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TMI Blog2010 (11) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... te deferral amount under 1983 and 1988 schemes was Rs. 7,52,01,338 (Rs. 3,29,93,863 + Rs. 4,22,07,575) There was an amendment made under the Bombay Sales Tax Act, 1959, (the Sales tax Act) by insertion of the third proviso to section 38(4) of the Sales Tax Act, wherein SICOM or the relevant Regional Development Corporation or the District Industries Centre concerned was to convert the deferred sales tax into a loan and thereafter as per 2002 amendment, fourth provision to section 38(4) of the Sales tax Act by which the earlier 4th proviso was substituted, which provides that where the NPV of deferred tax as may be prescribed was paid, the deferred tax was deemed, in public interest, to have been paid Regarding Capital expenditure Vs. Business income - It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account - The other requirement of section 41(1) is that the assessee must have subsequently (i) obtained any amount in respect of such loss and expenditure or (ii) obtained any benefit in respect of such trading liabilities by way of remission or cessation thereof - in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities Asia (P.) Ltd.'s case (supra) recently, the Hon'ble Jurisdictional High Court in S.I. Group India Ltd. v. Asstt. CIT [2010] 192 Taxman 91 (Bom.); on the question of law "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", has held that 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, therefore, Their Lordships answered the question of law in favour of the assessee. He further submits that since there is no dispute that the facts of the assessee's case and the facts of the S.I. Group India Ltd.'s case (supra), and also Sterlite Optical Technologies Ltd.'s case (supra), are the same and the Hon'ble Jurisdictional High Court while reversing order of the Tribunal in S.I. Group India Ltd.'s case (supra) has decided the issue in favour of the assessee, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ld. Sr. Counsel for the assessee. However, at the same time we find force in the submissions of the ld. Sr. Counsel for the assessee that the question needs to be re-drafted because the present question before the Special Bench starts with the presumption that it is a case of remission. In fact the ld. Sr. Counsel stressed that most of his arguments will be on the facts of the case that no remission at all is involved and consequently is there no benefit as envisaged by section 41(1)(a) of the Act. 5. After considering the facts and circumstances of the case, we are of the view that instead of original question, the following question should be considered by the Special Bench : "Whether on the facts and in the circumstances of the case and in law, the sum of Rs. 4,14,87,985 being the difference between the payment of net present value of Rs. 3,37,13,393 against the future liability of Rs. 7,52,01,378 has rightly been charged to tax under section 41(1) of the Income-tax Act, 1961." 6. Briefly stated facts of the case are that the assessee company is engaged in the business of Equipment manufacturing and total project supplier. The assessee company has an industrial unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of its expansion. In 2002, Government of Maharashtra brought Trade Circular No. PSI-2002/91/Adm-13/B-1041/Circular No. 39T of 2002, dated 12-12-2002. The subject of this Trade Circular reads as follows : "Sub. : Premature Repayment of the amount of deferred taxes by the Eligible Units at Net Present Value (NPV)." Trade Circular has mentioned sub-section (4) of section 38 of B.S.T. Act, 1959 which was amended as follows : "Provided also that, notwithstanding anything to the contrary contained in the Act or in the Rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion Policy, 1998, the Eligible Unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may, in respect of any of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it an amount, equal to the net present value of the deferred tax as may be prescribed, and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid." It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is taken to have been paid to the Government under the deferral scheme. After such deemed payment, the unpaid sales tax is by way of deferral loan and not a trading receipt and, hence, the remission of loan cannot be taxed as income of the assessee. However, the Assessing Officer observed that the Circular relied on by the assessee has been followed in the earlier years in the assessee's case by not making any disallowance under section 43B of the Act in respect of the deferred sales-tax on the ground that under the scheme, the sales tax liability is deemed to have been paid. The Assessing Officer further observed that, at present the real question for consideration is whether the remission of deferred sales tax results into taxable income or otherwise. Therefore, the Board Circular referred by the assessee is confined to the treatment under section 43B and, hence, not at all relevant. He further observed that, the scheme provides for three categories of incentives. The First Category is sales tax exemption which is not applicable to the facts of the present case. The Second Category is where the sales tax liability is deferred and is allowed to be paid beyond the due dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relied on by the assessee observed that the combined reading of documents, proves beyond a shadow of doubt that appellant had collected sales tax which was not paid earlier, which remained as deferred sales tax liability, it was never converted into a loan and even if it is presumed that deferred sales tax liability was converted into loan, the amount was paid at Net Present Value of the deferred sales liability resulting into remission within the ambit of revenue/trading receipt/expenditure and would attract provisions of section 41(1) of the Act. He further observed that in the present case the NPV means that Rs. 3,37,13,393 is same as Rs. 7.52 crores after 12 years so far as sales tax Department is concerned, then why the appellant has taken the amount of Rs. 4,14,87,985 to reserve. The ld. CIT(A) while distinguishing the decisions relied on by the assessee, upheld the addition made by the Assessing Officer. 11. At the time of hearing the ld. Sr. Counsel for the assessee after referring to the facts of the case in the light of the salient features of 1983 Scheme and 1988 Scheme appearing at pages 102 to 116 and 117 to 150, 153, 151 and 101 of the assessee's paper book further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submits that the fourth proviso to section 38(4) of the Bombay Sales-tax Act provides that the Eligible Unit to whom an Entitlement Certificate has been granted for availing the deferment incentives may prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax and on making such payment, the deferred tax shall be deemed to have been paid. Pursuant to the said fourth proviso, Trade Circular dated 12-12-2002 (Pg. 174) laid down the procedure of prepayment of the amount of deferred sales-tax (para 3.1) as per the rates of discounting mentioned in the annexure (Pages 178-179). Circular No. 20T of 1995 clarifies that the prepayment provision is in the interest of the revenue. The Appellant opted for the prepayment as per the fourth proviso. The summary of the prepayments is at Pg. 101 and the actual prepayment certificates are at Pgs. 188-189 and 207-208. Accordingly, the liability of Rs. 7,52,01,378, which was payable after 12 years in six equal instalments, was fully discharged by payment of Rs. 3,37,13,393 being the present value thereof. Section 41(1) is attracted where a liability for payment of Rs. X which is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme is so far as are relevant are the same as under the 1983/1988 Schemes. The form is not relevant but only that it is an incentive for dispersal of industries and setting up of industries in the less developed parts of the State. According to him similarities between the 1979 Scheme (with which Reliance was concerned) and 1983/1988 schemes (with which the present case is concerned.) are as under :-- 1979 Scheme 1983 Scheme 1988 Scheme Object Para 22, Pg. 298 Pg. 102 of the Page 119 of the (19th line from PB (Preamable) : PB (Preamable) : top) of the "in order to "in order to Reliance Report achieve dispersal achieve dispersal "Under the of industries of industries Maharashtra outside the outside the Scheme, the aim Bombay-Thane- Bombay-Thane- was to disperse Pune belt and to Pune belt and to the industries attract them to attract them to outside the the the Bombay-Thane- under developed under developed Pune belt" and developing and developing areas of the areas of the State," State," Calculation Para 22, page Pg. 108 of the PB Pg. 135 of the PB of incentive 298 (9th line from Table : Group D Table : Group C bottom) : 85% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra)/Ponni Sugar & Chemicals Ltd.'s case (supra) viz., a receipt on capital account. If a receipt is on capital account, then, the benefit if any obtained on its prepayment is also on capital account to which section 41(1) does not apply. He further submits that the decision of the Special Bench in Reliance Industries Ltd.'s case (supra) has been approved by the Hon'ble Bombay High Court in CIT v. Reliance Industries Ltd. [Central Excise Appeal No. 1299 0f 2008, dated 15-4-2009]. The principle of Reliance (wherein the incentive was in the form of sales-tax exemption) has been applied to the case of sales-tax deferral. In that case, looking at the object of the scheme, the Tribunal has held that the receipt in question was a capital receipt. 16. He further submits that in ACIT v. Associated Capsules Ltd. [IT Appeal No. 4818/Mum./2008, for Assessment Year 2004-05 Order dated 20-10-2009], the Tribunal has followed the decision in Sterlite Optical Technologies Ltd.'s case (supra), and decided the similar issue in favour of the assessee. 17. He further submits that in Everest Industries Ltd. v. ACIT [IT Appeal No. 814/Mum./2007, for Assessment Year 2003-04, Order dated 4-12-2009], ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case (supra) (para 7 and 8), it has been held that the benefit is really the right to defer the sales-tax payment. 19. He further submits that even assuming whilst strongly denying that any benefit has been obtained by the Appellant, such 'benefit' is not in respect of the sales-tax deferral liability but in respect of loan. The 3rd proviso to section 38(4) of the Bombay Sales-tax Act provides that where a loan liability equal to the amount of deferral has been raised by SICOM, the sales tax shall be deemed to have been paid. Pursuant to the said proviso, Government Resolution dated 21-7-1988 was passed prescribing the procedure for conversion of the sale-tax deferral into interest-free loan [Pg. 232 onwards of the Paper book]. On 8-10-2002 the Appellant wrote to SICOM opting for conversion of the sales-tax deferral liability into a loan (Pg. 251). On 10-10-2002 further letters were written by the Appellant to SICOM furnishing the details required by SICOM (Pg. 258-259). On 21-10-2002 SICOM being fully satisfied that the conditions for effective such conversion were fulfilled wrote to the Sales-tax Department for carrying out the ministerial act of issuing a modified Entitlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lementing Agency, the sales-tax authority is bound by it and has no jurisdiction to question it. See Laxmi Industries v. State of Rajasthan [1995] 99 STC 584 (Raj.); Swastik Metal Works v. The State of Maharashtra [1998] 17 MTJ 332 (Mum. - Trib). In any event, from the correspondence exchanged between the appellant and SICOM/Sales-tax authority regarding conversion of sales-tax into a loan, it is apparent that a loan of an equivalent amount has for all practical purposes been raised by SICOM. Therefore, the crucial part in the entire process was obtaining the approval of the SICOM to the proposed conversion as SICOM was to convert the sales-tax deferral liability into loan. Sales-tax Department was getting its dues and therefore they should not have any objection to the said process of conversion. Once SICOM had agreed to the proposed conversion by issuing a modified Eligibility Certificate, sales-tax authorities were only required to perform the ministerial act of issuing a modified Certificate of Entitlement. This can be seen from the fact that on 30-10-2002, i.e., within only 9 days of SICOM writing to the sales-tax department, the sales-tax authorities had called for the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR (Statutes) 7]. He, therefore, submits that the provision of section 41(1),does not apply to the facts of the present case and, therefore, the addition made by the Assessing Officer and sustained by the ld. CIT(A) be deleted. 22. On the other hand, the ld. DR while referring to the question referred to the Special Bench and the provision of section 41(1) of the Act further submits that the Hon'ble Supreme Court in the case of Polyflex (India) (P.) Ltd. v. CIT [2002] 257 ITR 343, while holding the applicability of section 41(1) has observed : "In the assessment for the relevant year an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by the assessee. This is the first step. Coming to the next step the assessee must have subsequently, (i) obtained any amount in respect of such loss or expenditure or (ii) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming provision enacted in the closing part of sub-section (1) comes into play. Accordingly, the amount obtained by the assessee or the value of benefit accruing to him is deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily disclosing the above position. Even if the sales tax collected and the liability towards the sales tax incurred were not routed through the Profit & Loss account of the assessee, it would make no difference since the sales tax collected would get offset by the deduction claimed and allowed on account of the sales tax paid. This is again settled position of law in view of decision of Hon'ble Supreme Court in the case Chowringhee Sales Bureau (P.) Ltd. (supra). 25. As per the "Package of Incentive" scheme, sales tax liability has been defined to mean the following :-- (i) Sales tax/General sales tax/Purchase tax as the case may be, payable and paid or deferred under the local sales tax law during that period on purchase of raw materials reduced by the set off at appropriate rates, if any, admissible there under and also on sales of finished products of the eligible units. (ii) Central sales tax payable and paid or deferred under the Sales Tax Act, 1956 during that period on the sales of finished products of the eligible units made in the course of inter State-Trade or Commerce. Undisputably, any liability relating to a trading receipt would be a trading liability. As has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption from payment of sales tax under the 1979 "Package of Incentive" Scheme was capital in nature. Accordingly, the incentive by way of deferral of sales tax under the 1983 and the 1988 "Package of Incentive" Schemes, under which the assessee has claimed benefits of deferral of sales tax in respect of its units, should also be treated as capital receipts. In this regard he submits that in the 1979 scheme, since, the unit was completely exempted from payment of the sales tax, no liability on account of sales tax collected by the unit ever accrued to it. Hence, no sales tax was payable to the Government. Provisions of section 43B would, therefore, not apply in the case of Reliance Industries Ltd. (supra). However, in the case of the assessee, which was covered under the 1983 and the 1988 "Package of Incentive" Schemes, the liability towards the sales tax accrued the moment sales were effected by the unit. This liability was deferred to be paid at a future date. The Special Bench, in the case of Reliance Industries Ltd. (supra), held the receipts on account of sales tax as capital receipts on a finding of fact that the eligibility of the unit to receive the incentive, i.e., the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) has to be necessarily followed. 28. According to the ld. DR the ratio of the said decision is that if subsidies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade and revenue in nature. At para 4 of the decision the Hon'ble Supreme Court has observed :-- "The contention of Mr. Ganesh that the subsidies were capital in nature and were given for the purpose of stimulating setting up and expansion of industries in the State cannot be upheld because of the subsidy scheme itself. No financial assistance was granted to the assessee for setting up of the industry. It is only when the assessee had set up its industry and commenced production that various incentives were given for the limited period of five years. It appears that the endeavour of the State was to provide the newly set up industries a helping hand for five years to enable them to be viable and competitive. Sales tax refund and the relief on account of water r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the Revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case (supra), the monies must be treated as to have been received for capital purpose. But, if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade." The above example given by the Hon'ble Supreme Court once again demonstrates the point that under the Scheme, it is the purpose for which the subsidy is given that decides the nature of the subsidy - revenue or capital. It is not the object of the Scheme of the Government (which in such circumstances will necessarily be capital intensive) which would decide the nature and chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption bills over a period, first sale bill, excise license, extract of Excise Register or of Production Register, etc." Same is the position in clause 2.1 of the 1988 "Package of Incentive" Scheme. There is nothing in the Schemes that lays down any condition that the deferred amount of sales tax subsidy/liability was to be utilized only for repayment of term loans taken for setting up the units or for the purchase of any capital asset. He further submits that in para No. 13 of its judgment, the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra) has held as follows:-- "In the case before us, subsidies have not been granted for production of or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying or of the business of the assessee. Applying the test of Viscount Simon in the case of Ostime (supra), it must be held that these subsidies are of revenue character and will have to be taxed accordingly." Similar is the position in the case of the assessee. The sales tax subsidy was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes were not given to enable the assessee to set up the unit. It was given to the assessee to help it in the initial years to remain competitive vis-a-vis established units in the developed parts of the State which had better infrastructure facilities, easy availability of manpower, raw materials, customers, etc., so that they could stand on their own feet. In para No. 31 on page 14 of the judgment of the Hon'ble Andhra Pradesh High Court in CIT v. Sahney Steel & Press Works Ltd. [1985] 152 ITR 39, it has been held that benefits like tax holiday etc. are given to the industrial units in the initial years with a view to strengthen them so that they could be run efficiently and these subsidies are revenue in nature. The decision of the Hon'ble High Court has been endorsed and upheld by the Hon'ble Supreme Court. 30. It was argued by the ld. Counsel for the assessee that the Scheme of 1979 was identical to the Schemes of 1983 and 1988. Since, the subsidy in the form of sales tax exemption in the case of Reliance Industries Ltd. (supra), which was covered under the 1979 Scheme was held to be capital in nature, the subsidy on account of deferred sales tax liability under the 1983 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court in the case of Reliance Industries Ltd. (supra), wherein the Tribunal decision for a subsequent year following the decision of the Special Bench has been affirmed. According to the ld. DR the question as framed was not admitted by the Hon'ble High Court in view of the findings recorded by the Special Bench that "the object of the subsidy was to set up a new unit in a backward area to generate employment". The Hon'ble High Court has applied the purpose test as laid down by the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra) to the above findings recorded by the Special Bench and, has, accordingly held that the subsidy is clearly on capital account. There is nothing in the Schemes (and specially 1983 and 1988 Schemes with which we are concerned in the present appeal) which suggests that the subsidy by way of sales tax deferral was given directly or indirectly to the assessee for setting up the units or for the creation or purchase of capital assets. The units were eligible and entitled to the claim of the sales tax subsidy only after and conditional upon the commencement of commercial production. Hence, in view of the decisions of the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held as capital is not tenable because prepayment of deferred sales tax liability is not part of the said Scheme. Rather, it is a part of a separate Scheme floated by the State Government and, in nature, was merely a business arrangement between the State Government and the unit holders who opted to take benefit of the said business arrangement. The benefits of prepayment of the deferred sales tax liability do not flow out of the "Package of Incentive" Schemes and have no relation to the said Schemes. 35. It was an admitted position of the assessee both before the lower authorities as well as of the Ld. Counsel for the assessee before the Hon'ble Bench that deduction on account of the sales tax liability has been made. Thus, condition in section 41(1) is, therefore, satisfied. Now, it has been stated that "since the receipt is a capital receipt at inception, there was no question of including it in the sales. Therefore, there was no debit to the Profit & Loss account of the amount of sales tax or obtaining deduction in respect of the same under section 43B. Since deduction has not been obtained for the sales tax, section 41(1) of the Income-tax Act, 1961 does not apply." The sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trading liability under section 43B in respect of the sales tax collected/accrued. The claim made now that the receipts on account of sales tax was in the nature of capital receipts, and that no deduction has been obtained for the sales tax is, therefore, neither correct nor tenable. This argument of the Ld. Counsel cannot be, therefore, accepted. 36. The ld. DR further submits that it has been contended by the ld. Counsel that even assuming that any benefit has been obtained by the appellant, it is in respect of a loan liability because, as per the 3rd proviso to section 38(4) of the Bombay Sales Tax Act, 1959 where a loan liability equal to the amount of any deferred tax payable by an eligible unit has been raised by the SICOM, then such tax shall be deemed, in the public interest, to have been paid. It has been contended that the appellant has gone in for changeover to the interest-free loan scheme as provided for in Resolution No. IDL 1087/6245/Ind. 8 Mantralaya, dated 21-7-1988 (page Nos. 232 to 250 of the paper book). It has been submitted by him that although they had applied in the prescribed form 'A' for changeover, only modification in the "Eligibility Certificate" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been converted into interest-free loan. Further, the assessee has applied for opting into the interest-free loan scheme for the past period. Under the circumstances, it was required to comply with the procedures laid down in the clauses 6.21 and 6.22 of the Resolution. The assessee, admittedly has failed to do so. The question of the conversion of deferred sales tax liability into interest-free loan would, therefore, not arise. There is no provision in the Resolution or the Scheme wherein it has been provided that once an application has been made, and no sanction order of conversion has been received, it would be deemed that conversion has been made. In absence of such provision, the conversion cannot be deemed to have been made. The reliance of the Ld. Counsel on the decision of the Hon'ble Bombay High Court in the case of Mrs. Hilla J.B. Wadia (supra) is completely misplaced as no such proposition has been laid down in the said decision nor is it relevant to the facts of the case. In the said case, almost the entire payment towards the purchase of the flat was paid by the assessee within the period prescribed under the Act and, the Hon'ble High Court held that considering the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit covered under the 1988 "Package of Incentive" Scheme, assessee claims to have applied for the entire past period prior to the date of option but has not applied for the conversion for the remaining part of the period during which the unit is eligible under the scheme for deferral unit. Hence, the application itself is not correct. For the above reasons the Certificate of Entitlement was not modified by the Sales tax authorities. 38. He further submits that the ld. Counsel has raised an argument that once the modified Eligibility Certificate is issued by the Implementing Agency, the Sales tax Authority is bound by it and has no jurisdiction to question it and in support he placed reliance on two decisions, viz., (1) Laxmi Industries' case (supra) and (2) Swastik Metal Works' case (supra). According to the ld. DR, the argument of the ld. Counsel is not tenable and cannot be accepted in the facts of the present case. The two decisions also do not come to the aid of the assessee. The issue before us is not the conflict of power and authority between SICOM and Sales tax authorities. As already submitted it has been categorically laid down in the Resolution of the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has been made in the Sales Tax Act itself to the effect that sales tax deferred under the Scheme shall be deemed as actually paid, the statutory liability is treated to have been discharged for the purposes of section 43B. The Circular was issued in view of representation received from various State Governments and others to the effect that the operation of the provisions of section 43B had the effect of diluting the incentives offered by the deferral schemes. He pointed out that it is not important whether deduction has been rightly allowed or not. The only condition in section 41(1) which is required to be seen in this context is whether deduction has been made on account of the trading liability or not. If the deduction has been made, one of the conditions laid down in section 41(1) is satisfied. Whether the deferred sales tax liability has been converted into interest-free loan or not is a question of fact and, the facts very categorically and unequivocally show that such conversion of deferred sales tax liability into interest-free loan could not have been done and has not been done. In fact, the fact that the assessee applied and obtained the benefit of pre-payment under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the current proviso with effect from 1-5-2002, which provided with the option of prepaying their loan liability separately under the same Act. 41. With regard to the ld. Counsel's plea that the assessee had been treating the sales tax deferred as a loan in its books of account which was evidenced by the Balance Sheet filed by it for the earlier years to show that the sales tax deferred was nothing but a loan liability the ld. DR submits that application for the conversion of deferred sales tax liability into loan itself was filed with the Competent Authority, i.e, SICOM only on 8-10-2002. This means that before this date, i.e., 8-10-2002, the liability was nothing but a deferred sales tax liability. Hence, the question of treating it as a loan before this date does not arise. In any case, it is settled law that entries in the books of account are not determinative of the nature of transactions Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC). 42. He further submits that even presuming for the sake of argument but not accepting that the sales tax liability was converted into a loan liability, it would not alter the character of the liability in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of the above leaves no doubt in mind that the assessee itself is of the view that there is a remission of the liability, albeit, a loan liability and that it has become richer by Rs. 4,14,87,985 which it has itself credited to the Capital Reserve. The reflection of this amount in the Capital Reserve itself proves that there is a benefit to the assessee and that this benefit is real. Even if the amount had been credited under some other head, it would have made no difference because it is settled law that nomenclature given a particular transaction is not determinative of its true nature. He further submits that an analysis of the Balance Sheet reveals that the assessee had deferred tax liability of Rs. 7,52,01,378 immediately prior to prepayment which, after prepayment, has been reduced to Nil. However, the assets to this extent have not diminished. The assets of the value of only Rs. 3,37,13,393 have got reduced leaving assets of the value of Rs. 4,14,87,985 with the assessee which is matched with the credit of the same amount in the Capital Reserve. This is because, out of the total liability on account of deferred sales tax of Rs. 7,52,01,378, which the assessee was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,393 and, since, it had paid this amount as worked out by the Government itself, it had not obtained any benefit. In other words the present value of its liability is only Rs. 3.37 crores and the liability of Rs. 7.52 crores was only its future liability. According to the ld. DR this is not correct since the sales tax liability was fixed the day it accrued. It cannot diminish over a period of time. It can get reduced only if a part of the liability is paid or if the person to whom the liability is owed gives up/waives/remits part of the liability. The admitted liability as per the Balance Sheet itself was Rs. 7,52,01,378. The assessee had not paid any part of the liability till its prepayment in view of the deferral incentive given to it that it could pay this entire liability after a certain period of time in future. Hence, the present liability was Rs. 7.52 crores which was allowed to be discharged at a specified future date. It was not a future liability since the same was already fixed the day it had accrued. The ld. DR, while drawing our attention to the definition of the net present value (NPV) from the Business Dictionary.com (http://www. businessdictionary.com/definition/n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it has offered to the assessee that as against the liability of Rs. 7.52 crores payable at a future date, if it paid only Rs. 3.37 crores (which was the present worth of the future cash inflow of the Government), the Government would deem it to be full discharge of the total liability and the Government would not ask for the balance liability of Rs. 4.15 crores. In effect, the Government has granted in public interest, a remission of sales tax liability of Rs. 4.15 crores to the assessee. It has given up this amount on the date when prepayment is made, thereby taking the deeming provision in the 4th proviso to section 38 of the Sales Tax Act to its logical end. In the process, the assessee has benefited by Rs. 4.15 crores. The liability of Rs. 4.15 crores has, therefore, been remitted by the Government. In the books of the assessee, liability of the value of Rs. 4.15 crores has ceased, i.e., it has come to an end. Consequently, there is a cessation of liability also to the extent of Rs. 4.15 crores. This benefit as result of remission and cessation is reflected in the Balance Sheet by an increase in the asset and credit to the Capital Reserve account. In the case of Sterlite O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of his submissions, the addition made by the Assessing Officer under section 41(1) be upheld. 48. In the rejoinder the ld. Sr. Counsel submits that the ld. DR has relied on the decision of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. case (supra) to contend that sales-tax is a trading receipt. This is undoubtedly so when the sales-tax is collected in normal circumstances and not where collection under a subsidy scheme as per 1979, 1983 or 1988 Schemes as held in Reliance's Industries Ltd. case (supra) (Special Bench/Bombay High Court). He further submits that sales-tax when collected and deferred as per the Package Scheme of Incentives cannot be regarded as a trading receipt but is a capital receipt. In this connection, reliance was again placed on the decision of the Special Bench of the Tribunal in Reliance's Industries Ltd. case (supra) wherein a sales-tax incentive received under the Package Scheme of Incentives was treated as a capital receipt. The decision of the Special Bench has been approved by the Bombay High Court. 49. He further submits that the ld. DR also stated that the appellant has always accepted that the deferred sales-tax is a trading receipt. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court and the assessee proceeded on the footing that even if at inception the amount was a trading receipt, section 41(1) could not apply as the sales tax liability survived. Moreover, the question of whether any benefit arises or not has been expressly kept open. In fact, the judgment only decides that section 41(1) does not apply because there was no remission of liability. Therefore, the decision cannot be regarded an authority sales-tax deferral liability is a trading receipt. 52. He further submits that the ld. DR also contended that under section 43B deduction was allowed as per CBDT Circular No. 496, dated 25-9-1987 and 674, dated 29-12-1993, which is a deeming fiction and therefore the Department has not accepted that payment is actually made. He submits that the deeming fiction is to be carried to its logical conclusion. In fact, the CIT(A) at page 16 has himself canvassed the proposition that a deeming fiction must be carried to its logical conclusion. In any event, since the receipt is a capital receipt at inception, there was no question of including it in the sales. Therefore, there was no debit to the profit and loss account of the amount of sales-tax or obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its which were received from regular customers in the course of trading orders placed by them with the assessee, Sundaram Iyengar, which have not been claimed by the customers were written back to the profit and loss account. The Supreme Court held that since the deposits represented trade advance payments which were to be adjusted against future trade transactions, any surplus on such account must be regarded as a trade surplus and assessable as business income on a common sense approach. The Bombay High Court has followed the said decision and held that the surplus arising from the waiver of loan was assessable as business income mainly because the loan was utilized for trading purposes of the assessee. The decision of the Bombay High Court in Mahindra & Mahindra Ltd,'s case (supra) has been distinguished on the ground that in that case the loan was utilized for capital purposes. In Solid Containers case the assessment was upheld on the basis of section 41(1) being applicable. He further submits that this decision is wholly distinguishable. In the present case, the amount is sought to be assessed under section 41(1). The common sense approach which has been applied by the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of future debts at the Net Present Value suggests that they are in the interest of revenue." In 2002, the fourth proviso was substituted to provide for prepayment of the deferred tax by an amount equal to the Net Present Value of deferred tax. The substituted fourth proviso widens the scope of permitted prepayments and cannot be interpreted to mean that the person who had diligently converted the deferred tax is not entitled to avail the benefit. The Finance Minister's speech also emphasizes the right to prepay which would include both converted loans and outstanding deferred tax. Accordingly, the Department's argument that the prepayment by the assessee was of deferred tax as allowed by the substituted 4th proviso which shows that the amount had not been converted into a loan is not correct. 58. He further submits that the ld. DR has placed reliance on the decision in Abhishek Industries Ltd. case (supra). The exact nature of the Scheme is not referred. It was certainly not a pre-payment case. Page 25 of the Report clearly brings out that the assessee has not placed any material relevant in support of its contention that the benefit was in capital field. Therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise duty had been correctly collected was pending. It was not a case of sales tax deferral or pre-payment and hence, the aforesaid decisions relied on by the ld. DR are not applicable to the facts of the assessee's case. He, therefore, reiterates that the addition made by the Assessing Officer and sustained by the ld. CIT(A) is not sustainable in law and the same be deleted. 62. We have carefully considered the submission of the parties and perused the material available on record. We find that the material facts are not in dispute. The assessee-company obtained incentive by way of sales tax deferral scheme under the package scheme of incentive 1983 (the 1983 scheme) and package scheme of incentive 1988, (the 1988 scheme) notified by the Government of Maharashtra. Under 1983 scheme the assessee's Unit at Kondhapuri, Tal. Shirur Distt. Pune which at the relevant time a notified backward area was entitled to defer the payment of sales tax collected during the period 1-11-1989 to 31-10-1996 (7 years) upto the maximum of Rs. 666.94 lakhs being 85 per cent of the fixed capital investment of Rs. 784.64 lakhs. The assessee collected sales tax in 7 years Rs. 3,29,93,863 which was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, as follows : "Section 41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year. (a) the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to Income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not;" 64. We have refrained from reproducing the rest of the section which is not relevant for the purpose of the present controversy, before us. 65. We feel that it is worthwhile to state the various principles set out by Hon'ble Supreme Court and High Courts while considering the provision of section 41(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof". It is the obtaining in "cash or in any other manner whatsoever, any amount . . . or some benefit in respect of such trading liability . . ." which is contemplated by the Legislature when it used the words "has obtained". Section 41(1) introduces a fiction by which where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him shall be deemed to be profits and gains of the business or profession and, accordingly, chargeable to income-tax as income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. The fiction is an indivisibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession and it becomes chargeable to income-tax as an income of that previous year. 71. Further on a plain reading of section 41(1) of the Act, it is also clear that the provisions contained in section 41(1) does not make any distinction between any contractual trading liability or any statutory trading liability. Even if any statutory liability is remitted or ceased of, or any amount, whether in cash or in any other manner, has been obtained in respect of the expenditure incurred by way of statutory liability, the same would be deemed to be the profit and gains of the business of the assessee and would accordingly chargeable to income-tax as the income of that year in which such benefit or amount is obtained. 72. At this stage it is also necessary to take note of the provisions of section 38 of the Bombay Sales Tax Act, 1959, applicable at the relevant time : "38. Payment of tax and deferred payment of tax, etc.--(1) Tax shall be paid in the manner herein provided, and at such intervals as may be prescribed. (2) A Registered dealer furnishing returns as required by sub-section (1) of section 32, shall first pay into a Government treasury, in such manner and at such interva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1993 Package Scheme of Incentives designed by State Government have been granted by virtue of Eligibility Certificate, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or the relevant Regional Development Corporation or the District Industries Centre Concerned then such tax shall be deemed in the public interest, to have been paid : Provided also that, notwithstanding anything to the contrary contained in the Act or in the rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion Policy, 1998, the Eligible Unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may in respect of any of the periods during which the said certificate is valid, its option, prematurely pay in place of the amount of tax deferred by it an amount, equal to the net present value of the deferred tax as may be prescribed , and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. (5) ** ** **." 73. On the plain reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... $1,100 at the end of the year; therefore, the present value of $1,100 at the desired rate of return (10 per cent) is $1,000. The amount of investment ($1,000 in this example) is deducted from this figure to arrive at NPV which here is zero ($1,000-$1,000). A zero NPV means the project repays original investment plus the required rate of return. A positive NPV means a better return, and a negative NPV means a worse return, than the return from zero NPV. It is one of the two discounted cash flow (DCF) techniques (the other is internal rate of return) used in comparative appraisal of investment proposals where the flow of income varies over time." [http://www. businessdictionary.com/definition/net-present-value-NPV.html]" According to Wikipedia the present value (PV) formula has four variables, each of which can be solved for : PV = FV (1 + i)n 1. PV is the value at time = 0 2. FV is the value at time = n 3. i is the rate at which the amount will be compounded each period 4. n is the number of periods (not necessarily an integer) 5. Future value of a present sum The future value (FV) formula is similar and uses the same variables. FV = PV.(1+i)n From the above defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deposited on 30-12-2002 i.e., four months before the due date, the discounted percentage of deferred tax to be paid as NPV was prescribed in said table as 96.4955 per cent and accordingly the NPV amount of BST and CST was worked out to Rs. 26,925 and Rs. 67,712 respectively as per certificate dated 27-12-2002 appearing at page 191 of assessee's paper book and the same was paid on 30-12-2002 as per certificate dated 25-8-2003 appearing at page 188 of assessee's paper book. This amount was paid by the assessee as per offer made by the State Government who appointed the State Industrial & Investment Corporation of Maharashtra Limited (SICOM) for settlement of deferred sales tax liability by an immediate one time payment. Accordingly the assessee has paid an amount of Rs. 3,37,13,393 to SICOM which according to the assessee represented the NPV as determined by SICOM. The payment was made to SICOM on 30-12-2002 as per certificates dated 25-8-2003 appearing at pages 188 and 207 of assessee's paper book. The revenue has placed no material on record to show that the present value (NPV) of a future sum is not the same or in the process of calculation of present value of a future sum there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration, the persons concerned did not have a right to enforce the same. The source as well as the payments were both certain and definite. The payments were inseparably connected with the business carried on by the assessee. The benefits were available only from the date the new industrial undertaking commenced production and for a period of five years therefrom. The refund or the subsidy, as it may be called, was dependent upon the industry continuing in production. There was no room or basis for disassociating the subsidy from the business of the assessee, inasmuch as the subsidy was given for development of the business and not for any other unrelated purposes. The payment was not a subsidy for setting up the plant but a subsidy given for the efficient and profitable running of the industry and its growth. The receipt was, therefore, of a revenue nature. All three items comprised in the payment constituted income of the assessee. (ii) That the refunds of sales tax on purchase of raw materials and on sale of finished goods fell within section 41(1) and were assessable as gains of business.' 80. On further appeal before the Hon'ble Supreme Court in Sahney Steel & Press Works Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the incentive schemes were in the nature of revenue. On appeal to the Supreme Court : Held, accordingly, reversing the decision of the High Court, on this point, that the main eligibility condition in the schemes was that the incentive had to be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of an existing unit. The subsidy received by the assessee was not in the course of a trade but was of a capital nature." 82. In Reliance Industries Ltd. case (supra) it has been held that the sales tax incentive given by Government of Maharashtra to assessee for setting up industries in notified areas in the form of exemption from liability to payment of sales tax for a period of 5 years with a view to being about necessary infrastructure in backward area, based on the amount of investment in fixed assets, is capital receipts not chargeable to tax. 83. Reliance Industries Ltd. case (supra) (Bombay High Court) in Central Excise Appeal No. 1299 of 2008 dated 15-4-2009 on the question of law (D) "Whether on the facts and in the circumstances of the case and in law the Hon'ble Tribunal was right in holding that sale tax incentive is a Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of section 41(1) of the Income-tax Act, 1961; it will not be a case of "benefit by way of remission or cessation" of a trading liability. Where expenditure is actually incurred by reason of payment of duty on goods and the deduction or allowance is given in the assessment of an earlier period, the assessee is liable to disgorge that benefit as and when he obtains refund of the amount so paid. Whether there is a possibility of the refund being set at naught on a future date is not a relevant consideration. Once the assessee gets back the amount which was claimed and allowed as business expenditure during an earlier year, the deeming provision in section 41(1) comes into play and it is not necessary that the revenue should await the verdict of a higher court or tribunal. If the higher court or tribunal upholds the levy at a later date the assessee is not without a remedy to get back the relief. The correct way of understanding section 41(1) is to read the latter clause, "some benefit in respect of such trading liability by way of remission or cessation thereof" as a distinct and self-contained provision.' 86. In Wolkem (P.) Ltd. case (supra) (headnote pg-431) : "During the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the unit. Rather, it was evident that the subsidy was an operational subsidy provided by the State after the industry had been set up and commenced commercial production. In the absence of material to show that the subsidy was to enable it to carry out capital investment it could not be presumed that such a subsidy was a capital subsidy." 88. In Mysore Thermo Electric (P.) Ltd. case (supra) (headnote pg-505) : "In the accounting years relevant to the assessment years 1976-77 to 1978-79, the assessee-company was engaged in the manufacture of battery separators. The excise authorities had levied certain dues on the assessees under the head of central excise, holding that they were liable to payment of this levy. According to the assessees, they had paid these amounts under dispute and since it was the contention of the authorities that central excise was payable on the goods, they had maintained a separate account for purposes of tendering these payments which in turn they recovered from the dealers to whom they supplied goods. According to the accounting procedure maintained by them, they desired that these amounts should not be mixed with their receipts or costs. This separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that there must be an allowance or deduction in the assessment for any year in respect of loss or expenditure or trading liability incurred by the assessee. The other was that subsequently during the previous year the assessee must have obtained either in cash or any other manner whatsoever an amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation, so that the remission or cessation so obtained on the value of the benefit accruing could be deemed the income of the assessee. The benefit could be by way of a book adjustment also. Admittedly though the assessee obtained benefit in the earlier years on account of the amount due to the sharebrokers in a larger amount, this was reduced to a considerable extent on account of subsequent settlement and consequently the accounts were also adjusted in this regard. It was not always necessary that the assessee should get benefit by way of cash for application of the provisions of section 41(1) of the Act. Since this was a trading liability, which was written back in the year under consideration, application of the provisions of section 41(1) was perfectly justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It became a definite trade surplus. The assessee itself had treated the money as its own money and taken the amount to its profit and loss account. The amounts were assessable in the hands of the assessee." 92. In Cosmo Films Ltd.'s case (supra) : "8. In the course of assessment proceedings, it was noticed by the Assessing Officer that the sales tax deferral liabilities of Rs. 532.82 lakhs was assigned by the assessee to one partnership firm, M/s. Gayatri & Annapurna (in short 'G&A') for a sum of Rs. 131.41 lakhs, and the balance of Rs. 401.41 lakhs was credited to the profit and loss account by the assessee company. In the original return of income filed by the assessee company, the amount so credited to the profit and loss account was offered as income being a part of the assessee's returned income. But later on, the assessee revised its return of income by excluding the said difference of Rs. 401.41 lakhs on the ground that it was wrongly included. However, after considering the composition of partnership firm (Gayatri & Annapurna) and its relation to assessee-company and other company of the same group, and after deliberating upon the agreement of assigning the deferred sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 per cent of the capital invested, which worked out to Rs. 18,93,750. During the year under appeal, the Government of Maharashtra introduced the "Prepayment of sales tax deferral scheme, 2003", whereunder the eligible undertaking was permitted to prepay the loan amount at the rate of "Net Present Value", repayable at a future date. Taking the benefit of the scheme, the assessee company prepaid the liability and availed remission of Rs. 5,48,517. The Assessing Officer considered the remission of the liability of Rs. 5,48,517 assessable under section 41(1) of the Income-tax Act, 1961. The CIT(A) has confirmed the action of the Assessing Officer." It has been held by the Tribunal (para-11) :-- ".... We are therefore of the considered view that if the assessee has been allowed a deduction in respect of the sales tax liability, in the year the same was allowed to be converted into a loan, then the amount remitted out of that would be liable to tax in the year of remission. Though it has been stated by the CIT(A) that the assessee has been allowed a deduction in the year of liability/collection, yet in the interest of justice, we would like to restore this issue to the file of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of trading liability. On a reference : Held, (i) that there were two important facts which had been overlooked by the Assessing Officer. Firstly, the assessee continued to pay interest at 6 per cent for a period of ten years on the loan amount. The agreement for purchase of toolings was entered into much prior to the approval of the loan arrangement given by the Reserve Bank of India. Therefore, the loan agreement, in its entirety, was not obliterated by such waiver. Secondly, the purchase consideration related to capital assets. The toolings were in the nature of dies. The assessee was a manufacturer of heavy vehicles and jeeps. It required these dies for expansion. Therefore, the import was that of plant and machinery. The consideration paid was for such import. In the circumstances, section 28(iv) was not attracted. Lastly, the principal amount of loan had been forgone as a part of takeover arrangement to which the assessee was not a party. The waiver of the principal amount was unexpected. In the circumstances, such waiver would not constitute business income. (ii) That in order to apply section 41(1), an assessee should have obtained a deduction in the assessment for any y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition against the judgment dated 23-9-2008 of the Delhi High Court in ITA No. 1143 of 2008 whereby the High Court following Mahindra & Mahindra Ltd.'s case (supra) upheld the order of the Tribunal holding that as the assessee had not got any deduction on account of acquisition of capital assets as it had been reflected in the balance-sheet and not in the profit and loss account and the remission of the principal amount of loan obtained from the bank and financial institution had not been claimed as expenditure or trading liability in any earlier year, section 41(1) was not applicable and that the assessee company had either shown the waiver of interest as income or had not claimed it as expenditure in the computation of income filed before the lower authorities. CIT v. Tosha International [SLP (Civil) No. 18699 of 2009/[2009] 319 ITR 7 (St.)]. 98. In S.I. Group India Ltd.'s case (supra) the brief facts of the case are that the assessee has an industrial unit in the district of Raigad which is a notified backward area. The Government of Maharashtra issued a package scheme of incentives in 1993 by which a scheme for the deferral of sales tax dues was announced. The assessee during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 41(1)(a). It was not necessary for the court to address itself to the wider issue as to whether the assessee, in paying the net present value of the deferred sales tax liability should be regarded as having obtained any benefit within the meaning of clause (a) of sub-section (1) of section 41. This issue was kept open to be adjudicated upon at the appropriate stage in appropriate proceedings." 99. In Sterlite Optical Technologies Ltd.'s case (supra) for assessment year 2001-02 dated 8-1-2008 reported in (2008 ) 2 ITAT INDIA 184 (Mum.) the brief facts are that the assessee has an industrial unit in Aurangabad district which is a notified backward area eligible to Sales tax Deferral Scheme. In this scheme, sales tax collected was deemed to have been paid to the sales tax authorities and thereafter deemed to be received from SICOM by way of a loan. The assessee company approached SICOM for pre-pointing the payment of loan liability at discounted rate and vide letter dated 28-3-2001 SICOM intimated the assessee that the Government of Maharashtra had decided to offer discounted rate of 11.52 per cent per annum for pre-mature repayment of loan availed by the unit. Therefore, again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of Maharashtra Government. Therefore, the benefit availed by the assessee has to be held as capital receipts not chargeable to tax." 100. In Associated Capsules Ltd.'s case (supra) for assessment year 2004-05 dated 20-10-2009 the Tribunal following the decision in the case of Sterlite Optical Technologies Ltd. (supra), decided the issue in favour of the assessee and dismissed the ground raised by the revenue. 101. In Everest Industries Ltd.'s case (supra) for the assessment year 2003-04 order dated 4-12-2009 the Tribunal following the decision in the case of Sterlite Optical Technologies Ltd. (supra), decided the issue in favour of the assessee. 102. In Cipla Investments Ltd.'s case (supra) (headnote) : "The assessee had taken an unsecured loan for investment in shares from its holding company and same could not be paid due to losses. The holding company had written it off as irrecoverable from the assessee, whereas, the assessee has not written back the said amount as cessation of liability under section 41(1). Subsequently, the assessee company was dissolved. The Assessing Officer made additions to the income of the assessee of loan liability as income under section 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld but could not be on the revenue field. It had been held in catena of decisions that remission of a debt by the holding company which was not claimed and allowed as a deduction in any manner in any earlier previous year could not be brought to tax either under section 41(1) or under section 28(iv). There was no benefit or perquisite arising to the assessee in that regard. Moreover, the assessee had to write off the amount in the books of account and the amount was still outstanding at the end of the year. The loans availed for acquiring the capital asset, i.e., shares, when waived could not be treated as assessable income for invoking the provisions of section 28(iv). Since the original receipt was undoubtedly on account of capital nature, its waiver did not have the quality of changing the same into a revenue receipt. In view of those facts and also various principles laid down in the case laws relied upon by the assessee, it was opined that the Commissioner (Appeals) erred in treating the amount as taxable income in the hands of the assessee under section 28(iv). On the facts of the instant case, the provision of section 28(iv) did not apply and the amount was not taxable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to be taxable, as such, under section 28. The Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501/128 Taxman 394, has explained that section 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in section 28(iv). For the purpose of section 28(iv), the loan waiver amount credited by the assessee in its general reserved account was covered by the judgment of the Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra) and, therefore, the said waiver amount could not be held as taxable." 104. Having regard to the aforesaid law laid down by the Hon'ble Supreme Court and High Courts, we find that to invoke the provisions of section 41(1) of the Act, the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. In the case of the present assessee the revenue's plea is that the assessee has ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. In the case before us the assessee has opted the offer of SICOM, an implementing agency of the State Government and repaid an amount of Rs. 3,37,13,393 to SICOM which according to the assessee represented the NPV of the future sum as determined and prescribed by SICOM. The said payment was made to SICOM on 30-12-2002 as per certificates dated 25-8-2003. It has already been demonstrated in para 74 of this order that NPV is equivalent to Future Value of the sum. In other words, what the assessee was required to repay after 12 years in six annual/equal instalments, the same was repaid by the assessee, in the public interest, as NPV is equivalent to the Future Value of the sum. Further there is no iota of evidence to show that there has been any remission or cessation of liability by the State Government. Thus, 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. 106. Alternatively, it was argued on behalf of department that the assessee was required to comply with procedure laid down in clauses 6.21 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orin Alkali Chemicals & Fertilizers Ltd.'s case (supra) (page 183) : "It is true that this court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act as was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. [1970] 77 ITR 857, 860 (CA), the income-tax law does not march step by step in the footprints of the accountancy profession." 108. We have also examined this issue from another angle in the light of Indian Contract Act, 1872. Chapter IV deals with the performance of contracts. Section 63, which has been placed in Chapter IV, reads as under : "63. Promisee may dispense with or remit performance of promise.--Every promisee may dispense with or may remit, wholly or in part, the performance of the promise made to him, or may extend the time for such pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uished from a remission or dispensation which is made contingent on the happening of a future event. In such a case the remission is in praesenti, though it is suspended until the event occurs. The holder of a promissory note from the officers of a masonic lodge agreed in writing to make no claim 'if the... lodge building which has been burnt down is resuscitated.' He could not sue on his note after the lodge was rebuilt. It would be monstrous if he could. However, a conditional remission is not enforceable under the section, as when conditional, it is not an absolute remission and the plaintiff is not estopped from enforcing his rights in full. Where the promisee wishes his rights to continue in the event of some conditions simultaneously imposed on the promisor, he must see that the release is made dependent on the performance by the promisor of his part of the agreement." The above again shows that remission is possible only in praesenti and not in future. Now coming back to the case before us, the assessee was liable to pay sales tax amounts collected from 1-11-1989 to 31-10-1996, payments of which were deferred under the scheme, and the amounts were payable after twelve year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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