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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
INCOME TAX APPEAL NO.1511 OF 2009
WITH
INCOME TAX APPEAL NO.1512 OF 2009
M/s. SI Group India Ltd. ..Appellant.
Vs.
The Asst. Commissioner of
Income Tax Range 3(3) ..Respondent.
WRIT PETITION NO.2368 OF 2009
ig WITH
WRIT PETITION NO.2369 OF 2009
M/s. SI Group India Ltd. ..Petitioner.
Vs.
The Income Tax Appellate Tribunal,
Mumbai and others ..Respondents.
.....
Mr. Soli E. Dastur, Senior Advocate with Mr. Niraj Sheth and Mr.
Sanjiv M. Shah for the Appellant in both Appeals.
Mr. Soli E. Dastur, Senior Advocate with Mr. Niraj Sheth and Mr. Atul
K. Jasani for the Petitioner in both the Petitions.
Mr. Vimal Gupta for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD &
J.P.DEVADHAR, JJ.
10 June 2010.
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ORAL JUDGMENT (Per Dr. D.Y.CHANDRACHUD, J.) :
1. This judgment will govern two appeals instituted by the
assessee under Section 260-A of the Income Tax Act, 1961 and two
petitions under Article 226 of the Constitution. Although several
questions are raised in the appeals, for the purposes of these
proceedings it would be sufficient to deal with the following question
of law on which the appeals are admitted :
“Whether on the facts and in the circumstances of the case
and in law, the Tribunal was right in completelydisregarding 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 authorities had notgiven credit of the said payment against the sales tax
liability;”
2. The Petitioner has an industrial unit in the district of
Raigad which is a notified backward area. The Government of
Maharashtra issued a package scheme of incentives in 1993 by which
a scheme for the deferral of sales tax dues was announced. The
Petitioner had during the period 1 May 1999 and 31 March 2000
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collected an amount of Rs.1,79,68,846/- towards sales tax. Under
the scheme the amount was payable in five annual installments
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 Maharashtra 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. Payment was made by the assessee to
SICOM on 26 June 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.
3. 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
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the Income Tax Act 1961. The appeal filed by the assessee before the
Commissioner (Appeals) for 2000-01 as well as the appeal for
2001-02 came to be dismissed by the appellate authority. The
Tribunal dismissed the appeals filed by the assessee for these two
Assessment Years by a common order dated 6 January 2009. The
assessee then moved the Tribunal in a miscellaneous application
under Section 254 which was dismissed on 10 September 2009.
4. Accordingly the assessee has filed two appeals before this
Court under Section 260-A to challenge the principal order of the
Tribunal dismissing the appeals for Assessment Years 2000-01 and
2001-02. The Petitions under Article 226 questioned the correctness
of the order passed by the Tribunal dismissing the applications under
Section 254. During the course of the proceedings, we have heard
submissions on behalf of counsel appearing on behalf of the assessee
and counsel appearing on behalf of the Revenue on the merits of the
appeals filed before this Court under Section 260-A and which as
noted earlier have been admitted. In the view which we are inclined
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to take on the appeals, the Petitions under Article 226, challenging
the order of the Tribunal under Section 254 would be rendered
redundant.
5. On behalf of the assessee, learned senior counsel submitted
that the principal requirement for the applicability of Section 41 is
that the assessee must obtain a benefit in respect of a trading liability
by way of a remission or cessation thereof. The two submissions
which have been urged on behalf of the assessee are that (i) there
was no cessation of the liability of the assessee in the present case in
respect of the payment of the sale tax dues; and (ii) assuming that
there was a cessation, no benefit was obtained by the assessee. The
submission which has been urged on behalf of the assessee is that as a
matter of fact the issue pertaining to the sales tax liability was
decided by the Sales Tax Tribunal by its judgment dated 8 February
2008 and the Tribunal specifically upheld the order passed by the
lower authorities declining to give credit to the assessee of the
payment which was made to SICOM. The matter, the court is
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informed, is pending in reference and consequently at this stage, so
long as the order of the Tribunal continues to hold the field, it cannot
be inferred that there was a remission or cessation of liability.
Insofar as the second submission is concerned, the argument before
the Court is that the assessee in paying the net present value of the
deferred liability to pay the sales tax dues of Rs.1.29 Crores has not
obtained any benefit as such within the meaning of Section 41(1)
since the payment of Rs.50.44 lacs represents only the present value
of the liability to make a deferred payment of Rs.1.79 Crores in
future.
6. On the other hand, it was urged on behalf of the Revenue
that the order of the Sales Tax Tribunal upon which reliance has been
placed by the assessee would in fact indicate that the payments which
were made by the assessee were regarded as having a nexus towards
payments of the sales tax dues and liberty was granted to the assessee
upon obtaining a valid document under the package scheme of
incentives to be considered for the relevant period towards payment
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of the deferred amount.
7. Section 41(1)(a) of the Act provides as follows :
“41.(1) Where an allowance or deduction has been made in
the assessment for any year in respect of loss, expenditureor trading liability incurred by the assessee (hereinafter
referred to as the first mentioned person) and subsequently
during any previous year –
(a) the first mentioned person has obtained, whether
in cash or in any other manner whatsoever, any amount inrespect of such loss or expenditure or some benefit in
respect of such trading liability by way of remission or
cessation thereof, the amount obtained by such person orthe value of benefit accruing to him shall be deemed to be
profits and gains of business or profession and accordingly
chargeable to income tax as the income of that previous
year, whether the business or profession in respect of whichthe allowance or deduction has been made is in existence in
that year or not;”
8. 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
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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. In the present case, the dispute between the assessee
and the Revenue is as to whether there was a remission or cessation
of the liability on account of sales tax.
9. The assessee had collected an amount of Rs.1.79 Crores
towards sales tax dues during the period 1 May 1999 and 31 March
2000. Under the package scheme of incentives announced by the
Government of Maharashtra in 1993 the sales tax dues had to be paid
in five installments commencing from April 2010. SICOM as the
implementing agency quantified, according to the assessee, the net
present value of the deferred liability of the assessee at Rs.50.44 lacs
which was paid by the assessee to SICOM. However, the sales tax
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officer while passing the assessment order on 18 March 2004 did not
consider the amount paid to SICOM as repayment of the deferred
liability of the assessee to the extent of Rs.1.79 Crores under the
Bombay Sales Tax Act, 1959 and Central Sales Tax Act, 1956. The
appeals filed by the assessee before the Deputy Commissioner of Sales
Tax were dismissed upon which the assessee filed a second appeal
before the Maharashtra Sales Tax Tribunal. The Tribunal, by its
judgment dated 8 February 2008 upheld the order of the lower
authorities of not giving credit of the payment made by the assessee
to SICOM. In these proceedings, neither the validity of the order
passed by the Sales Tax Tribunal nor for that matter the correctness
of the reasons that weighed with the Tribunal can be called into
question. The Tribunal observed that though the assessee had made
a premature payment of the deferred tax in accordance with the
scheme issued by the Department of Industries of the State
Government under the package scheme of incentives of 1993, the
payment of the net present value was to be made in the challan
prescribed under the Sales Tax Act which constituted the lawful mode
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of making payment and the payment which was made to SICOM
would nonetheless have to follow the procedure prescribed under the
Act. The Tribunal was of the view that the decision of the assessing
authority and of the Deputy Commissioner of Sales Tax not to give
credit to the payment made to SICOM would have to be upheld, but
left it open to the assessee to procure a valid document under the
scheme which would be “considered for relevant period for relevant
deferred amount”.
10. The net result of the order of the Sales Tax Tribunal dated
8 February 2008 is to uphold the decision of the assessing authority
declining to grant credit of the payment made by the assessee to
SICOM towards discharge of the deferred sales tax liability. As a
matter of fact, on 22 July 2008 a notice of demand was issued under
Section 38 of the Bombay Sales Tax Act of 1959 to the assessee by the
Deputy Commissioner of Sales Tax, Navi Mumbai in the total amount
of Rs.1,33,13,555/-. Having regard both to the order passed by the
Sales Tax Tribunal on 8 February 2008 and the notice of demand
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issued on 22 July 2008, it is not possible for the Court to accept the
contention that there was a remission or cessation of liability. Since
the record before the Court does not disclose that there was a
remission or cessation of liability, one of the requirements spelt out
for the applicability of Section 41(1)(a) has not been fulfilled in the
facts of the present case.
11.
In the view that we have taken it is not necessary for the
Court to address itself to the wider issue as to whether the assessee,
in paying the net present value of the deferred sales tax liability
should be regarded as having obtained any benefit within the
meaning of Clause (a) of sub section (1) of Section 41. The aforesaid
issue is kept open to be adjudicated upon at the appropriate stage in
appropriate proceedings.
12. The Tribunal, in our view, was in error in proceeding on
the basis that there was a remission or cessation of liability. The
attention of the Tribunal was drawn to the order passed by the Sales
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Tax Tribunal. The fact that the order of the Sales Tax Tribunal was
placed for consideration before the Income Tax Appellate Tribunal
emerges from the order of the Tribunal itself. Consistent with the
order passed by the Sales Tax Tribunal which continues to hold the
field, the ITAT could not have come to the conclusion that there had
occurred a remission or cessation of liability during the Assessment
Years in question.
13. For the aforesaid reasons, the appeals filed by the assessee
are allowed and the question of law as framed is answered in favour
of the assessee and against the Revenue. In the view which we have
taken it is not necessary for the Court to enquire into the correctness
of the order passed by the Tribunal on the application under Section
254. Both the petitions shall accordingly stand disposed of.
In the circumstances of the case, there shall be no order as
to costs.
(Dr. D.Y.Chandrachud, J.)
(J.P. Devadhar, J.)
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