2006 (9) TMI 568 - HC - Income Tax

Summary

Issues:
1. Interpretation of Circular No. 674 and its applicability.
2. Allowance of sales-tax liability under section 43B despite deferment scheme.

Issue 1: Interpretation of Circular No. 674 and its applicability
The case involved the interpretation of Circular No. 674 [(1994) 116 CTR (St) 9] and its application to the matter at hand. The Tribunal was questioned on whether the circular had relevance in the present scenario. The Departmental circular was examined concerning sales-tax deferment schemes. It was noted that a special provision was introduced to allow deduction for sales-tax liability converted into a loan under government orders meeting specific requirements. The Board suggested that such conversion permitted by government orders could be claimed as a deduction in the assessment for the relevant year.

Issue 2: Allowance of sales-tax liability under section 43B despite deferment scheme
The main contention revolved around the allowance of sales-tax liability under section 43B despite the deferment scheme in place. The assessee had availed deferment of tax under the M.P. General Sales-tax Act. It was argued that section 43B mandates actual payment before claiming deduction. The State Government amended the Sales-tax Act to include a provision (sub-s. 3B) stating that tax deferred under the scheme would be deemed as paid, aligning with the requirements of section 43B. The decision in CIT vs. K.N. Oil Industries (1997) was referenced, emphasizing that amounts under deferred payment schemes entitled the assessee to deduction, bypassing the restrictions of section 43B. The Tribunal, in line with previous court decisions, ruled in favor of the assessee, stating that the deferred tax, though retained, should be deemed as paid under section 43B and eligible for allowance.

In conclusion, the High Court dismissed the Revenue's appeal, citing precedents from other High Courts supporting the allowance of unpaid sales-tax amounts under specific schemes. The judgment emphasized that the deferred tax, even if retained, should be deemed as paid for the purpose of section 43B. The appeals were dismissed with no order as to costs, maintaining the decision in favor of the assessee across multiple related appeals.