2019 (7) TMI 986 - HC - Income Tax

Addition u/s 41 - remission of liability - difference between the sales-tax loan amount and the amount paid on Net present value basis under the sales-tax deferral scheme of Maharashtra Government - HELD THAT - While affirming the order passed by the High Court of Bombay in Sulzer India Ltd. 2014 (12) TMI 267 - BOMBAY HIGH COURT the Hon'ble Supreme Court in Balkrishna Industries Ltd. 2017 (11) TMI 1626 - SUPREME COURT held that the approach of the High Court of Bombay is without any blemish, inasmuch as all the requirements of Section 41(1) of the Act could not be fulfilled in the case on hand. Appeal filed by the Revenue fails and the same is dismissed and the substantial questions of law are answered against the Revenue.

Summary

Issues:
1. Whether the difference between the sales-tax loan amount and the amount paid under the sales-tax deferral scheme is a remission of liability under the Income-tax Act, 1961?
2. Whether the waiver of a portion of the loan should be treated as a revenue receipt based on a previous judgment?
3. Whether the difference in the sales-tax loan amount and the amount paid as per the Maharashtra Government's scheme is a revenue receipt under Sec.28(iv) of the Income-tax Act, 1961?

Analysis:
1. The appeal raised concerns about the treatment of the difference between the sales-tax loan amount and the amount paid under the sales-tax deferral scheme as a remission of liability under Section 41(1) of the Income-tax Act, 1961. The Tribunal's decision was influenced by the Special Bench's ruling in the Sulzer India Ltd. case. However, the Hon'ble Supreme Court, in CIT vs. Balkrishna Industries Ltd., upheld the High Court's judgment, emphasizing that the statutory arrangement did not amount to remission or cessation of the assessee's liability. The Court found that the State received the payment prematurely but in accordance with the correct value of the debt, without evidence of remission or cessation by the State Government.

2. The second issue revolved around whether the waiver of a portion of the loan should be considered a revenue receipt, citing the judgment in the case of Ramaniyam Homes P Ltd. The Tribunal's decision aligned with the assessee's case, following the principles established in previous judgments. The Hon'ble Supreme Court's approval of the High Court's decision in Balkrishna Industries Ltd. emphasized that the requirements of Section 41(1) were not fulfilled in the present case, leading to the dismissal of the appeal.

3. Lastly, the question of whether the difference in the sales-tax loan amount and the amount paid under the Maharashtra Government's scheme should be treated as a revenue receipt under Sec.28(iv) of the Income-tax Act, 1961 was addressed. The High Court, in line with the Supreme Court's ruling, found that the approach taken by the High Court of Bombay was correct, as all the requirements of Section 41(1) were not met in the case at hand. Consequently, the appeal filed by the Revenue was dismissed, with the substantial questions of law answered against the Revenue, and no costs were awarded.