2003 (3) TMI 45 - HC - Income Tax

Business expenditure deduction - in the Central Board of Direct Taxes Circular No. 674, dated December 29, 1993, if the sales tax liability of the sales tax collected has not been paid actually nor that liability has been converted into loan as required under Circular dated December 29, 1993, that amount is hit by the provisions of section 43B of the Act. He submits that in this case the amount of sales tax collected has not been converted into loan as required under the Circular dated December 29, 1993, therefore, the Tribunal has committed an error in allowing the deduction contrary to the circular and the provisions of section 43B of the Act - neither there is amendment in the Sales Tax Act to give effect to the provisions of the scheme nor the sales tax collected has been converted into loan as required in the circular dated December 29 of 1993, in our view, the Tribunal has committed an error in allowing the deduction contrary to the provisions of section 43B of the Act, 1961.

Summary

Issues:
1. Interpretation of section 43B of the Income Tax Act regarding the liability for payment of collected sales tax deferred under a scheme.
2. Application of Central Board of Direct Taxes Circulars in determining the treatment of sales tax deferred under a scheme.

Analysis:
1. The case involved an appeal against an order related to the treatment of sales tax incentive under the Sales Tax Deferment Scheme for Industries, 1987 of the Government of Rajasthan. The Assessing Officer added the amount of the incentive to the assessment year 1989-90 invoking section 43B of the Income Tax Act as the sales tax collected was not paid to the State Government within the stipulated period. The Commissioner of Income-tax (Appeals) upheld this addition, leading to an appeal before the Tribunal.

2. The Tribunal, in its decision, relied on Circular No. 674, dated December 29, 1993, to conclude that the assessee had discharged their liability under the sales tax deferment scheme, thereby negating the addition under section 43B. The Tribunal's decision was challenged, and the High Court considered the arguments presented.

3. The Department's counsel argued that for the sales tax collected under the scheme to be treated as actually paid, an amendment in the Sales Tax Act was necessary, which had not been done by the State Government. Additionally, it was contended that as per Circular No. 674 of 1993, if the sales tax liability was not converted into a loan, it should be subject to section 43B of the Income Tax Act.

4. The High Court, after considering the submissions, held that since there was no amendment in the Sales Tax Act to align with the scheme's provisions, and the sales tax collected was not converted into a loan as required by the Circular of 1993, the Tribunal erred in allowing the deduction contrary to the provisions of section 43B. Consequently, the High Court set aside the Tribunal's order and reinstated the Assessing Officer's decision.

5. In conclusion, the High Court's judgment clarified the interpretation of section 43B concerning the treatment of sales tax deferred under a scheme and emphasized the importance of compliance with Circulars issued by the Central Board of Direct Taxes in determining tax liabilities. The decision underscored the necessity of aligning statutory provisions with scheme requirements to avoid discrepancies in tax assessments.