2016 (10) TMI 1269 - AT - Income Tax

Addition u/s.41(1) r.w.s 28(iv) - assessee had availed deferred scheme for sales tax liability called interest free sales tax deferral scheme introduced by Tamil Nadu Government in May 1990 - CIT- A deleted addition - Option to persons taking the benefit of deferral scheme to pay the deferred tax in one lumpsum at the discounted rate of 8% as availed by assessee - HELD THAT - As decided in M/S MCDOWELL CO LTD NOW KNOWN AS UNITED SPIRITS LTD 2014 (11) TMI 272 - KARNATAKA HIGH COURT the tax collected was deemed to have been paid and therefore the tax so collected cannot be construed as income in the hands of the assessee. The tax so retained by the assessee is in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The said loan had to be repaid after 15 years. Again it is an incentive. By a subsequent scheme a provision was made for premature payment. When the assessee had the benefit of making the payment after 15 years if he is making a premature payment the said amount equal to the net present value of the deferred tax was determined and on such payment the entire liability to pay tax/loan stood discharged. Again it is not a benefit conferred on an assessee. Therefore section 41(1) of the Act is not attracted to the facts of this case. Hence the Tribunal was justified in holding that there is no liability to pay tax. - Decided against revenue.

Summary

Issues:
1. Whether the deletion of an addition made under Sec. 41(1) r.w.s 28(iv) of the Act by the ld. Commissioner of Income Tax (Appeals) was justified.
2. Whether the premature payment at a discounted rate under a sales tax deferral scheme attracts Sec. 41(1) of the Act.

Analysis:
1. The Revenue appealed against the deletion of an addition of ?2,20,63,819/- made by the Assessing Officer under Sec. 41(1) r.w.s 28(iv) of the Act by the ld. Commissioner of Income Tax (Appeals). The facts revealed that the assessee availed a sales tax deferral scheme and made a premature payment at a discounted rate of 8%. The ld. Commissioner of Income Tax (Appeals) relied on judgments of the Hon'ble Karnataka High Court and the Hon'ble Bombay High Court to rule in favor of the assessee, stating that Sec. 41(1) was not attracted to such benefits from prepayment.

2. The Departmental Representative challenged the order, citing cases where similar issues were decided in favor of the Revenue by the Apex Court. However, the Tribunal noted that the cases referred to by the Revenue were not directly relevant to the premature payment made under a sales tax deferral scheme. The Tribunal highlighted the Karnataka High Court's observation in a case, emphasizing that the premature payment under such a scheme did not attract Sec. 41(1) as it was not a benefit conferred on the assessee but rather a repayment of a loan given as an incentive for setting up an industrial unit.

3. After considering the contentions and orders of the authorities, the Tribunal upheld the decision of the ld. Commissioner of Income Tax (Appeals). The Tribunal found that the cases cited by the Revenue did not directly apply to the situation at hand, where the assessee made a premature payment under a specific scheme. The Tribunal agreed with the reasoning that such premature payments did not fall under Sec. 41(1) of the Act, as they were not additional income but rather a repayment of a deferred tax liability.

4. Ultimately, the Tribunal dismissed the appeal of the Revenue, affirming the decision of the ld. Commissioner of Income Tax (Appeals). The Tribunal concluded that the relief sought by the assessee in relation to the premature payment made under the sales tax deferral scheme was justified, and there was no reason to interfere with the decision.

This comprehensive analysis of the judgment highlights the key issues, arguments presented, relevant legal precedents, and the final decision reached by the Tribunal.