1. These two appeals were heard together with the consent of the parties as the point involved was common and they are being decided by this order.
2. The assessee, who is a registered firm carrying on business of manufacture of wallclocks and parts thereof used to collect sales-tax from the customers. Under the scheme of the State Government known as sales-tax deferment scheme, which was applicable to the assessee, the sales-tax collected was to be paid in certain instalments after a period of 12 years. The copies of relevant instructions of the Government have been filed by the assessee. According to the subsequent instructions which were issued by the Government in order to remove the difficulties experienced by the industrial units on account of insertion of Section 43B in the Income-tax Act, 1961 under which the accrued liability to pay sales-tax was not allowable as deduction in the year in which it was incurred unless it was discharged by payment, the liability to pay sales-tax was to be treated as discharged and the relevant amount was to be treated as interest-free loan payable after period of 12 years. The ITO treated the liability of assessee for sales-tax as disallowable Under Section 43B of the Act and added the amount (Rs. 6,416) collected as sales-tax by the assessee. The CIT (Appeals) confirmed the addition and the assessee is in further appeal before us.
3. The assessee in this appeal carries on business roofing tiles. As far as sales-tax liability is concerned, the facts are identical. The amount involved is Rs. 26,556. The addition made by the ITO is confirmed by the CIT (Appeals). The order passed by CIT (Appeals) is of the same date and reasons given are identical. The assessee is in further appeal before us.
4. We have heard the parties. Recent amendments in Section 43B by the Finance Act, 1987 and Finance Act, 1988 were relied on by epartment in support of the argument to the effect that the sales-tax ollected constituted trading receipt while sales-tax liability which was not discharged in the relevant year by payment was not allowable as deduction. It was further argued that in the present case, the accrued liability for payment of sales-tax to Government was to be discharged after 12 years and as such, deduction in the year under consideration was not allowable. The above submission is not tenable. In the present case, the liability for payment of sales-tax stood discharged because of specific instructions of the Government to that effect and the liability that remained outstanding was that of payment of interest- free loan. Since the liability for payment of sales-tax stood discharged on account of specific instructions of the Government to the said effect, it followed that the bar against disallowance contained in Section 43B as amended did not operate. In this connection, it is pertinent to refer to instructions of CBDT No. 496 dt. 25-9-1987 (published in 1988, 169 ITR Statute 63) the material portions of which are as follows: Sales tax deferral scheme - Provisions of Section 43B of the Income-tax Act, 1961 -Clarification regarding.
Several State Governments have introduced sale-tax deferral schemes as a part of the incentives offered to entrepreneurs setting up industries in backward areas. Under these schemes, eligible units are permitted to collect sales tax and retain such tax for a prescribed period. After this period, the sales-tax is to be paid to the Government either in lump sum or in instalments.
2. Section 43B of the Income-tax Act, 1961, introduced by the Finance Act, 1983, with effect from 1-4-1984 provides, inter alia, that a deduction in respect of any sum payable by the assessee by way of tax or duty under any law for the time being in force shall be allowed from the income of the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay such sum was incurred. Since the introduction of this provision, assessees who collect sales tax, but do not pay the amounts to the Government during the previous year, under the deferral schemes provided by the State Governments are not entitled to the benefit of deduction from their income.
3. Representations have been received from various State Governments and others that cases of deferred sales-tax payments should be excluded from the purview of Section 43B as the operation of this provision has the effect of diluting the incentive offered by the deferral schemes.
4. The matter has been examined in consultation with the Ministry of Law and the various State Governments. The Ministry of Law has opined that if the State Governments make an amendment in the Sales Tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirements of Section 43B. 5. The Government of Maharashtra have by the Bombay Sales Tax (Amendment) Act, 1987, made the amendment accordingly. The Board have decided that where amendments are made in the sales tax laws on these lines, the statutory liability shall be treated to have been discharged for the purposes of Section 43B of the Act.
In the State of Gujarat, necessary amendments have been made by executive instructions, copies of which have been filed before us. The above instructions of the Board would be applicable as far as applicability of Section 43B to the liability of payment of sales-tax to sales tax deferred scheme. We, accordingly, hold that nothing contained in Section 43B justified making of additions in question. We, accordingly, delete the additions.