2017 (11) TMI 1626 - SC - Income Tax

Addition u/s 41 - Held that - A perusal of the judgment would show that the High Court 2015 (12) TMI 1390 - BOMBAY HIGH COURT took into consideration the provisions of Section 41 of the Act and the conditions which are required to be satisfied for bringing a particular receipt as income within the ambit thereof and found that those conditions are not satisfied in the present case. The High Court also repelled the contention of the Revenue that the assessee obtained the benefit of reduction of sales tax liability under Section 43B of the Act as per the CBDT Circular No. 496 dated 25th September, 1987. The aforesaid approach of the High Court is without any blemish, inasmuch as all the requirements of Section 41(1) of the Act could not be fulfilled in this case.

Summary

Issues:
Appeal against judgments of Bombay High Court regarding treatment of amount under Section 41(1) of Income Tax Act.

Analysis:
The Supreme Court heard the appeals filed by the Department against judgments of the Bombay High Court concurred with the Income Tax Appellate Tribunal's view that the amount in question was not income under Section 41(1) of the Income Tax Act. The case involved M/s. Sulzer India Ltd., which filed its income return for the assessment year 2003-04, claiming deduction under section 80HHC. The Assessing Officer observed a credited amount to the capital reserve, claiming it was a remission of loan liability under the Industrial Backward Area Scheme of the Government of Maharashtra. The issue was whether this amount should be taxed as income. The Commissioner of Income Tax (Appeals) and the Tribunal had differing opinions, leading to a special Bench decision in favor of the assessee. The High Court upheld this decision, stating the conditions of Section 41(1) were not satisfied in this case.

The High Court detailed the provisions of Section 41 of the Act and the conditions required to bring a receipt as "income" within its ambit. It rejected the Revenue's contention that the assessee benefited from a reduction in sales tax liability under Section 43B of the Act. The High Court analyzed the scheme under which the sales tax liability was deferred and concluded that the amount saved by the assessee should not be treated as income under Section 41(1) of the Act. The Court emphasized that the premature payment of sales tax did not amount to remission or cessation of the assessee's liability, as the obligation to remit the sales tax amount remained. The Supreme Court agreed with the High Court's approach, finding that all the requirements of Section 41(1) were not fulfilled in this case.

In conclusion, the Supreme Court dismissed the appeals, finding no merit in them. The Court upheld the judgments of the Bombay High Court and the Tribunal, affirming that the amount in question could not be treated as income under Section 41(1) of the Income Tax Act.