2007 (9) TMI 366 - HC - Income Tax

Business Expenditure- The claim of the assessee of sales tax was disallowed under section 43B for the assessment year 1985-86. The assessee claimed deduction of Rs.1, 74, 400 on account of sales tax payable which was due for payment and was paid within the due date which due date fell subsequent to the close of the accounting period. The Assessing Officer disallowed the deduction in view of section 43B of the Income-tax Act. Held that- the payment of sales tax dues within the due date though after the close of accounting year was deductible in the relevant assessment year.

Summary

Issues:
1. Allowance of sales tax payable paid after the close of the accounting year.
2. Treatment of subsidy received for a generator set and the rate of depreciation applicable.

Analysis:

Issue 1: Allowance of Sales Tax Payable
The case involved the disallowance of the assessee's claim of sales tax under section 43B for the assessment year 1985-86. The assessee claimed a deduction for sales tax payable that was paid within the due date but after the close of the accounting year. The Assessing Officer disallowed the deduction citing section 43B of the Income-tax Act. However, the Tribunal, relying on the decision in Allied Motors P. Ltd. v. CIT, held that the payment of sales tax within the due date, even after the close of the accounting year, is deductible in the relevant assessment year. The apex court's decision clarified that the section would not apply if the sum is paid within the statutory time allowed under the first proviso to section 43B. Consequently, the court answered question No. 1 in favor of the assessee, stating that the deduction was permissible.

Issue 2: Treatment of Subsidy and Depreciation on Generator Set
Regarding the subsidy received for the generator set, the court analyzed the definition of "actual cost" under section 43(1) of the Income-tax Act, which includes the cost met directly or indirectly by any other person or authority for depreciation calculation. The court held that the specific subsidy received for purchasing the generator should be deducted from the actual cost of the asset to determine depreciation, as per the judgment in CIT v. P. J. Chemicals Ltd. The court noted that the subsidy was not a general subsidy, and the Tribunal erred in its decision. Moreover, the court discussed the rate of depreciation applicable to the generator, referencing a judgment that specified a general rate of 10%, which was increased to 15% for the relevant assessment year. Consequently, the assessee was entitled to depreciation at 15% instead of 20% as per the Tribunal's decision. The court answered question No. 2 in favor of the Revenue, stating that the subsidy received should be deducted from the actual cost for depreciation calculation, and the depreciation rate applicable was 15%.

In conclusion, the judgment clarified the treatment of sales tax payable, subsidy received for assets, and the applicable depreciation rate, providing a comprehensive analysis of each issue raised before the court.