2002 (7) TMI 20 - HC - Income Tax

Whether the Appellate Tribunal is right in law and on facts in holding that the amount of Rs. 2,22,620 representing deferred sales tax, i.e., unpaid sales tax liability, did not attract the provisions of section 43B of the Income-tax Act, 1961 ? - In this reference, the only dispute is about disallowance under section 43B for unpaid sum of Rs. 2,22,620 for sales tax. It is the stand of the assessee before the assessing authority that the State Government had allowed the assessee to return sales tax collected as a sort of incentive provided for the growth of industry. On this basis, it was contended by the assessee that its case was covered by the provisions contained in section 43B of the Income-tax Act. The Income-tax Officer has, however, rejected the assessee s claim. - We are, of the view that the Tribunal was right in deleting the addition made by the Income-tax Officer by invoking the provision of section 43B in respect of unpaid sales tax liability.

Summary

Issues Involved:
Interpretation of Section 43B of the Income-tax Act, 1961 regarding unpaid sales tax liability and applicability of exemptions based on government resolutions and circulars.

Analysis:
The case involved a dispute over the disallowance under section 43B of the Income-tax Act for an unpaid sum of Rs. 2,22,620 representing deferred sales tax. The assessee contended that the amount was exempt from section 43B due to a scheme by the State Government allowing the return of sales tax collected as an industry growth incentive. The Income-tax Officer initially rejected this claim, leading to an appeal before the Commissioner of Income-tax (Appeals) who referred to Circular No. 496 issued by the Central Board of Direct Taxes and directed the Assessing Officer to verify any amendments to the Gujarat Sales Tax Act. The Tribunal, considering the Board's circular and the State Government resolution clarifying the position, ruled in favor of the assessee, stating that the deferred sales tax amount was not subject to section 43B.

The Revenue, aggrieved by the Tribunal's decision, brought the matter to the High Court for opinion. Referring to a Supreme Court decision in a similar case, it was highlighted that the applicability of the Central Board of Direct Taxes Circular dated September 25, 1987, depended on whether the State had amended its Sales Tax Act to treat deferred sales tax as actually paid. The Court noted that the Gujarat Government had indeed passed a resolution in 1988, which, along with the Board's circular, entitled the assessee to claim relief under section 43B. A subsequent amendment to the Gujarat Sales Tax Act was seen as clarificatory and did not impact the assessee's eligibility for the exemption.

The Court concluded that the Tribunal's decision to delete the addition made by the Income-tax Officer under section 43B for unpaid sales tax liability was correct. It held in favor of the assessee, stating that the case fell within the exemptions provided by the State Government resolution and subsequent amendment to the Act. The reference was disposed of in favor of the assessee, with no order as to costs.