At, High Court of Kerala
By, THE HONOURABLE MR. JUSTICE C.N. RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K. VINOD CHANDRAN
For the Appellant: P.K.R. Menon, Jose Joseph, Advocates. For the Respondent: A. Kumar, Advocate.
C. N. Ramachandran Nair, J.
1. This is an appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal upholding the respondent’s eligibility for deduction of sales tax which was not paid in the previous year or until the last date as required under S.43(B) of the Income Tax Act (for short IT Act).
2. We have heard Sri. P. K. R. Menon for the appellant and Sri. A. Kumar for the respondent. The issue arose in the year 1991-92. Admittedly, respondent - assessee did not remit the sales tax before the closing of the previous year or until the date of filing of the return for the relevant assessment year. So much so, in the normal course assessee was not entitled for deduction of the accrued sales tax liability by virtue of S.43B of the IT Act which entitles for deduction only if payment is made on or before the due date provided thereunder. However, assessee still claimed deduction because being a sick industry the assessee was entitled to the benefit conferred by a notification by which State Government gave a moratorium for payment of arrears of tax by sick industries wherein payment was to be made after a period of two years in 12 equal monthly instalments with the rate of interest @12% per annum. The assessee put forward the claim that S.43B does not stand in the way of entitlement for deduction by virtue of Circular No. 674 1994 (205) ITR (St.)119. Paragraph 16 of the said Circular provides for deduction in cases where tax liability is converted into loan by the department. The relevant provisions of the notification relied on by the assessee as extracted in the decision of the Hon’ble High Court of Rajasthan reported in CIT v. Ravindra Platinum (P) Ltd., 2008 (175) Taxman 46 is as follows:
'The Board have considered the matter and are of the opinion that such deferral schemes notified by the State Governments through Government orders meet the requirements of the Board’s Circular No. 496, dated 25/09/1987 (see 1988 (169) ITR (St). 53), in effect though in a different form. Accordingly, the Board have decided that the amount of sales tax liability converted into loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders.'
3. While the claim of the Revenue is that the case of the respondent - assessee is not covered by the circular, assessee’s case is that the scheme of repayment under the Government Orders has the effect of treatment of the tax arrears as loan due to Government.
4. After hearing both sides, we are of the view that there is no scope for interference with the findings of the Tribunal for more than one reason. In the first place the Tribunal on facts found that the scheme of deferred payment provided by the State Government to the respondent assessee amounts to a loan. Secondly, what we notice is that under the scheme of moratorium, the strict provisions of the statute particularly the default interest payable under S.23(3) is modified under the deferred payment scheme, inasmuch as against the payment of interest at 24% per annum after the first three months of the default, interest provided under the deferred payment scheme by the State Government is only 12% per annum. In fact, under the Sales Tax Act only the Assessing Officer enjoys the powers for granting time for payment, that too by collecting the default interest under the statutory provisions. On the other hand, under the scheme relied on by the respondent, it is applicable only to sick industries and that too on payment of annual interest @ 12% which is lower than the statutory rate. Further payment starts after a period of two years. In fact if the assessee commits default of repayment, recovery has to be of the amount d
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ue under the deferred payment scheme. The assessee also had made payment in terms of deferred scheme. We therefor on the facts hold that the transaction is a loan by the State Government whereby the tax liability was converted under the deferred scheme as a loan. Accordingly we uphold the order of the Tribunal and dismiss revenue’s appeal though not for the reasons stated by the Tribunal but for the reason stated above.