hon'ble Special Bench in the case of Reliance Industries Ltd. (supra). According to the ld. DR the findings given in the context of the 1979 scheme cannot hold good for the 1983 and 1988 schemes when nothing could be pointed out by the ld. Counsel that under the 1983 and 1988 Schemes, the subsidies were given for the purpose of funding a part of cost of setting up of the uni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... project, etc. Within the same Scheme, while the units are eligible for the sales tax incentive only after the commencement of the production, the units are eligible to draw the special capital incentive at a certain percentage of the fixed capital investment after the completion of all effective steps during the process of setting up the unit and, even before the commencement of the production (page No. 112 of the paper book) and it is the specific purpose for which each incentive/subsidy is given which will decide as to whether the subsidy is in the nature of a capital subsidy or revenue subsidy. The Hon'ble Supreme Court has in para 8 of Sahney Steel & Press Works Ltd.'s case (supra) has held as follows:- ".... The sales tax upon collection forms part of public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient - whether revenue or capital - will have to be determined by having regard to the purpose for which the subsidy is given...." This has been demonstrated by the Hon'ble Supreme Court by way of an example which is reproduced below : "If the scheme was that the assessee will be given refund of sales tax on purchas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e capital field depending on the object of the Scheme is not correct. As per the decision of the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) it is not the object of the Scheme, but the purpose for which the subsidy is given under the Scheme which will decide the nature of the subsidy. In Ponni Sugars & Chemicals Ltd.'s case (supra) it has been categorically held in para 14 that it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. Applying the above principles in the case of the assessee, there is no clause under the 1983 and 1988 Schemes, even suggests, that the sales tax subsidy was given for enabling the assessee to set up the industrial unit. In fact, the unit under these Schemes would become eligible for the sales tax incentives only after commencement of commercial production and after the unit was set up. Clause 2.1 of the 1983 "Package of Incentive" Scheme lays down that "the Eligibility Certificate under Part I of the 1983 Scheme will be issued by the Implementing Agency after commencement of commercial production as may be determined by it, based on the totality of the documentary evide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ey in its business entirely as it liked. Similar is the situation in the case of the assessee. In the case of Sahney Steel & Press Works Ltd. (supra), the refund of sales tax on raw materials, machinery and finished goods was subject to a maximum of 10 per cent of the equity capital paid-up in the case of Public Limited companies and the actual capital in the case of others. Hence, the maximum limit of the subsidy was capped on the basis of a capital asset. In the case of the assessee the maximum limit of the subsidy was also capped on the basis of fixed capital investments, which were capital assets. While the objective of the Scheme under which Sahney Steel & Press Works Ltd.'s case (supra) received the incentive was stimulating setting up and expansion of industries in the State, the objective of the Maharashtra Schemes under which the assessee received the incentives was dispersal of industries outside the Bombay-Thane-Pune Belt and stimulating setting up of the industries to the other underdeveloped and developing areas of the State. The object of the both Schemes were the same in substance. In the Maharashtra Schemes of 1983 & 1988 also, there is a system of yearly review to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mencement of the commercial production. There is nothing in the Scheme which even suggests remotely that the subsidy was required to be used for repayment of any loan taken for setting up the unit or for purchase of any capital asset. The assessee was free to use the money in its business as it liked. In fact, the Order of the Division Bench in the case of Reliance Industries Ltd. (supra), which has been approved by the Special Bench itself holds that "...it is a fact of life of the setting up of industries in the modern era that the cost of machinery and plant, etc. are generally defrayed by way of repayment of borrowings from out of the internal accruals of the industry during the course of its business operations..." (para 31 of the order of Special Bench in the case of Reliance Industries Ltd. (supra). The above itself is sufficient to show that even the Tribunal was of the view that the cost of setting up of the industry has been met through profits earned by the assessee and out of internal accruals during the course of its day-to-day business operations. There was no requirement that the subsidy was required to be employed for the purpose of repayment of borrowings taken for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to acquire new plant and machinery or that it was to be used directly or indirectly to set up the industry. 33. The decision of the Tribunal in the cases of Sterlite Opticals Technologies Ltd. and Everest Industries Ltd. (supra), would not help the assessee in view of the above reasons and further it has simply followed the decision of Hon'ble Special Bench in the case of Reliance Industries Ltd. (supra) without examining the nature of subsidies as per the ratio laid down by the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) and Ponni Sugars & Chemicals Ltd.'s case (supra). Further, the assessee has himself admitted and disclosed that the sales tax receipts as trading receipts, revenue in nature. For the same reason, the reliance of the assessee on Associated Capsules (P.) Ltd.'s case (supra), which has simply followed Sterlite Opticals Technologies Ltd.'s case (supra) would be of no help to the assessee for the reason given above. In any case, the question as to whether sales tax receipt is revenue or capital is of no consequence to the issue before the Bench since the assessee has itself admitted and disclosed the same as revenue receipt and, the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wed. Before the Ld.CIT(A) also, this fact has been admitted by the assessee. At page No. 9 of the CIT(A)'s order, assessee's submissions have been noted. In the third last line, the submission of the assessee is as follows : "The sales tax so collected would be treated as deemed payment by virtue of the amendment by Circular No. 496, dated September 25, 1987 and Circular No. 674, dated December 29, 1983 issued by the Central Board of Direct Taxes (CBDT) ........ for the purpose of Sales Tax Act." Again at page No. 12, the following submission of the assessee is noted :- "Therefore, in the present case the sales tax liability though not paid, by virtue of amendment of Sales Tax Act, would be regarded as actually paid." On page No. 13 of the CIT(A)'s order, the following submission of the assessee is noted in the first four lines:- "From the above it is clear that although the sales tax collected from the customers was a trading receipt, due to the deferral scheme the same is deemed to have been paid to the Government, thereby discharging the liability." All the above not only prove that the assessee was itself admitting that the sales tax receipts, even during the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ards leading to the changeover can be undertaken only by a unit whose Eligibility Certificate and Certificate of Entitlement have been modified. Admittedly, the Certificate of Entitlement of the appellant was not modified. Hence, question of it complying with the procedures in the succeeding clauses would not arise. (iii) Assessee also has not been able to give any evidence that it has complied with any of the procedures required to be complied by it as per clause 6.13 onwards of the scheme. (iv) Modification in the Eligibility Certificate only signifies that instead of the benefits under the deferral scheme, the unit holder is now eligible for benefits under the interest-free loan Scheme. This does not in anyway mean that its deferred sales tax liability has changed into interest-free loan. (v) After all the formalities laid down in the procedure have been complied with and SICOM is satisfied that the application for provisional loan is in order, it will sanction sales tax loan equivalent to total amount of tax payable as shown in the returns and eligible for deferral (clause 6.16). He further submits that evidences on record and the submissions of the ld. Counse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10-1996 (Eligibility Certificate dated 8-11-1989 at page 153 of the paper book filed by the assessee). The unit could have applied for the conversion only during 1-11-1989 to 31-10-1996. The assessee was not eligible for such conversion when it applied for the same on 8-10-2002 in Annexure 'A' (page Nos. 255 and 256 of the paper book filed by the assessee). The question of the deferred sales tax of this unit being converted into interest-free loan would not, therefore, arise. In support the reference was made to clause 6.10 of the Resolution dated 21-7-1998 which states as follows:- "An eligible unit will be entitled to exercise option covering the past period i.e., the period prior to the date of option in part or in full as well as the remaining portion of the period covered by the Eligibility Certificate. But the option once exercised shall be final and binding on eligible unit and that it will not be open for the unit to change the option once exercised." Similarly, the option in respect of the conversion from the sales tax deferral into the interest-free loan scheme is to be exercised for the past period of eligibility in part or in full as well as the remaining period. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rral" and, on receipt of such sanction letter, the eligible unit execute necessary agreement in this regard, the conversion to loan can be said to have taken place (clause 6.16 of the Resolution dated 21-7-1988 - page 234 of the paper book). Admittedly, no such sanction has been issued. The Ld. Counsel has also admitted that "the process of conversion could not be completed because the Sales tax authorities did not issue the modified Entitlement Certificate". If process of conversion itself had not been completed, the question of the deferred sales tax liability getting converted into interest-free loan cannot arise. 39. The ld. DR further submits that during the course of his preliminary arguments the ld. Counsel for the assessee has contended that the fact that Department has allowed deduction under section 43B itself means that the deferred sales tax liability stands discharged and that it has been accepted that the said deferred tax liability has been converted into a loan. In this regard the ld. DR submits that allowing of deduction under section 43B under no circumstances even suggests that it has been accepted by the Department that the deferred tax liability has been con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. It is very clear from the 4th proviso that it seeks to extend the benefit of prepayment only to the unit holders falling under the deferral scheme. If it had been the intention of the Government to also include the unit holders covered by the interest free loan scheme, they would have also been specifically included in the said proviso. It is also pertinent to mention that 4th proviso was added by the Maharashtra Tax Laws (Levy and Amendment) Act, 1995, dated 18-8-1995 with effect from 1-10-1995 and again the proviso was substituted by the Maharashtra Act No. 20 of 2002, dated 4-5-2002 with effect from 1-5-2002. It is under this substituted proviso that the benefits of prepayment have been made available to the eligible unit which have opted for deferral scheme. Prior to substitution similar benefits were made available to dealers to discharge their loan liability under the 4th proviso. What emerges is that similar benefits were made specifically available in respect of loan liability also prior to 1-5-2002 and now the benefits of prepayment have been granted specifically to the eligible units for the discharge of their deferred sales tax liability. This shows that the ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the assessee that no benefit has accrued to the assessee on account of prepayment of the deferred liability at NPV. Alternatively, it has been argued by the Ld. Counsel that if at all any benefit has accrued, it is on capital account. According to the ld. DR, the assessee has, in fact, obtained benefit in respect of the deferred sales tax liability, which is a trading liability on account of its prepayment at NPV, the working of which was prescribed by the State Government, by way of remission and cessation of such liability. For finding out whether the assessee has obtained any benefit or not, one need not travel beyond the Balance Sheets and accounts filed by the assessee. In Schedule 'P' to the Notes to accounts (page No. 90 of the paper book) filed along with the return of income for the assessment year 2003-04 (during the period when the prepayment has taken place), it has been stated as follows:- "The company has, in response to a notification issued by the Government of Maharashtra, regarding 'Premature repayment of Deferral Sales Tax at Net Present Value', gone in for repayment of the total liability of Rs. 75,201,378 on 30th December, 2002 at Net Present Value. The t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; deposited) Sales Tax Nil Less: Sales tax 3,37,13,393 4,14,87,985 Liability Liability paid 4,14,87,985 4,14,87,985 Hence, from owing liability of Rs. 7.52 crores, the assessee is now owner of assets of the value of Rs. 4.15 crores which he is no longer required to pay to any one. It goes without saying that the assessee has benefited by Rs. 4.15 crores. The condition of section 41(1) is, therefore, satisfied. Assessee collected Rs. 7.52 crores from its customers on account of sales tax. This money was required to be paid to the State Government after the requisite number of years as per the terms of the 1983 and 1988 Schemes. The assessee also obtained deduction on account of Sales tax accrued under section 43B, thereby, reducing its income to that extent. Later on, instead of Rs. 7.52 crores which the assessee was required to pay, it paid only Rs. 3.37 crores and, the balance amount of Rs. 4.15 crores became his own due to the remission of this liability and the deeming provision of the 4th proviso to section 38 of the Sales Tax Act. The assessee immediately....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7.52 crores, which it would get in future from the assessee today. The Government may require money to invest in its several welfare or infrastructure projects. It may find it more beneficial to get back its money available with the unitholders in the form of deferred sales tax liability prematurely, rather than to borrow money from other agencies at high interest rates. Hence, it works out the present worth of its money available with the unitholders and, consequently, the NPV and offers a prepayment Scheme to the unit-holders. It is important to note that NPV does not mean the actual value of the asset (available in the form of deferred sales tax liability with the unit-holders), but the present worth of the said asset considering that it would be able to use the asset only at a later date while the requirement for the money is today. It follows then that the liability that has been prepaid by the assessee is not the actual liability, but only the present worth of the liability in the eyes of the State Government as on the date of prepayment. If the Government had not come out with the Scheme of prepayment, could the assessee have prepaid its liability of Rs. 7.52 crores by payin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... could have even lost this money. These are all hypothetical situations and there is no need to travel into the realms of imagination. 47. To sum up according to the ld. DR, all the conditions for invoking the provisions of section 41(1) are satisfied. It has been held by the Hon'ble Rajasthan High Court in the case of Wolkem (P) Ltd. (supra) that "section 41 enacts adjustment provisions whereby the Revenue takes back what it has already allowed, if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income." Similar view has been held by the Hon'ble Karnataka High Court in the case of Mysore Thermo Electric (P.) Ltd. v. CIT [1996] 221 ITR 504, in the case of Express Newspapers (P.) Ltd. v. CIT [1997] 227 ITR 325 (Mad.) and in the case of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417 (Bom.) and also in Asstt. CIT v. Cosmo Films Ltd. [2009] 28 SOT 353 (Delhi). The Income-tax Department has already allowed a deduction under section 43B to the assessee of sales tax liability of Rs. 7.52 crores. Although, the deduction under section 43B is to be allowed only on "actually paid" basis, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lways been treated by the Appellant as a trading receipt. In any event treatment in the books of account is not relevant. See Tuticorin Alkali Chemicals & Fertilizers Ltd. case (supra) . 50. The ld. Sr. Counsel further submits that the benefit must be determined by an application of universal test. It depends upon person to person. Therefore, in a given case there is no benefit. The Govt. did not give up the money. It is only an early payment. One rupee today is more valuable than one rupee after ten years. Therefore, there is no benefit at all. There is no remission as the assessee has paid the amount as per State Government Scheme. It is an economic concept, commercial concept or common sense concept. 51. He further submits that the ld. DR also referred to pg.7, para 8 of the decision of the Bombay High Court in SI Group India Ltd. (supra), wherein it is stated that the liability of the assessee to pay sales tax was a trading liability. The issue before the court was whether there is remission or cessation of the sales-tax liability when the amount paid by the assessee to SICOM towards prepayment of the deferred sales-tax liability is not accepted by the Sales-tax authoriti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich are required to be taken for conversion of sales-tax liability into a loan. In this connection, the various steps mentioned at page 233 onwards were pointed out, with the submission that these steps were not complied with by the assessee. (3) The assessee in its correspondence with the sales-tax authorities has referred to the deferred sales-tax liability, and not a loan, as having been prepaid. He submits that the aforesaid contentions of the ld. DR are misconceived. 54. The ld. DR's next contention was that several steps which were envisaged under the scheme for conversion of liability into loan were not taken and in this context reference was made to the various steps at page 233 onwards. There was no question of complying with paras 6.13 onwards as a formal modified Entitlement Certificate as per para 6.12 was not forthcoming. 55. The ld. DR also stated that the assessee in its correspondence with the Sales-tax authorities has referred to the liability as deferred sales tax liability and not as a loan. It is submitted that the distinction between deferred sales-tax liability and loan is relevant from the perspective of the Income-tax Act in view of the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Act, 1950, the remission of liability cannot be regarded as agricultural income of the assessee. In any event, the loan in the present case has been utilized for a capital purpose, namely, for fixed capital investment for setting up the unit in a backward area. Therefore, the decision of the Bombay High Court in Solid Container Ltd. case (supra) does not apply since the loan in that case was utilized for trading purpose. In this connection, reference was also made to the following decisions of the Tribunal wherein the decision in Solid Container Ltd. case (supra) has been distinguished on the ground that the loan was utilized for capital purposes : Accelerated Freez & Drying Co. Ltd. v. Dy. CIT [2009] 31 SOT 442 (Cochin) Cipla Investments Ltd. v. ITO [2009] 33 SOT 317 (Mum.) 57. He further submits that the ld. DR also contended that if the liability was converted into a loan, then the assessee could not have prepaid it since the 4th proviso does not speak of prepayment of loan but only provides for prepayment of deferred sales-tax liability. According to him 4th proviso applies to all cases where "certificate has been granted for availing the incentives by way ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the liability. It should be noted that this was not a case of pre-payment to the concerned authority and a credit was taken in the profit and loss account. Para 16 of the order also shows that the assessee appeared to have accepted that there was a benefit but only contended that it should be spread over the period of repayment. 60. In Wolkem (P.) Ltd. case (supra) cited by the Department the excise duty was refunded on the assessee succeeding in appeal. It was indisputable that such an amount would be assessable as the assessee had obtained an amount for which deduction had been allowed earlier. This was not a case of sales tax deferral and, therefore, reference was made to Chowringhee's case as holding that the sales tax is a collection of revenue account. Such is not the position where sales tax is collected under an incentive scheme and which has to be repaid later, hence not applicable. 61. Similarly, in Mysore Thermo Electric (P). Ltd. case (supra) there was a refund of the excise duty Collected which squarely falls within section 41(1). The argument was that the excise duty had not been specifically claimed as a deduction and kept a separate account was not accepted. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-9-1987. We further find that there was an amendment made under the Bombay Sales Tax Act, 1959, (the Sales tax Act) by insertion of the third proviso to section 38(4) of the Sales Tax Act, wherein SICOM or the relevant Regional Development Corporation or the District Industries Centre concerned was to convert the deferred sales tax into a loan and thereafter as per 2002 amendment, fourth provision to section 38(4) of the Sales tax Act by which the earlier 4th proviso was substituted, which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed, in public interest, to have been paid. We further find that the assessee following the aforesaid amendment under the Bombay Sales Tax Act, 1959 has made repayment of loan of Rs. 3,37,13,393 (Rs. 1,76,02,272 of 1983 scheme + Rs. 1,61,11,121 of 1988 scheme) on 30-12-2002 as per NPV of the deferred tax as prescribed under Circular No. 39T of 2002 of Trade Circular dated 12-12-2002 appearing at Pgs. 174-186 to the assessee's paper book. The assessee claimed Rs. 4,14,87,985 being the difference between the deferred sales tax Rs. 7,52,01,378 and its Net Present Value amounting to Rs. 3,37,13,393 as c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming provision enacted in the closing part of sub-section (1) comes into play. Accordingly, the amount obtained by the assessee or the value of benefit accruing to him is deemed to be profit and gains of business or profession and it becomes chargeable to income-tax as the income of that previous year." 67. In Wolkem (P.) Ltd. case (supra), it has been observed that section 41 enacts adjustment provisions whereby the Revenue takes back what is has already allowed, if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income. The provision also fixes the year in which the recoupment, etc., is to be taxed. The first part of sub-section (1) contemplates loss, expenditure or trading liability is some former year for which allowance or deduction had been made in a bygone Assessment Year. The second part of sub-section (1) contemplates recoupment of such loss or expenditure or benefit in respect of such trading liability by way of remission or cessation thereof in some subsequent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t used the words "has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past". In the context in which these words occur, no other meaning is possible.' 69. Recently in SI Group India Ltd. (supra) the Hon'ble Jurisdictional High Court has observed the following: (Placitum-8, page-121 of 326 ITR) : "In order that the provisions of sub-section (1) should be attracted the first requirement is that an allowance or deduction must have been made in the assessment for any year in respect of a loss, expenditure or trading liability incurred by the assessee. The liability of the assessee to pay sales tax is undisputedly a trading liability in respect of which an allowance or deduction had been made under section 43B. However, under clause (a) of sub-section (1) it is inter alia required that the assessee ought to have obtained "some benefit in respect of such trading liability by way of remission or cessation thereof". This postulates that there must be a remission or cessation of the trading liability and that consequently a benefit must enure to the assessee ...." 70. Thus to invoke the provisions of section 41(1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urns have been furnished without full payment thereof, or (ii) assessed or reassessed for any period under section33 or section 35 less any sum already paid by the dealer in respect of such period, (iii) assessed under sub-section (3) of section 41, and (b) the amount of penalty or interest or both (if any) levied under section 36 or 37, and (c) the sum (if any) forfeited to the State Government under section 37, and (d) the amount of fine (if any) imposed under sub-section (3) of section 53 and (e) any other dues under this Act : Shall be paid by the dealer or the person liable therefore into a Government treasury within thirty days from the date of service of the notice issued by the Commissioner in respect thereof : Provided that, the Commissioner may, in respect of any particular dealer or person and for reasons to be recorded in writing extend the date of payment or allow him to pay the tax or penalty or interest (if any) or the sum forfeited, by instalments but such extension or grant of instalment to pay tax shall be without prejudice to the levy of penalty, interest, or both : Provided further that, the Commissioner may, in respect of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proviso provides that Commissioner may in respect of a dealer to whom and Eligibility Certificate has been granted extend the date of payments or grant a moratorium for payment of dues or provide instalments subject to such conditions as may be prescribed. The third proviso says that the State Government or the Commissioner may by general or special order where a dealer to whom incentive by way of deferment of sales tax or purchase tax or both under 1979 scheme, 1983 scheme or 1988 scheme or the case may be electronic Scheme or 1988 scheme or 1993 packaging scheme of incentive, have been granted by virtue of Eligibility Certificate and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or other designated authorities, then such tax has been deemed, in the public interest, to have been paid. The fourth proviso provides that where an Entitlement Certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales tax etc. such eligible unit may in respect of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gative NPV means a worse return, than the return from zero NPV meaning thereby the similar value of a future sum. 76. In the present case the assessee had collected total amount of Rs. 7,52,01,378 towards sales tax during the years 1989-90 to 2001-02. It was treated as a loan liability payable after 12 years in six annual/equal instalments and thus, the assessee treated the said liability as unsecured loans in its books of account. 77. Pursuant to the amendment made under sub-section (4) of section 38 of BST Act, 1959 by substituting the 4th proviso which provides for payment of Net Present Value (NPV) of deferred taxes under the package scheme of incentives which is as under : "Provided also that, notwithstanding anything to the contrary contained in the Act or in the rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion, Promotion Policy, 1998, the Eligible unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may, in respect of any of the periods during which the said certificate is valid, as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it is not possible for us to accept the contention of the ld. DR that there was a remission or cessation of the trading liability. 78. Now we shall refer to the cases decided by the Hon'ble Supreme Court and High Courts and relied on by the ld. DR and assessee's Counsel. 79. In Sahney Steel & Press Works Ltd. case (supra) (headnote) : 'The assessee received refunds of sales tax on purchase of machinery and raw materials and on the sale of finished goods under a G.O. issued by the State Government of Andhra Pradesh. The G.O. had been issued with a view to speed up the industrial development of the State. The amount refunded had to be used specifically for development of the industry and could not be distributed as profits. The ITO assessed the receipts but the Tribunal held that the development subsidy was in the nature of a capital receipt and it was not also assessable under section 41(1). On a reference, it was contended on behalf of the assessee that the amounts were not of the nature of "income" at all and in any case it was a voluntary contributions : Held, (i) that it was not necessary for a receipt to constitute income that it must necessarily be in the nature of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g but supplementary trade receipts. It was true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose. The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year, only after the setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. The subsidies were of revenue nature and would have to be taxed accordingly." It has also been observed by Their Lordships (at placitum H page-267 of ITR ) : "In view of the aforesaid, it is not necessary to discuss the point relating to applicability of section 41(1) of the Income-tax Act, 1961 in this case." 81. In Ponni Sugars & Chemicals Ltd. case (supra) (headnote pg-393) : "The assessee was a co-operative society running a sugar mill. During the relevant year in question, on account of economic factors, it was not economically viable to run new sugar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case (supra) have held that the object of the subsidy was to set up a new unit in a backward area to generate employment, therefore, the subsidy is clearly on capital account. 84. In all the above cases relied on by both the parties the issue was whether the subsidy received by the assessee is capital receipt or revenue in nature. Whereas in the case before us the issue is entirely different i.e. the difference of differed sales tax liability is chargeable to tax as business income under section 41(1) being remission or cessation of trading liability or the same is exempt as capital receipt. Therefore, the above decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. 85. In Polyflex (India) (P.) Ltd. case (supra) the facts in brief are that (headnote) : "In 1986 the assessee had paid excise duty on certain goods. Pursuant to the decision of the CEGAT a sum of Rs. 9,64,206 was refunded in September, 1988. Thereafter the excise department filed an appeal to the High Court and, on the appeal being dismissed, a petition for special leave to appeal to the Supreme Court; but the fate of that petition was not known. For the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ground that the same was not taxable. It was contended that the amount collected by the assessee against the excise duty was credited to the suspense account as such it was not pertaining to the assessee and it was payable to the Central Excise Department and as such it did not constitute an income of the assessee under any provisions of the Income-tax Act. It was further submitted that part of the amount was due to different customers and as such it being a liability the addition was unjust. The Assessing Officer rejected the contention and this was upheld by the Tribunal. On a reference a preliminary objection was raised on the ground that a similar question had been decided by the High Court : Held, (i) that the view taken by the Division Bench of the court in the case of CIT v. Wolkem (P.) Ltd. [1997] 228 ITR 129 was per incuriam as it was contrary to the three decisions of the Supreme Court and an earlier decision of the court. (ii) That the amount which was collected by the assessee against the excise duty or the sales tax was on account of business and as such was a trading receipt. Thus, it would fall in the income of the assessee. A separate account would not chang....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of central excise duty was concerned in the court, and having been successful in their challenge, the authorities were directed to refund to them the aggregate amount paid under this head which the authorities did, by way of one lump sum repayment totalling Rs. 9,11,618 and the refund in question was made during the assessment year 1983-84. The assessees contended that this amount related to a separate account altogether; that they had at no point of time earlier claimed any deductions or allowances in respect of this amount, and hence, the amount was not assessable in their hands. The assessing authority accepted this position whereas, the Commissioner of Income-tax took the view that the provisions of section 41(1) of the Act would clearly apply and that, consequently, the amount was liable to be included in their taxable income. This was confirmed by the Tribunal. On a reference: Held, that the Tribunal was justified in holding that the provisions of section 41(1) could be invoked to tax the refunds received during the accounting year relevant to the assessment year 1983-84 even when the part of excise duty was not claimed as expenditure in the profit and loss accounts o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt, as a result of consent terms arrived at in a suit. The assessee claimed this amount as capital receipt, even though it had offered the interest on the said loan as its income by crediting the same to its profit and loss account. The Assessing Officer added the amount to the total income of the assessee as its income and this was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal that it was a loan taken for trading activity and ultimately, upon waiver the amount was retained in the business by the assessee. The amount had become the assessee's income and was assessable." 91. In T.V. Sundaram Iyengar & Sons Ltd.'s case (supra) : "The Income-tax Officer found that for the assessment years 1982-83 and 1983-84, the assessee had transferred an amount of Rs. 17,381 to the profit and loss account of the company during the accounting period ended on March 31, 1982 (assessment year 1982-83), and an amount of Rs. 38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 28 and also by section 41(1) of the Act, and the Assessing Officer, therefore, included the said amount in the total income determined in the assessment. 10. The CIT(A) deleted the addition and directed the Assessing Officer to amend the assessment to incorporate the additions to the extent of the amount corresponding to the payment made by M/s. Gayatri & Annapurna in the relevant year, over and above the discounted value." The Tribunal has held vide para 31 of 28 SOT 353 as under :- "31. To sum up we, therefore, hold that the Assessing Officer was justified in law as well as on facts in treating the sales tax deferred liability amounting to Rs. 401.41 lakhs as profit and gain of business chargeable to income-tax as the income of the year under consideration in which such liability has been written off in the accounts and credited to the profit and loss account of the assessee inasmuch as the unilateral act of the assessee in writing off the said liability in its accounts by crediting the same to the profit and loss account is amounted to be a remission or cessation of the said liability within the meaning of section 41(1) of the Act read with Explanation 1 thereto." 9....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the establishment of industrial unit in the year of liability. Therefore, the condition of grant of deduction to the assessee in respect of sum of Rs. 5,48,517 in earlier year deserves to be verified and issue to be decided accordingly. In case it is found that no deduction was allowed to the assessee under section 43B of Rs. 5,48,517 in earlier year(s), the addition shall stand deleted." 94. Whereas in the case before us the entire loan amount which was payable after 12 years in six equal instalments was repaid as per present NPV as prescribed by the State Government and no refund was received by the assessee, therefore, the assessee did not get any benefit in respect of such trading liability by way of remission or cessation thereof, and, therefore, the decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case. 95. In the following cases it has been held that section 41(1) is not applicable. 96. In Mahindra & Mahindra Ltd.'s case (supra) it has been observed and held (headnote pg. 502) : "The assessee manufactured jeeps. The assessee filed its return for the assessment year 1976-77. In Part III of the return, the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of expenditure or trading liability. The assessee had paid interest at 6 per cent over a period of ten years on Rs. 57,74,064. In respect of that interest, the assessee never got deduction under section 36(1)(iii) or section 37. In the circumstances, section 41(1) of the Act was not applicable. Secondly, even assuming that the assessee had got deduction on allowance section 41(1) was not applicable because such deduction was not in respect of loss, expenditure or trading liability. Lastly the toolings constituted capital assets and not stock-in-trade. Therefore, taking into account all the above facts, section 41(1) of the Act was not applicable." 97. In Tosha International Ltd.'s case (supra) the assessee was engaged in the manufacturing of black and white picture tubes. The assessee-company ran into huge losses and it ultimately became a sick company and registered with the BIFR. Under the one time settlement scheme, the financial institutions and banks required the assessee to pay 60 per cent of the amount due towards principal and waived the entire interest payment. There is no dispute with regard to the waiver of interest payment. The only objection raised by the Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....instalments commencing from April 2010 and the liability was treated as an unsecured loan in the books of account of the assessee. The State Industrial and Investment Corporation of Maharshtra Limited (SICOM) offered to the assessee an option for the settlement of the deferred sales tax liability by an immediate one time payment. The assessee paid an amount of Rs. 50,44,280 to SICOM which according to the assessee represented the net present value as determined by SICOM. The payment was made by the assessee to SICOM on 26-6-2000. The difference between the deferred sales tax and its present value amounting to Rs. 1.29 crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account. The Assistant Commissioner of Income-tax, Range 3(3), in the assessment order for assessment year 2000-01 brought the aforesaid difference of Rs. 1.29 crores to tax under section 41(1) of the Act. The appeals filed by the assessee were dismissed by the CIT(A) as well as Tribunal. On further appeal it has been held (head note at pages 118 of 326 ITR) : "Held, allowing the appeals, that the Sales tax Tribunal was of the view that the decision of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iscounted value was worked out at Rs. 10,15,75,307 yielding a saving of Rs. 7,37,08,693. The Assessing Officer treated the concession granted to the assessee company by SICOM as a sales tax subsidy and taxed the same under section 41(1) of the Act. On appeal the ld. CIT(A) after taking into consideration the ratio of the decision of Special Bench in the case of Reliance Industries Ltd.'s case (supra) held that the benefit available to the assessee is on account of concession given by the Government is on account of capital receipt, therefore he deleted the addition made by the Assessing Officer. On further appeal by the revenue to the Tribunal, the Tribunal after considering the decision in the case of Sahney Steel & Press Works Ltd. (supra), has held vide para 10.4 of the order as under : "10.4 From the above observations of the Hon'ble Supreme Court, it is very clear that even the sales tax refund can be treated as a capital receipt in the hands of an assessee provided the same is granted to meet directly or indirectly the capital cost on the fixed assets and to help the entrepreneur in the establishment and expansion of the Industrial Unit. Thus, where the subsidy or incentiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8(iv) would apply and made additions to the profits and gains of business of the assessee on account of cessation of liability." On Second appeal : "The facts of the instant case indicated that the holding company had advanced funds to the assessee company in 1998 which was received as share application money, and later on transferred to unsecured loan. The amounts were utilised in investments and the incomes thereon were offered under the head 'Capital gains' and not as 'Business income'. As was rightly held by the Commissioner (Appeals), provisions of section 41(1) invoked by the Assessing Officer did not apply. For attracting the provisions of section 41(1), the first requisite condition to be satisfied is that the assessee should have got the deduction or benefit or allowance in respect of loss, expenditure or trading liability incurred by it and, consequently, during any previous year, the assessee should have received any amount in respect of such loss, expenditure or trading liability by way of remission or cessation thereon. The remission would become income only when the assessee has claimed deduction earlier. In the instant case, the assessee had not got any deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount." 103. In Accelerated Freez & Drying Co. Ltd.'s case (supra) (headnote) : "The assessee-company was engaged in the business of sea food exports. It had availed term loans from three banks for the purpose of acquiring capital assets necessarily to be deployed in its manufacturing system. The assessee-company became defaulter in making the repayments of tern loans along with interest due to its bad financial position. Under a scheme framed by the RBI known as 'One Time Settlement Scheme', the assessee reached an agreement with those banks for One Time Settlement (OTS) of the outstanding liabilities due to those banks in the previous year under appeal. The total loan that remained payable to the banks amounted to Rs. 3,486.03 lakhs. The loans were settled forever on payment of Rs. 2,450 lakhs and thereby the assessee company obtained the benefit of waiver of term loans amounting to Rs. 10.36 crores. This loan amount waived off by banks was credited by the assessee in the general reserve account. For the relevant assessment year, the assessee claimed that the waiver amount was not taxable in its hands inasmuch the said amount could not be treated as its income either unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., dated 25-9-1987. However, we find that in the said circular it has been clearly stated vide para 5 that "...the statutory liability shall be treated to have been discharged for the purposes of section 43B" [Emphasis supplied]. Thus, the benefit of deduction was allowed for the purpose of section 43B of the Act only and not under any other provisions of the Act. There is no dispute that the Assessing Officer has also applied the aforesaid Board Circular while giving the benefit of deduction under section 43B of the Act. It is settled law that the circulars are binding on the department vide number of decisions of the Hon'ble Apex Court [See in Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), K.P. Varghese v. ITO [1981] 131 ITR 597 (SC) and UCO Bank v. CIT [1999] 237 ITR 889 (SC)]. It is also settled law that the Court cannot add words to statute or read words into it which are not there vide Union of India v. Deoki Nandan Aggarwal [1992] Supp. 1 SCC 323. The similar view has been reiterated recently in CIT v. Tara Agencies [2007] 292 ITR 444 (SC). This being so we are of the view the first requirement of section 41(1) has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... so. Therefore the question of conversion of deferred sales tax liability into interest-free loan does not arise. Further, there is no modified Eligibility Certificate incorporating the change from deferred sales tax liability to interest-free loan. However, we find that the assessee on the basis of letter issued by SICOM to the sales tax authority has passed necessary entries in the books of account claiming the difference of deferral amount as capital receipt. Merely because if the sales tax authorities have not issued the modified Eligibility Certificate does not mean that the payment of Rs. 3,37,13,393 made by the assessee cannot be accepted as having been paid at NPV of the future sum of Rs. 7,52,01,378 towards discharge of full liability. It is settled law that the law does not contemplate or require the performance of an impossible act-lex non cogit ad impossibilia, vide Life Insurance Corpn. of India v. CIT [1996] 219 ITR 410 (SC). Further both the parties have submitted and agreed during the course of their arguments that the entries recorded in the books of account are not determinative of the nature of transaction vide Tuticorin Alkali Chemicals & Fertizilers Ltd.'s case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise. (b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfactory of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged. (c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim. (d) A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount. (e) A owes B, 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a composition of eight annas in the rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B's demand." The above clearly shows that promisee may, inter alia, remit part of the promise or whole of the promise and even then the contract can be said to have been preformed.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liability was payable in future. Later on, the State Government came with a scheme by which it was provided that if some dealer opts, then they could pay the future liability at a discounted value or what we may call net present value immediately. Thus, in this situation, it cannot be construed as remission of liability; because the Sate Government has not waived any of the liability as given in the illustrations. Had the State Government accepted lesser amount after twelve years or reduced such instalments, then it could have been a case of remission or cessation. However, in the case before us the State Government has chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of Rs. 3,37,13,393was actually paid to SICOM on 30-12-2002. Thus, the amount which was payable from 1-5-2003 to 1-5-2008, has been paid on 30-12-2002. Thus, it does not satisfy the condition of actual remission in praesenti as opined by the Learned Authors in the above commentary. It is a simple case of collecting the amount at net present value which is due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts h....