| SooperKanoon Citation | sooperkanoon.com/702847 |
| Subject | Direct Taxation |
| Court | Delhi High Court |
| Decided On | Mar-25-1994 |
| Case Number | ITA No. 3153/Del/1989; Asst. yr. 1985-86 |
| Reported in | (1994)50TTJ(Del)54 |
| Appellant | Cosmo Films Ltd. |
| Respondent | inspecting Assistant Commissioner. |
A. KALYANASUNDHARAM, A. M. :
The assessed limited company has filed this appeal and has raised the following grounds :
'1A. On the facts and in the circumstances of the case, the learned CIT(A) erred in sustaining disallowance under s. 40A(5) at Rs. 17,840.
B. The learned CIT(A) erred in taking the perquisite value of rent free accommodation given to General Manager for the purpose of s. 40A(5), instead taking the rent paid.
2A. The learned CIT(A) erred in sustaining disallowance under s. 43B of Rs. 7,33,742.
B. The learned CIT(A) erred in disallowing under s. 43B items of MST Rs. 5,51,115 and CST of Rs. 1,60,688 which were not debited to P&L; account.
C. The learned CIT(A) erred in treating deferred sales-tax of MST of Rs. 5,51,115 and CST of Rs. 1,60,688 as covered under s. 43B.
D. The learned CIT(A) erred in not accepting the contention of assessed that CBDT Circular No. 496 (F. No. 201/34/86-ITA dt. 25th Sept., 1987), is binding wherein it is held that deferred sales-tax credit has to be treated as sales-tax paid.
3. The learned CIT(A) erred in sustaining disallowance of Rs. 3,531 being loss on sale of spares/raw materials.
4. The appellant seeks right to ad, alter, amend grounds of appeal.'
2. The facts in regard to ground No. 1A and B are that the General Manager was provided a rent free accommodation. The company paid rent of Rs. 48,000. However, for the purposes of calculation of perquisites with reference to s. 40A(5) of the Act, the company did not take the actual rent but had adopted the perquisite value thereof as per s. 17 of the IT Act, 1961. The authorities below have rejected the claim of the assessed because of the specific proviso contained in s. 40A(5) of the Act which takes expenditure as incurred by the assessed-company in the purview of perquisites.
3. The counsel for the assessed Shri O. P. Vaish fairly conceded that the issue stands squarely covered by the decision of the Hon'ble Delhi High Court in CIT vs . Shriram Refrigeration Industries Ltd. : [1992]197ITR431(Delhi) .
4. In view of the Hon'ble Delhi High Court decision (supra) with reference to s. 40A(5) of the Act the issue in regard to residential accommodation, quantum of rent, it was held that actual expenses of the employer, what is to be considered, which has been so adopted by the authorities below, we uphold the orders of the authorities and reject this ground of the assessed.
5. The facts in regard to second ground are that Maharashtra Sales-tax and Central Sales-tax amounting to Rs. 5,51,115 and Rs. 1,60,688 respectively, representing collection of last quarter but not paid and was not debited to the P&L; account were added back as income by applying the ratio of the Supreme Court decision in Chowringhee Sales Bureau (P) Ltd. vs . CIT : [1973]87ITR542(SC) . Shri O. P. Vaish appearing for the assessed-company submitted that Maharashtra State floated a package scheme in the year 1983. Under the said scheme the sales-tax both Central and the State would get absorbed under the deferred payment scheme, which will be converted into a loan under that scheme. The amount was accordingly allowed to be paid by the assessed as repayment of the loan in specified Installments. Shri Vaish submitted that s. 38 of the Maharashtra Sales-tax Act was amended by the introduction of the proviso, which is reproduced below for the sake of facility :
'Provided also that, notwithstanding anything contained in this Act or in the rules made there under but subject to such conditions as the State Govt. or the Commissioner may by general or special order specify where a dealer to whom incentives by way of deferment of sales-tax or purchase tax or both 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 the relevant Regional Development Corporation then such tax shall be deemed in the public interest, to have been paid.'
He submitted that the reading of the provision clearly provides that consequent to the issue of the eligibility certificate granted by the concerned authorities, following the grant of recognition of the incentive by way of deferment of sales-tax, the loan liability equal to the amount tax payable, shall be deemed in the public interest to have been paid. He submitted that as a consequence of the said scheme the CBDT issued a Circular No. 496 dt. 25th Dec., 1987 (1988) 68 CTR 109). This is reproduced for the sake of facility :
'Circular No. 496, dt. 25th Sept., 1987 :
Sub : Sales-tax deferred scheme - Provisions of s. 43B of the IT Act, 1961 - Clarification regarding
Several State Govts. have introduced sales-tax deferral schemes as a part of the incentives offered to entrepreneurs setting up industries in backward areas. Under these circumstances, 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 Govt. either in lump sum or in Installment.
2. Sec. 43B of the IT Act, 1961, introduced by the Finance Act, 1983 w.e.f. 1st April, 1984 provides, inter alia, that a deduction in respect of any sum payable by the assessed 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 assesseds who collect sales-tax but do not pay the amounts to the Govt. during the previous year, under the deferral scheme provided for by the State Govts. are not entitled to the benefit of deduction from their income.
3. Representations have been received from various State Govts. and others that cases of deferred sales-tax payments should be excluded from the purview of s. 43B as the operation of this provision has the effect of diluting the incentive offered by the deferral scheme.
4. The matter has been examined in consultation with the Ministry of Law and the various State Govts. The Ministry of Law has opined that if the State Govts. make an amendment in the ST 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 s. 43B.
5. The Govt. 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 s. 43B of the Act.
6. The Cs IT may bring the contents of this circular to the notice of all the officers working under them. [F. No. 201/34/86 - ITA-II]'
He also submitted that the Board again issued a Circular No. 674, dt. 29th Dec., 1993 (1994) 116 CTR (St) 9 in this connection what was stated in the Circular No. 496 (supra).
'Circular No. 674. dt. 29th Dec., 1993.
Sub : Scope of application of s. 43B - Amounts covered under the sales-tax deferral schemes of the State Govts. -Regarding
The scope of application of the provisions of s. 43B to the sales-tax collected but not actually paid under deferral schemes of the State Govts. was considered in Boards Circular No. 496 (F. No. 201/34/86-ITA. II, dt. 25th Sept., 1987 (1988) 68 CTR 109 and it was decided that where the State Govts. make an amendment in the ST Act to the effect that the sales-tax deferred under the scheme shall be treated as actually paid the statutory liability shall be treated as discharged for the purposes of s. 43B.
2. It has been brought to the notice of the Board that some State Govts. instead of amending the ST Act have issued Govt. orders notifying schemes under which sales-tax is deemed to have been actually collected and disbursed as loans. Such Govt. orders also provide that entries shall be made in the Govt. accounts giving effect to deemed collections by crediting the appropriate receipt heads relating to sales-tax collections and debiting the heads relating to disbursal of loans. It has, thereforee, been represented that, as such conversion of the sales-tax liability into loans have similar statutory effect as can be achieved through amendments of the ST Act, the amounts covered under the scheme should be allowed as deduction for the previous year in which the conversion has been permitted by the State Govts.
3. The Board have considered the matter and are of the opinion that such deferral schemes notified by the State Govts. through Govt. orders meet the requirements of the Boards Circular No. 496, dt. 25th Sept., 1987 in effect though in a different form. Accordingly, the Board have decided that the amount of sales-tax liability converted into loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under Govt. orders.
[F. No. 202/22/93-ITA. II-from the Central Board of Direct Taxes].'
6. Shri Vaish made reference to the agreement between the assessed and the State Govts. in this connection ensuring the various taxes payable by the assessed, recognising the same under the deferral payment scheme, granting the requisite eligibility certificate of conversion into loan, treating the amounts as disbursed to the assessed. He pleaded that the said agreement which is placed at pages 26 to 35 clearly show the arrangement between the assessed and the Maharashtra State. He submitted that by virtue of this agreement, the assessed having been allowed deferment, also being allowed conversion into a loan and by virtue of the s. 38 which is reproduced earlier, the amount has to be treated as duly paid by the assessed. He submitted that the Ahmedabad Bench of the Tribunal in the case of Morvi Horological Industries vs . ITO have held that on these circumstances that the said amount could not be disallowed by applying s. 43B of the Act. The Departmental Representative relied on the orders.
7. We have given our very careful consideration to the rival submissions. The Tribunal supra had considered the Boards Circular No. 496, dt. 25th Sept., 1987 and in para had observed as under :
'The Govt. 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 be treated to have been discharged for the purposes of s. 43B of the Act.'
8. The Boards Circular No. 674, dt. 29th Dec., 1993 (1994) 116 CTR 9 in para 2 had very clearly observed that the amount of sales-tax shall be deemed to have been actually collected and then disbursed as loan, indicating that it has been treated by them as it was paid. thereforee, the process of deferment and issuance of eligibility certificate bring only procedural to the State Policies in regard to conferring benefits on the assessed, it has to be held that the amount is treated as paid in the year. The addition is accordingly deleted. The ground No. 3 was not pressed, hence, dismissed.
9. In the result, the appeal is allowed in part.