Deemed income-Section 41(1)-A. Y. 2003-04- Remission or cessation of liability-Sales tax deferral scheme-Option in subsequent scheme for premature payment of net present value-No remission or cessation of liability of the difference- Difference is not deemed income u/s. 41(1)

CIT Vs. Sulzer India Ltd.; 369 ITR 717 (Bom):

In the A. Y. 2003-04, the assessee had opted for deferral scheme for payment of sales tax of Rs. 7,52,01,378/- under the deferral 1993 scheme of the Government of Maharashtra. The amount was allowed as deduction treating the option as deemed payment for the purpose of section 43B of the Income-tax Act, 1961 as per the circulars. The assessee also opted for the 2002 scheme for premature payment of net present value and paid an amount of Rs. 3,37,13,393/-. The Assessing Officer added the difference amount of Rs. 4,14,87,985/- 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 Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the assessee and the other requirement is that the assessee has subsequently obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. The sales tax collected by the assessee during the relevant year amounting to Rs. 7,52,01,378/- was treated by the State Government as a loan liability payable after 12 years in six annual/equal installments.

ii) Subsequently, pursuant to the amendment made to the fourth proviso to section 38 of the 1959 Act, the assesee accepted the offer of the SICOM paid an amount of Rs. 3,37,13,393/- to the SICOM, which represented the net present value of the future sum as determined and prescribed by the SICOM. The State may have received a higher sum after a period of 12 years and in installments. However, the statutory arrangement and by section 38, fourth proviso did not amount to remission or cessation of the assessee’s liability assuming the liability to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There was no evidence to show that there had been any remission or cessation of the liability by the State Government.

iii) A proper understanding of all this by the Tribunal cannot be termed as perverse. The view taken by it is imminently possible. Appeals are dismissed.”