2010 (6) TMI 18 - HC - Income Tax

Deemed income section 41(1) cessation of sales tax liability - Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in completely disregarding the contention of the Appellant that there was no remission or cessation of the sales tax liability on account of payment of the present value thereof being made to SICOM since the sales tax authorities had not given credit of the said payment against the sales tax liability - The difference between the deferred sales tax and its present value amounting to Rs.1.29 Crores was treated as a capital receipt and was credited in the books of the assessee to the capital reserve account. AO brought the aforesaid difference of Rs.1.29 Crores to tax under Section 41(1) of the Income Tax Act 1961. Held that Having regard both to the order passed by the Sales Tax Tribunal on 8 February 2008 and the notice of demand issued on 22 July 2008, it is not possible for the Court to accept the contention that there was a remission or cessation of liability. Since the record before the Court does not disclose that there was a remission or cessation of liability, one of the requirements spelt out for the applicability of Section 41(1)(a) has not been fulfilled in the facts of the present case. Question of law answered in favor of assessee

Summary

Issues:
1. Interpretation of Section 41(1) of the Income Tax Act, 1961 regarding remission or cessation of trading liability.
2. Application of remission or cessation of sales tax liability under a package scheme of incentives.
3. Dispute over the benefit obtained by the assessee from the payment of net present value of deferred sales tax liability.
4. Consideration of judgments by Sales Tax Tribunal and Income Tax Appellate Tribunal in determining remission or cessation of liability.
5. Admissibility of appeals under Section 260A and petitions under Article 226 challenging the Tribunal's orders.

Issue 1: Interpretation of Section 41(1) of the Income Tax Act, 1961
The judgment addresses the requirement under Section 41(1) that an allowance or deduction must have been made in the assessment for a trading liability, and there must be a remission or cessation of the liability for a benefit to accrue to the assessee. The dispute revolves around whether there was a remission or cessation of the sales tax liability, as per the provisions of the Act.

Issue 2: Application of remission or cessation under a package scheme of incentives
The case involves a package scheme of incentives announced by the Government of Maharashtra in 1993 for deferral of sales tax dues. The assessee paid a net present value to the State Industrial and Investment Corporation Of Maharashtra Limited (SICOM) towards the deferred sales tax liability. The dispute arises from whether this payment constituted a remission or cessation of the sales tax liability.

Issue 3: Dispute over the benefit obtained by the assessee
The assessee contends that there was no cessation of liability and no benefit obtained from paying the net present value of the deferred sales tax liability. The Revenue argues that the payment made by the assessee to SICOM was intended for the sales tax dues, indicating a benefit obtained by the assessee.

Issue 4: Consideration of judgments by Sales Tax Tribunal and Income Tax Appellate Tribunal
The judgment discusses the relevance of the Sales Tax Tribunal's decision upholding the assessing authority's refusal to credit the payment made to SICOM towards the sales tax liability. It emphasizes that the Income Tax Appellate Tribunal erred in finding a remission or cessation of liability, considering the Sales Tax Tribunal's decision.

Issue 5: Admissibility of appeals and petitions
The Court allowed the appeals filed by the assessee under Section 260A, answering the question of law in favor of the assessee. The petitions under Article 226 challenging the Tribunal's orders were rendered redundant based on the view taken in the appeals. The judgment concludes without costs due to the decision in favor of the assessee.

This detailed analysis of the judgment provides insights into the interpretation of legal provisions, application of scheme incentives, disputes over benefits obtained, consideration of tribunal judgments, and the admissibility of appeals and petitions in the context of the Income Tax Act, 1961.