2002 (7) TMI 40 - HC - Income Tax

Whether the Appellate Tribunal is right in law and facts in deleting the addition of Rs. 1, 01, 81, 278 made by the Income-tax Officer under section 43B in respect of outstanding sales tax amount when the resolution of the Government was passed on December 14 1984 and the assessee had not discharged its liability on March 31 1984 i.e. prior to the date of resolution? Since the resolution issued by the State Government earlier was made effective from 1983 the assessee s case was covered by the said resolution and amendment made thereafter on March 24 1988 is clarificatory in nature. We are therefore of the view that the Tribunal was right in deleting the addition made by the Income-tax Officer invoking the provision of section 43B in respect of paid sales tax liability. We answer this question in the affirmative i.e. in favour of the assessee and against the Revenue

Summary

Issues:
Dispute over disallowance under section 43B for unpaid sales tax amount.

Analysis:
The case revolved around the disallowance under section 43B of the Income-tax Act for an outstanding sales tax amount of Rs. 1,01,81,278. The assessee argued that the State Government allowed returning sales tax collected as an incentive for industrial growth, making their case eligible for exemption under section 43B. However, the Income-tax Officer rejected this claim.

The Commissioner of Income-tax (Appeals) considered Circular No. 496 and Gujarat Ordinance No. 1 of 1988, and ruled in favor of the assessee based on these documents. Subsequently, the Tribunal also upheld the assessee's position, citing the circular and State Government resolutions related to the Sales Tax Deferment Scheme of Gujarat.

The Revenue challenged the Tribunal's decision before the High Court. During the hearing, reference was made to a Supreme Court judgment emphasizing that the Central Board of Direct Taxes circular would apply only if the State amended its Sales Tax Act to treat deferred sales tax as paid. The Supreme Court highlighted the importance of State laws in determining applicability under section 43B.

In this case, the State Government had passed a resolution in 1988, effective from 1983, allowing sales tax to be treated as paid if converted into a loan repayable in installments. A subsequent amendment to the Gujarat Sales Tax Act further clarified this provision. The High Court concluded that the assessee was entitled to relief under section 43B, as the State Government's resolution and subsequent amendment supported the assessee's position.

Therefore, the High Court ruled in favor of the assessee, holding that the Tribunal was justified in deleting the addition made by the Income-tax Officer under section 43B for the sales tax liability. The judgment favored the assessee against the Revenue, resolving the dispute in the assessee's favor.