4. Seshasayee
Steels P. Ltd. vs. ACIT
[2020]
421 ITR 46 (SC)
Capital
Gains – Transfer – In order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof; and
secondly, the transferee must have performed or be willing to perform his part
of the agreement – The expression ‘enabling the enjoyment of’ in section
2(47)(vi) must take colour from the earlier expression ‘transferring’, so that
it can be stated on the facts of a case that a de facto transfer of
immovable property has, in fact, taken place, making it clear that the de
facto owner’s rights stand extinguished – On the facts of the case, the
assessee’s rights in the said immovable property were extinguished on the
receipt of the last cheque, as also that the compromise deed could be stated to
be a transaction which had the effect of transferring the immovable property in
question
The
appellant-assessee entered into an agreement with Vijay Santhi Builders Limited
on 15th May, 1998 to sell a property for a total sale consideration
of Rs. 5.5 crores.
Pursuant to
this agreement, a Power of Attorney (PoA) was executed on 27th
November, 1998 by which the assessee appointed one Chandan Kumar, Director of
M/s Vijay Santhi Builders Ltd., to execute and join in execution of the
necessary number of sale agreements and / or sale deeds in respect of the
schedule mentioned property after developing the same into flats. The PoA also
enabled the builder to present before all the competent authorities such
documents as were necessary to enable development of the same and the sale
thereof to various persons.
The
appellant did not file any return for A.Y. 2004-2005. Apparently, it was
detected later by the A.O. that the agreement to sell had been entered into and
that, subsequently, a memorandum of compromise had also been entered into
between the parties dated 19th July, 2003. Based on the discovery of
this fact, a notice dated 4th November, 2008 issued u/s 148 was
served on the appellant. Even in response to this notice, no Income tax return
was filed. A notice dated 8th September, 2009 was then issued u/s
142(1) fixing the case for hearing on 20th September, 2009. Once
again, the appellant did not turn up, as a result of which another notice dated
23rd October, 2009 was issued; but this time, too, the assessee did
not turn up. So a third letter was issued on 11th December, 2009
fixing the case for hearing on 22nd December, 2009. In response to
this letter, the assessee by a letter dated 29th December, 2009
sought time for one month.
Since time
bar was foremost in the mind of the A.O., the limitation falling on this
transaction by 31st December, 2009, a best judgment assessment order
was then passed u/s 144 dated 31st December, 2009. Vide this
order, the entire sale consideration was treated as a capital gain and brought
to tax.
An appeal
was preferred against this order. The Commissioner of Income Tax (Appeals), by
an order dated 28th October, 2010, examined the three documents in
question and ultimately dismissed the appeal. The Income Tax Appellate
Tribunal, by an order dated 24th June, 2011, agreed with the CIT(A)
and found that on or about the date of the agreement to sell the conditions
mentioned in section 2(47)(v) of the Act could not be stated to have been
complied with, in that the very fact that the compromise deed was entered into
on 19th July, 2003 would show that the obligations under the
agreement to sell were not carried out in their true letter and spirit. As a
result of this, section 53A of the Transfer of Property Act, 1882 could not
possibly be said to be attracted. What was then referred to was the memorandum
of compromise dated 19th July, 2003 under which various amounts had
to be paid by the builder to the owner so that a complete extinguishment of the
owner’s rights in the property would then take place. The last two payments
under the compromise deed were contingent upon M/s Pioneer Homes also being
paid off, which apparently was done. The Appellate Tribunal held that the
transfer therefore took place during the A.Y. 2004-05 as the last cheque was
dated 25th January, 2004.
The High
Court, by the impugned judgment dated 25th January, 2012, adverted
to the concurrent findings of the authorities and stated that the three questions
of law that were set out were all answered in favour of the Revenue and against
the assessee.
The Supreme
Court observed that in order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof.
Secondly, the transferee must have performed or be willing to perform his part
of the agreement. It is only if these two important conditions, among others,
are satisfied that the provisions of section 53A can be said to be attracted on
the facts of a given case.
According to
the Supreme Court, on a reading of the agreement to sell dated 15th
May, 1998 it was clear that both the parties were entitled to specific performance
(Clause 14). Clause 16 was crucial and the expression used was that ‘the party
of the first part hereby gives “permission” to the party of the second part to
start construction on the land’. Clause 16, therefore, leads to the position
that a license was given to another upon the land for the purpose of developing
the land into flats and selling the same. Such license could not be said to be
‘possession’ within the meaning of section 53A, which is a legal concept and
which denotes control over the land and not actual physical occupation of the
land. This being the case, section 53A of the T.P. Act was not attracted to the
facts of this case for this reason alone.
Turning to
the argument of the assessee based on section 2(47)(vi) of the Income-tax Act,
the Supreme Court made a reference to its judgment in Commissioner of
Income Tax vs. Balbir Singh Maini (2018) 12 SCC 354 and applying the
test given in the aforesaid judgment, observed that it was clear that the
expression ‘enabling the enjoyment of’ must take colour from the earlier
expression ‘transferring’, so that it can be stated on the facts of a case that
a de facto transfer of immovable property has, in fact, taken place
making it clear that the de facto owner’s rights stand extinguished.
According to the Supreme Court, as on the date of the agreement to sell, the
owner’s rights were completely intact both as to ownership and to possession
even de facto, so that this section equally could not be said to be
attracted.
Coming to
the third argument of the appellant, the Supreme Court was of the view that
what has to be seen is the compromise deed and as to which pigeonhole such a
deed can possibly be said to fall into u/s 2(47). According to the Supreme
Court, a perusal of the compromise deed showed that the agreement to sell and
the PoA were confirmed and a sum of Rs. 50 lakhs was reduced from the total
consideration of Rs. 6.10 crores. Clause 3 of the said compromise deed
confirmed that the party of the first part, that is, the appellant, had received
a sum of Rs. 4,68,25,644 out of the agreed sale consideration. Clause 4
recorded that the balance Rs. 1.05 crores towards full and final settlement in
respect of the agreement entered into would then be paid by seven post-dated
cheques. Clause 5 then stated that the last two cheques would be presented only
upon due receipt of the discharge certificate from one M/s Pioneer Homes. In
this context, the ITAT had found that all the cheques mentioned in the
compromise deed had, in fact, been encashed. This being the case, it was clear
that the assessee’s rights in the said immovable property were extinguished on
the receipt of the last cheque, as also that the compromise deed could be
stated to be a transaction which had the effect of transferring the immovable property
in question.
According to
the Supreme Court, the pigeonhole, therefore, that would support the orders
under appeal would be section 2(47)(ii) and (vi) of the Act in the facts of the
present case. This being the case, the Supreme Court dismissed the appeal but
for the reasons stated by this judgment.
5. Maruti
Suzuki India Ltd. vs. Commissioner of Income Tax, Delhi
(2020)
421 ITR 510 (SC)
Business
expenditure – Deduction only on actual payment – The unutilised credit under
MODVAT scheme does not qualify for deductions u/s 43B of the Income-tax Act –
The sales tax paid by the assessee was debited to a separate account titled
‘Sales Tax recoverable account’ which could have set off sales tax against his
liability on the sales of finished goods, i.e., vehicles – Assessee cannot
claim deduction of unutilised balance in ‘Sales Tax recoverable account’
The assessee
company was engaged in the manufacture and sale of various Maruti cars and also
traded in spares and components of the vehicles. It acquired excisable raw
materials and inputs which were used in the manufacture of the vehicles. The
assessee had also been taking benefit of MODVAT credit on the raw material and
inputs used in the manufacturing.
At the end
of A.Y. 1999-2000, an amount of Rs. 69,93,00,428 was left as unutilised MODVAT
credit. In the return it was claimed that the company was eligible for
deduction u/s 43B as an allowable deduction. Similarly, the company claimed
deduction u/s 43B of an amount of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account.
The A.O.
passed an assessment order dated 28th March, 2002 and disallowed the
claim of deduction of Rs. 69,93,00,428 as well as of Rs. 3,08,99,171. Aggrieved
by this order, the assessee filed an appeal before the Commissioner of Income
Tax who also sustained the disallowance. An appeal to ITAT met with the same
fate. The ITAT took the view that the advance payment of Excise Duty which
represented unutilised MODVAT credit without incurring the liability of such
payment, was not an allowable deduction u/s 43B. The assessee filed an appeal
u/s 260A in the High Court. The Court answered the question relating to the
above noted disallowance in favour of the Revenue. Aggrieved by this judgment,
the assessee filed appeals before the Supreme Court.
According to
the Supreme Court, the following two questions arose for its consideration:
(i) Whether the ITAT had committed an error of
law in upholding the disallowance of the amount of Rs. 69,93,00,428 which
represented MODVAT credit of Excise Duty that remained unutilised by 31st
March, 1999, i.e., the end of the relevant accounting year?
(ii) Whether the ITAT committed an error of law in
upholding the disallowance of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account u/s 43B?
The Supreme
Court noted that the unutilised MODVAT credit on 31st March, 1999 to
the credit of the assessee was Rs. 69,93,00,428. This credit was accumulated to
the account of the assessee due to the payment of Excise Duty on raw materials
and inputs which were supplied to it by the suppliers and reflected in the
invoices by which raw materials and inputs were supplied. The appellant was
entitled to utilise this credit in payment of Excise Duty to which the assessee
was liable in payment of Excise Duty on manufacture of its products.
According to
the Supreme Court, an analysis of the provision of section 43B indicated that
deduction thereunder was to be allowed on fulfilment of the following
conditions:
(a) there should be an actual payment of Excise
Duty whether ‘by way of tax, duty, cess or fee, by whatever name’;
(b) such payment has to be ‘under any law for the
time being in force’;
(c) the payment of such sum should have been made
by the assessee;
(d) irrespective of the method of accounting
regularly employed by the assessee, deduction shall be allowed while computing
the income tax for the previous year ‘in which (the) sum is actually paid’ by
the assessee;
(e) the expression ‘any such sum payable’ refers
to a sum for which the assessee incurred liability in the previous year even
though such sum might not have been payable within that year under the relevant
law.
According to
the Supreme Court, the crucial words in section 43B(a) were ‘any sum payable by
the assessee by way of tax, duty, cess or fee…’. One had therefore to examine
as to whether unutilised credit under the MODVAT scheme was a sum payable by
the assessee.
The Supreme
Court noted that the Excise Duty is levied under the Central Excise Act, 1944
and collected as per the Central Excise Rules, 1944. The taxable event is
manufacture and production of excisable articles and payment of duty is
relatable to the date of removal of such article from the factory. When the
appellant purchases raw materials and inputs for manufacture of vehicles, it
maintains a separate account containing the Excise Duty as mentioned in the
sale invoices. The credit of such Excise Duty paid by the appellant is to be
given to the appellant by virtue of Rules 57A to 57F of the Central Excise
Rules, 1944 as it then existed. The appellant was fully entitled to discharge
his liability to pay Excise Duty on vehicles manufactured by adjusting the
credit of Excise Duty earned by it as per the MODVAT scheme. The liability to
pay Excise Duty on the raw materials and inputs which are used by the appellant
is on the manufacturers of such raw materials and inputs manufactured by them
and not on the assessee.
The Supreme
Court held that as per section 43B(a) of the Income-tax Act, deduction is
allowed on ‘any sum payable by the assessee by way of tax, duty, cess or fee’.
The credit of Excise Duty earned by the appellant under the MODVAT scheme as
per Central Excise Rules, 1944 is not the sum payable by the assessee by way of
tax, duty, cess, etc. The scheme, u/s 43B, is to allow deduction when a sum is
payable by the assessee by way of tax, duty and cess and had been actually paid
by him. Furthermore, the deduction u/s 43B is allowable only when the sum is
actually paid by the assessee. In the present case, the Excise Duty leviable on
the appellant on the manufacture of vehicles was already adjusted in the
assessment year concerned from the credit of Excise Duty under the MODVAT
scheme. The unutilised credit in the MODVAT scheme cannot be treated as a sum
actually paid by the appellant. When the assessee pays the cost of raw
materials where the duty is embedded, it does not ipso facto mean that
the assessee is the one who is liable to pay Excise Duty on such raw material /
inputs. It is merely the incidence of Excise Duty that has shifted from the
manufacturer to the purchaser and not the liability for the same. The Supreme
Court, thus, concluded that the unutilised credit under the MODVAT scheme does
not qualify for deductions u/s 43B of the Income Tax Act.
The Supreme
Court thereafter dealt with the authorities relied upon by the assessee.
The Supreme
Court, dealing with the observations in Eicher Motors Ltd. and Anr. vs.
Union of India and Ors., (1999) 2 SCC 361 that the facility of credit
is as good as tax paid till tax is adjusted on future goods made in context of
57-F(4-A) of the Central Excise Rules, 1944, held that the said observation
cannot be read to mean that payment of Excise Duty by the appellant which was a
component of the sales invoice purchasing the raw material / inputs by the
appellant is also payment of Excise Duty on raw material / inputs.
The Supreme
Court observed that the question which was answered in Collector of
Central Excise, Pune and Ors. vs. Dai Ichi Karkaria Ltd. and Ors. (1999) 7 SCC
448 was entirely different to the one which had arisen in the present
case. In the above case, it was held that in determining the cost of the
excisable product covered by the MODVAT scheme u/s 4(1)(b) read with Rule 6 of
the Valuation Rules, the Excise Duty paid on raw material covered by the MODVAT
scheme is not to be included. The Court in the above case has laid down that
credit for the Excise Duty paid for the raw material can be used at any time
when making payment of Excise Duty on excisable products. The use of such
credit is at the time of payment of Excise Duty on the excisable product, i.e.,
at the time when the appellant is to pay Excise Duty on its manufactured
vehicles.
The Court
observed that in Berger Paints India Ltd. vs. Commissioner of Income Tax
(2004) 266 ITR 99, the claim of the assessee was that the entire sum of
Rs. 5,85,87,181 was the duties actually paid during the relevant previous year.
The above was not a case for unutilised MODVAT credit; hence, the said case
cannot be held to lay down any ratio with respect to allowable deduction
u/s 43B in respect of unutilised MODVAT credit.
Coming to
the second question, i.e. with regard to disallowance of Rs. 3,08,99,171 in
respect of the sales tax recoverable amount, the Supreme Court noted the fact
that the assessee pays sales tax on the purchase of raw materials and computers
used in the manufacture of cars. Though the sales tax paid is part of the cost
of raw materials, the assessee debits the purchases net of sales tax; the sales
tax paid is debited to a separate account titled ‘Sales Tax Recoverable A/c’.
Under the Haryana General Sales Tax Act, 1973 the assessee could set off such
sales tax against its liability on the sales of the finished goods, i.e. the
cars. Whenever the goods are sold, the tax on such sales is credited to the
aforesaid account.
According to
the Supreme Court, the High Court had rightly answered the above question in
favour of the Revenue relying on its discussion with respect to Question No. 1.
The sales tax paid by the appellant was debited to a separate account titled
‘Sales Tax recoverable account’. The assessee could have set off sales tax
against his liability on the sales of finished goods, i.e. vehicles. There was
no infirmity in the view of the High Court answering the above question.
Lastly, it was contended by the
assessee that the return for the assessment year in question was to be filed
before 30th September, 1999 and the unutilised credit was, in fact,
fully utilised by 30th April, 1999 itself. It was submitted that
since the unutilised credit was utilised for payment of Excise Duty on the
manufactured vehicles, the said amount ought to have been allowed as
permissible deduction u/s 43B.
The Supreme
Court held that there was no liability to adjust the unutilised MODVAT credit
in the year in question, because had there been liability to pay Excise Duty by
the appellant on manufacture of vehicles, the unutilised MODVAT credit could have
been adjusted against the payment of such Excise Duty. In the present case, the
liability to pay Excise Duty of the assessee was incurred on the removal of
finished goods in the subsequent year, i.e., the year beginning from 1st
April, 1999 and the unutilised MODVAT Credit as it was on 31st
March, 1999, on which date the assessee was not liable to pay any more Excise
Duty. Hence, it was not a case where the appellant could claim benefit of the proviso
to section 43B.
The appeal was therefore dismissed.
