Deferred Indirect Tax liability and admissibility of deduction u/s 43B

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Deferred Indirect Tax liability and admissibility of deduction u/s 43B

The Gujarat HC in the case of CIT Vs. Bhagwati Autocast Ltd has held that assessee was entitled to deduction of deferred sales-tax liability and no disallowance could be made under s. 43B. It concluded that in view of Circular No. 496, dt. 29th May, 1987, read with resolution No. INC/1087/143-1, dt. 21st March, 1988 passed by the Gujarat Government the assessee was entitled to deduction of deferred sales-tax liability and no disallowance could be made under s. 43B.
The copy of the order is as under:
COMMISSIONER OF INCOME TAX vs. BHAGWATI AUTOCAST LTD.
HIGH COURT OF GUJARAT
M.S. Shah & K.A. Puj, JJ.
IT Ref. No. 257 of 1994
26th July, 2002
(2002) 70 CCH 0591 GujHC
(2002) 178 CTR 0098 : (2003) 261 ITR 0481 : (2002) 124 TAXMAN 0452
Legislation Referred to
Section 43B
Case pertains to
Asst. Year 1985-86
Decision in favour of:
Assessee
In favour of :
Assessee
Cases referred:
Circular No. 496, dt. 29th May, 1987
Counsel appeared:
Tanvish U. Bhatt, for the Applicant : None, for the Respondent
K.A. PUJ, J.:
Judgment
In this reference, at the instance of the applicant-revenue, the following question of law is referred to for the opinion of this Court for the asst. yr. 1985-86 :
“Whether the Appellate Tribunal is right in law and on facts in holding that the amount of Rs. 2,22,620 representing deferred sales-tax, i.e., unpaid sales-tax liability did not attract the provisions of s. 43B of the IT Act ?”
2. In this reference, the only dispute is about disallowance under s. 43B of the IT Act, 1961 (‘the Act’) for unpaid sum of Rs. 2,22,620 for sales-tax. It is the stand of the assessee before the assessing authority that the State Government had allowed the assessee to return sales-tax collected as a sort of incentive provided for the growth of industry. On this basis, it was contended by the assessee that its case was covered by the provisions contained in s. 43B of the IT Act. The ITO has, however, rejected the assessee’s claim.
3. Being aggrieved by the said order of the ITO, the assessee has preferred an appeal before the CIT(A) and while disposing of the said appeal, the CIT(A) has taken note of Circular No. 496, dt. 29th May, 1987, issued by the CBDT and on the basis of the said circular, the CIT(A) has restored the matter to the file of the AO with a direction to verify as to whether any amendment of the Gujarat ST Act had been made in the light of the Board’s Circular and then decide the matter afresh. Thereafter, the attention of the taxing authority was drawn to the Gujarat Government Resolution No. INC/1087/143-1, dt. 21st March, 1988, wherein the entire position was clarified. The said resolution was made operative w.e.f. 1st April, 1983. On the basis of the said resolution, it was contended by the assessee before the taxing authorities that in the light of the Board’s Circular No. 496, dt. 25th Sept., 1987, the assessee was entitled to the relief regarding deferred payment of sales-tax not hit by s. 43B, as Gujarat Government Resolution dt. 21st March, 1988, r/w the clarification issued by the Sales-tax Department satisfied the condition laid down in Board’s Circular. On the basis of the Circular issued by the CBDT as well as the resolutions of the State Government as referred to above, the Tribunal has taken the view that the requirements of getting exemption from the mischief of s. 43B in respect of Sales-tax Deferment Scheme of the Gujarat Government are satisfied. The Tribunal, therefore, held that the amount of Rs. 2,22,620 of deferred sales-tax is not caught by mischief of s. 43B of the Act.
4. Being aggrieved by the aforesaid decision of the Tribunal, the Revenue has come in reference before this Court and the above question was referred for the opinion of this Court.
5. Heard Mr. Tanvish Bhatt, learned standing counsel appearing for the applicant-Revenue. Nobody appears on behalf of the respondent-assessee though the notice was duly served. At the time of hearing of this reference, our attention is drawn to the decision of the Hon’ble Supreme Court in the case of CIT vs. Gujarat Polycrete (P) Ltd. (2001) 165 CTR (SC) 402 : (2000) 246 ITR 463 (SC) wherein it is held that the CBDT Circular dt. 25th Sept., 1987, would apply only if a State would have amended its sales-tax law to provide that the sales-tax that was deferred by an incentive scheme framed by it would be treated as actually paid, so as to meet the requirements of s. 43B of the IT Act, 1961. It was further held on the basis of the facts of that case that notice had not been taken of the Gujarat Sales-tax Act, 1969 to ascertain whether or not there was such an amendment. The Hon’ble Supreme Court thereafter has taken the view that the question whether the Tribunal was right in law and on facts in directing the AO to allow the claim of the assessee in respect of unpaid sales-tax if the same was covered by the specific scheme of the Gujarat Government whereby the deferred payment scheme was converted into interest-free loan, particularly when the provisions of s. 43B are retrospective in operation, was a question of law which had to be referred. Mr. Bhatt has, therefore, urged that the matter may be remanded to the Tribunal to ascertain as to whether any amendment is made by the State Government in Gujarat Sales-tax Act, 1969.
Here, in the present case as already observed hereinabove, the Gujarat Government has passed resolution bearing No. INC/1087/143-1, dt. 21st March, 1988, and the said resolution was made operative from 1st April, 1983. The period involved in the present assessment is, therefore, covered by the said resolution. The benefit is given vide Circular, dt. 25th Sept., 1987, wherein the Board has made it clear that if the sales-tax due to the Government is converted as a loan which may be repaid by the assessee subsequently by instalments, the Department shall see that the sales-tax dues as actually paid for all purposes is available to the assessee. The combined reading of this circular of CBDT as well as the resolution issued by the State Government would make it clear that the assessee is entitled to relief and benefit given under s. 43B can be claimed by the assessee.
6. It is required to be noted here that subsequently, the State Government has made an amendment in the Gujarat Sales-tax Act and second proviso to s. 47(4) of the Act was inserted by Gujarat Act V of 1988 w.e.f. 24th March, 1988, which reads as under :
“Provided further that notwithstanding anything contained in this Act or in the rules made thereunder but subject to such conditions as the State Government or the CIT may by general or special order specify, where a dealer to whom incentives by way of deferment of sales-tax or purchase-tax or both have been granted by virtue of an eligibility certificate granted by the Commissioner of Industries, Gujarat State or any officer authorised by him in this behalf and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the Gujarat Industrial Investment Corporation Limited or the Gujarat State Financial Corporation Limited, then such tax shall be deemed, in the public interest, to have been paid.”
7. Since the resolution issued by the State Government earlier was made effective from 1983, the assessee’s case was covered by the said resolution and amendment made thereafter on 24th March, 1988 is clarificatory in nature. We are, therefore, of the view that the Tribunal was right in deleting the addition made by the ITO by invoking the provision of s. 43B in respect of unpaid sales-tax liability.
8. We, therefore, answer this question in the affirmative, i.e., in favour of the assessee and against the Revenue. This reference is, accordingly, disposed of with no order as to costs.
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