CIT vs. Mcdowell and Co. Ltd.; 369 ITR 684 (Karn):
In the A. Y. 2003-04, the assessee had opted for deferral scheme for payment of sales tax of Rs. 13,78,41,600/- under the deferral 1993 scheme of the Government of Maharashtra. The amount was allowed as deduction in the A. Y. 2003-04 treating the option as deemed payment for the purpose of section 43B of the Income-tax Act, 1961 according to the circulars. In the subsequent year, the assessee opted for the 2002 scheme for premature payment of net present value and paid an amount of Rs. 4,25,79,684/-. In the A. Y. 2004-05, the Assessing Officer added the difference amount of Rs. 9,52,61,916/- as deemed income u/s. 41(1) of the Act. The Tribunal deleted the addition and held that the amount was not taxable u/s. 41(1) of the Act.
On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:
“i) As per the scheme the assessee was allowed to retain the sales tax as determined by the competent authority and pay the tax 15 years thereafter. The tax collected was deemed to have been paid and, therefore, the tax so collected could not be construed as income in the hands of the assessee.
ii) The tax so retained by the assessee was in the nature of a loan given by the Government as an incentive for setting up the industrial unit in a rural area. The loan had to be repaid after 15 years. Again, it is an incentive.
iii) However, by a subsequent scheme, a provision was made for premature payment. When the assessee had the benefit of making the payment after 15 years, if he is making a premature payment, the amount equal to the net present value of the deferred tax was determined at Rs. 4,25,79,684/- and on such payment the entire liability to pay tax/loan stood discharged. Again, it is not a benefit conferred on the assessee. Therefore, section 41(1) of the Act was not attracted.”
