THE COMMISSIONER OF INCOME TAX Vs. MCDOWELL & CO. LTD.

JUDGEMENT

(1.) The Revenue has preferred this appeal against the order passed by the Tribunal holding that the deferred tax can be taxed neither under Section 41(1) nor under Section 28(4) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').

(2.) The assessee is a listed Public Company. The assessee filed return of income for the assessment year 2004-05 on 29.10.2004 declaring total income of Rs. 42,16,81,790/-. In the computation of income for income tax purposes filed along with the return of income, the assessee has deducted an amount of Rs. 9,52,61,916/- from the book profit as the amount representing Sales Tax deferral Loan Incentive Scheme and has not offered the same as tax. As per the provisions of Section 43B of the Act, the Sales Tax collected and not paid before the due date for filing the return of income should have been offered for tax as a part of total income for the assessment year 2003-04. The assessee did not offer the same for the assessment year 2003-04. The stand of the assessee was as per the circulars 496 : , dated 25.9.1987 and 612 dated 29.12.1993, such deferment of tax is considered as deemed to have been paid and therefore, provisions of Section 43B would not be applicable. In March, 2004 during the previous assessment year 2004-05 assessee opted for a Scheme under the Bombay Sales Tax Act wherein it could pay the net present value against premature payment of the amount of the deferred tax under an incentive scheme and settled the amount. Accordingly, an amount of Rs. 4,25,79,684/- was paid to the Sales Tax Department on 29.3.2004 and the amount got settled. According to the Incentive Scheme balance amount of deferred sales tax was waived. In other words, liability to pay deferred sales tax ceased to exist. Therefore, the assessee while finalizing the account recognized this waiver of Rs. 9,52,61,916/- as revenue and in the computation of income has deducted the same as not taxable. However, the Assessing Authority did not accept the said contention. Therefore, the Assessing Authority held the alleged subsidy is relatable to Sales Tax collected and not paid, being revenue in nature even without applying the provisions of Section 41(1) of the Act, the amount would be taxable as revenue as per the decision of the Supreme Court.

(3.) Aggrieved by the said order the assessee preferred an appeal before the Commissioner of Income tax (Appeals). The Appellate Authority held presuming, but not accepting that it is a loan independent of it originally being deferred Sales Tax, then also provisions of Section 41(1) would be applicable since it is a benefit arising out of an item on which expenditure has already been allowed. He confirmed the order of the Assessing Authority. Considering the alternative argument of the assessee, the Appellate Authority held that, if it is treated as Revenue in nature, the same can be taxed only in the year 2017. He held that a sum of Rs. 952.6 lakhs as reduction in loan liability is liable to tax, but not in one year and only a proportion of it. As the benefit accrues over a period upto the year 2017, only a proportion as applicable to the year concerned is to be considered.