Itxa.450.2013.Judgment.doc v. M/S. Associated Capsules Pvt. Ltd.,131, Kandivali Industrial Estate,Kandivali (East), Mumbai – 400 067Pan: Aaaca4769K

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 450 OF 2013 WITHINCOME TAX APPEAL NO. 762 OF 2013WITH (NOTICE OF MOTION NO. 453 OF 2013) The Commissioner of Income Tax-8,Room No. 214, Ayakar Bhavan,M. K. Road, Mumbai – 400 020versusM/s. Sulzer India Limited,Sulzer House, Baner Road,Aundh, Pune – 411 007PAN: AAACS 7876 D(A. Y. 2003-04) }}}Appellant}}}}}Respondent WITH INCOME TAX APPEAL NO. 452 OF 2012WITH INCOME TAX APPEAL NO. 1556 OF 2013 The Commissioner of Income Tax-8}Room No. 214, Aayakar Bhavan,}M. K. Road, Mumbai – 400 020}AppellantversusHardoli Paper Mills Limited}having its registered office at C-8}Saroj Apartments, Opp. Holy Spirit-}Hospital, Mahakali Caves Road,}Andheri (E), Mumbai – 400 093,}PAN }Respondent WITHINCOME TAX APPEAL NO. 3418 OF 2010 Commissioner of Income Tax,Central – IV, R. No. 660, 6[th] floor,Aayakar Bhavan, M. K. Road,Mumbai – 400 020 }}}}Appellant versus M/s. Associated Capsules Pvt. Ltd.,131, Kandivali Industrial Estate,Kandivali (East), Mumbai – 400 067PAN: AAACA4769K }}}}Respondent WITH INCOME TAX APPEAL NO. 909 OF 2012 The Commissioner of Income Tax LTU}Mumbai, 29[th] floor, Centre – 1,}World Trade Centre, Cuff-Parade,}Mumbai – 400 005}AppellantversusM/s. K. S. B. Pumps Ltd.,}126, Maker Chamber III,}Nariman Point, Mumbai – 400 021}Respondent WITH INCOME TAX APPEAL NO. 271 OF 2012 WITH INCOME TAX APPEAL NO. 358 OF 2012 Commissioner of Income Tax}(Large Tax Payer Unit)}29[th] floor, Centre – 1, }World Trade Centre, Cuff-Parade,}Mumbai – 400 005}AppellantversusM/s. S. I. Group India Ltd.}(Earlier known as M/s. Schenectady}Herdillia Ltd.)}Plot No. 2/1, TTC Industrial Area,}Thane Belapur Road, Navi Mumbai}PIN 400 705, PAN: }Respondent WITH INCOME TAX APPEAL NO. 2016 OF 2011 The Commissioner of Income Tax-10Aayakar Bhavan, M. K. Road,Mumbai – 400 020 }}}Appellant versus M/s. Godrej Consumer Products Limited }Pirojeshanagar, Eastern Express}Highway, Vikhroli, Mumbai – 400 079}PAN: } }}}Respondent WITH INCOME TAX APPEAL NO. 1777 OF 2011 The Commissioner of Income Tax-1}Mumbai, Aayakar Bhavan, M. K. Road}Mumbai – 400 020}AppellantversusM/s. Grindwell Norton Ltd.}C/o. Kalyaniwalla & Mistry,}Army & Navy Bldg., 3[rd] floor, 148}Mahatma Gandhi Road,}Mumbai – 400 020}Respondent WITH INCOME TAX APPEAL NO. 506 OF 2012 Commissioner of Income Tax – 1, }Mumbai, Aayakar Bhavan, M. K. Road,}Mumbai – 400 020}Appellant versus M/s. Grindwell Norton Ltd.}Leela Business Park, 5[th] floor,}Andheri-Kurla Road, Marol, Andheri (E) }Mumbai – 400 059} }}}Respondent Mr. Vimal Gupta-Senior Advocate with Mr. Arvind Pinto for the Revenue in ITXA/450/2013 and ITXA/762/2013. Mr. Soli Dastur-Senior Advocate with Mr. Niraj Seth i/b. Mr. A. K. Jasani for the Assessee in ITXA/450/2013 and ITXA/762/2013. Mr. Vimal Gupta-Senior Advocate i/b. Ms. Padma Divakar for Revenue in ITXA/3418/2010. Mr. J. D. Mistri-Senior Advocate i/b. Mr. A. K. Jasani for the Assessee in ITXA/3418/2010. Mr. Tejveer Singh for Revenue in ITXA/452/2012 and ITXA/1556/2013.Mr. Vimal Gupta-Senior Advocate i/b. Ms. Padma Divakar for the Revenue in ITXA/909/2012. Mr. R. Murlidhar i/b. M/s. Rajesh Shah and Co. for the Assessee in ITXA/909/2012. Mr. Vimal Gupta-Senior Advocate with Ms. Padma Divakar for Revenue in ITXA/1777/2011. Mr. Suresh Kumar for Revenue in ITXA/2016/2011 and ITXA/506/2012. Mr. A. R. Malhotra with Mr. N. A. Kazi for Revenue in ITXA/271/2012 and ITXA/358/2012. Mr. A. K. Jasani for the Assessee in ITXA/1777/2011, ITXA/2016/2011, ITXA/271/2012, ITXA/358/2012 and ITXA/506/2012. CORAM :-S.C.DHARMADHIKARI &A.K.MENON, JJ. Reserved on :- October 10, 2014Pronounced on :- December 5, 2014 JUDGMENT :- (Per S.C.Dharmadhikari, J.) These Appeals by the Revenue under Section 260A of the Mr. R. Murlidhar i/b. M/s. Rajesh Shah and Co. for the Assessee in ITXA/909/2012. Mr. Vimal Gupta-Senior Advocate with Ms. Padma Divakar for Revenue in ITXA/1777/2011. Mr. Suresh Kumar for Revenue in ITXA/2016/2011 and ITXA/506/2012. Mr. A. R. Malhotra with Mr. N. A. Kazi for Revenue in ITXA/271/2012 and ITXA/358/2012. Mr. A. K. Jasani for the Assessee in ITXA/1777/2011, ITXA/2016/2011, ITXA/271/2012, ITXA/358/2012 and ITXA/506/2012. CORAM :-S.C.DHARMADHIKARI &A.K.MENON, JJ. Reserved on :- October 10, 2014Pronounced on :- December 5, 2014 JUDGMENT :- (Per S.C.Dharmadhikari, J.) These Appeals by the Revenue under Section 260A of the Income Tax Act, 1961 (for short “the I.T. Act”) challenge the order dated 7[th] September, 2012 (in ITXA/450/2013) of the Income Tax Appellate Tribunal (ITAT), Bench at Mumbai. The Tribunal dealt with two Appeals, one by the Assistant Commissioner of Income Tax, 8(III), Mumbai being Income Tax Appeal No. 2871/Mum/2007 and another by the Assessee being Income Tax Appeal No. 2944/Mum/2007. The assessment year is 2003-04. These were cross Appeals against the order of the Commissioner of Income Tax (XIX) dated 19[th] January, 2007. 2)Mr. Gupta, the learned Senior Counsel submits that the Appeals raise substantial questions of law and as formulated at page 8 of the paper book (ITXA/450/2013). In all fairness to him, he has also invited our attention to the orders passed by a Division Bench of this Court in Income Tax Appeal No. 1777 of 2011, Income Tax Appeal No.2016 of 2011, Income Tax Appeal No. 358 of 2012 and Income Tax Appeal No. 271 of 2012, wherein, according to him, similar question has been admitted. He submits that therefore, the Appeals be admitted. 3)Since Mr. Gupta has referred to the facts in Income Tax Appeal No. 450 of 2013, we would prefer to state them in brief. 4)The Assessee M/s. Sulzer India Ltd. filed return of income for the assessment year 2003-04 on 27[th] November, 2013 declaring total income at Rs.10,59,76,986/-, claiming deduction under section 80HHC of the I.T. Act in the sum of Rs.82,48,864/-. 5)During the assessment proceedings, the Assessing Officer observed that the Assessee had credited amount of Rs.4,14,87,985/- to the capital reserve contending that the said amount was a remission of loan liability. The Assessee stated that under the Industrial Backward Area Scheme of the Government of Maharashtra, it was entitled to defer the Sales Tax liability for a period of 7 years under the Deferral Scheme of 1983 and for a period of 6 years under the Deferral Scheme of 1988. In response to a Notification issued by the Government of Maharashtra regarding premature repayment of deferral Sales Tax at Net Present Value (NPV), the Assessee made a repayment of Rs.3,37,13,393/- against the total liability of Rs.7,52,01,378/-. The Assessee remitted the balance amount of Rs.4,14,87,985/- and credited the said amount to its capital reserve account. The Assessing Officer asked the Assessee to show cause as to why the said amount should not be taxed in the hands of the Assessee as a revenue receipt. Relying on Circulars of the Central Board of Direct Taxes being Nos. 496 and 674, the Assessee claimed that the deferral Sales Tax under the Deferral Scheme was required to be treated as actually paid for the purposes of section 43B of the I.T. Act. Further, the conversion of Sales Tax liability into loans would be taken as discharge of the liability of Sales Tax and therefore, the deferral amount was in the form of a loan and not a trading receipt. On this basis, the Assessee contended that the remission of a loan cannot be treated as a revenue receipt and taxed as its income. The Assessing Officer rejected this claim and by holding that the Board's Circular is in the context of section 43B of the Income Tax Act and therefore not relevant for the present issue. treated as a revenue receipt and taxed as its income. The Assessing Officer rejected this claim and by holding that the Board's Circular is in the context of section 43B of the Income Tax Act and therefore not relevant for the present issue. 6)The Memo of Appeal refers in detail to the Assessing Officer's findings. Aggrieved by the Assessment order dated 6[th] March, 2006, the Assessee preferred an Appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax passed an order on 19[th] January, 2007 and he sustained the additions. 7)As far as the Tribunal's order goes, what is really material for our purpose, is that the Appeals preferred by the Assessee, before the Tribunal, to challenge the Commissioner's order, were decided by following a Special Bench order comprising of the President, the Judicial Member and the Administrative Member. It decided a question which was forwarded to it for its opinion. That question reads as under: “Whether on the facts and in the circumstances of the case and in law, the sum of Rs.4,14,87,985/- being the difference between the payment of Net Present Value of Rs.3,37,13,393/- against the future liability of Rs.7,52,01,378/- has rightly been charged to tax u/s 41/(1) of the I. T. Act, 1961.” 8)The Special Bench passed an order on 10[th] November, 2010 holding therein that the deferred Sales Tax liability of Rs.4,14,87,985/- being the difference as noted above and credited by the Assessee under the capital reserve account in its books was an actual receipt and cannot be termed as remission/cessation of liability. Consequently, no benefit has arisen to the Assessee in terms of section 41(1)(a) of the Income Tax Act. Accordingly, the opinion was rendered and the matters were sent back to the regular Bench for disposal in accordance with this opinion. 9)A Miscellaneous Application was filed before the Special Bench, which was dismissed on 3[rd] August, 2012. 10)In view of the opinion of the Special Bench, the Appeals of the Revenue and that of the Assessee were disposed of by the Tribunal on 7[th] September, 2012. The issue being answered in favour of the Assessee and against the Revenue in terms of the larger Bench's decision, the Revenue has brought these Appeals under section 260A of the I.T. Act. The substantial questions of law arising from the orders referred to above are formulated at page 8 of the paper book. We proceed to admit these Appeals on the following substantial questions of law: “(a)Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in not upholding the finding of the Income Tax Authorities below that the deferred sales tax liability is chargeable to tax as business income of the assessee u/s. 41(1) on remission thereof and instead treating the same as exempt from tax as capital receipt being remission of loan liability?and in law, the Tribunal is justified in not upholding the finding of the Income Tax Authorities below that the deferred sales tax liability is chargeable to tax as business income of the assessee u/s. 41(1) on remission thereof and instead treating the same as exempt from tax as capital receipt being remission of loan liability? (b)Whether in the facts and circumstances of the case and in law, the Tribunal is justified in deleting the addition on account of remission/cessation of sales of sales tax liability relying on the CBDT Circular No. 496 dated 25[th] September, 1987 and Circular No. 674 dated 29[th] December, 1993 which are not applicable to the instant issue?” 11)Respondents waive service. With the consent of Mr. Gupta and Mr. Dastur so also other Advocates, we dispose of these Appeals finally. (b)Whether in the facts and circumstances of the case and in law, the Tribunal is justified in deleting the addition on account of remission/cessation of sales of sales tax liability relying on the CBDT Circular No. 496 dated 25[th] September, 1987 and Circular No. 674 dated 29[th] December, 1993 which are not applicable to the instant issue?” 11)Respondents waive service. With the consent of Mr. Gupta and Mr. Dastur so also other Advocates, we dispose of these Appeals finally. 12)Mr. Gupta-Senior Counsel appearing in support of these Appeals submits that there is a difference in the language of section 41(1) and section 43B of the I.T. Act. Section 43B comes into play on actual payment. In the present case, we are concerned with two Sales Tax deferral schemes. Mr. Gupta submits that there is 1983 Scheme under which the Assessee was obliged to pay Rs. 3.89 crores and under the 1988 Scheme Rs. 4.22 crores. Mr. Gupta submits that the payment of Sales Tax under these Schemes was deferred up to 12 years. These Schemes are different and cannot be equated with exemption from the liability to pay tax. This is not akin to a tax holiday either. The liability to pay Sales Tax is merely deferred. However, from 1[st] November, 1989 to 31[st] October, 1996, the Assessee collected Rs.7.52 crores as Sales Tax from third parties. There was an obligation to pay this amount in the Government Treasury/Sales Tax Department, within a period of 30 days. However, that obligation and in law was not required to be performed and fulfilled in this case. This amount collected from the third parties can be paid after 7 to 12 years. Thus, this is a facility to use the amount and which belongs to the Government/Revenue and for all this duration and period. The Board Circular Nos. 496 and 674 dated 25[th] September, 1987 and 29[th] December, 1993 respectively are referred to by Mr. Gupta and he submits that they come into play or are attracted only in the event section 43B of the Income Tax Act is applicable. Both Circulars, according to Mr. Gupta, contemplate deemed payment of Sales Tax dues. 13)Mr. Gupta submitted that the provisions of section 38 of the Bombay Sales Tax Act, 1959 (BST) mandate that the amount of tax shall be paid by the Dealer or the person liable therefor, into the Government Treasury, within 30 days from the date of service of notice issued by the Commissioner in respect thereof. Mr. Gupta submits that if payment of Sales Tax collected by the Assessee in this case is made earlier than 7 to 12 years, that will discharge the Assessee of the liability. However, if the payment of lesser amount discharges the Assessee in full, then, the remission is taxable. If that deduction has been granted, that will have to be withdrawn. 14)The submission of Mr. Gupta appears to be that from the total liability of Rs.7.52 crores, the amount which has been remitted to the Government is not this entire sum but a part thereof. However, it is not in dispute that entire sum of Rs.7.52 crores is collected. If that is not remitted, then, within the meaning of section 41(1), there is a benefit derived by the Assessee. The Assessee has enjoyed that money and has utilized it. Mr. Gupta submits that the Assessee’s calculation overlooks the fact that the case will fall within the first part of section 41(1) of the Income Tax Act, 1961. The sum of Rs.4.14 crores is an amount received by the Assessee. The Net Present Value amount has been paid early and hence, the benefit accrues in the assessment year concerned. Mr. Gupta submits that the deduction in terms of section 43B is not of the same category. There deemed payment as urged above is covered. In the present case, the Assessee is deemed to have received the amount of Rs.4.14 crores. The Income Tax Department is not concerned with the Assessee’s understanding, if any, with the State Industrial Corporation of Maharashtra Ltd. (SICOM). 15)Mr. Gupta submits that Rs.7.52 crores does not belong to the Assessee, but to the State. There is no adjustment permissible as far as this liability is concerned under the I.T. Act. Mr. Gupta submits that the Special Bench of the Tribunal committed obvious error and in that regard, he invited our attention to the findings of the Tribunal in its Special Bench decision to the effect that the first requirement of section 41(1) has not been fulfilled in the facts of the present case. The Tribunal has confused itself between the concept of deemed date of payment and deemed payment. Mr. Gupta therefore submits that the order of the Tribunal is erroneous and should be set aside. 16)Mr. Pinto appearing for the Revenue in some Appeals adopted the arguments of Mr. Gupta and submitted that the Sales Tax is always trading receipt. He further submits that the accounting entries do not necessarily decide the issue of taxability. 17)Mr. Gupta has relied upon the Circular and a Judgment of the Hon’ble Supreme Court in the case of Pollyflex (India) Pvt. Ltd. vs. Commissioner of Income Tax reported in (2002) Vol. 257 ITR 343. He also relied upon a Judgment of the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. vs. Commissioner of Income Tax, West Bengal reported in (1973) Vol. 87 ITR 542. Mr. Gupta has also relied upon an order passed by the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Mumbai vs. Reliance Industries Ltd. in Civil Appeal No. 7769 of 2011 along with the connected Appeals, decided on 9[th] September, 2011. Finally he relied upon a Judgment of a Division Bench of this court in the case of Solid Containers Ltd. vs. Deputy Commissioner of Income Tax and Anr. reported in (2009) 308 ITR 417 (Bom.). 18)On the other hand, Mr. Dastur-Senior Counsel appearing on behalf of the Assessee submitted that if the facts and circumstances are taken into consideration, then, these Appeals do not raise any substantial question of law. Mr. Dastur submits that the Schemes of 1983 and 1988 should be perused in their entirety. If the benefit under the Scheme is taken into consideration, then, there was no liability in presenti. The Sales Tax was not payable. There was no option to pay earlier, but later on, such option was given does not mean any benefit accrued to the Assessee. The liability has been ascertained and determined in terms of the rules. The Net Present Value is taken into consideration. Thus, the liability is not wiped out but its present value is ascertained and determined. That has been paid. There was no concession. There is absolutely no settlement negotiated or otherwise. The statutory mode of recognized deferred dues was adopted and hence no benefit is derived by the Assessee. There is no question of any remission. Mr. Dastur was at pains to point out that for example Rs.100/- was a liability and which had to be discharged on the expiry of the period specified in the Scheme. If that amount is to be received by the State after 12 years and its worth today has been ascertained and determined means there is no benefit at all. Today if Rs.60/- has been paid it does not necessarily mean that there is any benefit or remission. The entire liability is discharged. In such circumstances, the Sales Tax dues have been paid, the liability has been discharged and if the State of Maharashtra and the Assessee understood the transaction in a particular way, the Central Government cannot dispute or question it. For these reasons, he submits that the Appeals be dismissed. 19)Mr. Dastur relies upon a Judgment of a Division Bench of Karnataka High Court dated 2[nd] September, 2014 in Income Tax Appeal No. 899 of 2008 in the case of the The Commissioner of Income Tax and Anr. vs. M/s. McDowell and Co. Ltd. dues have been paid, the liability has been discharged and if the State of Maharashtra and the Assessee understood the transaction in a particular way, the Central Government cannot dispute or question it. For these reasons, he submits that the Appeals be dismissed. 19)Mr. Dastur relies upon a Judgment of a Division Bench of Karnataka High Court dated 2[nd] September, 2014 in Income Tax Appeal No. 899 of 2008 in the case of the The Commissioner of Income Tax and Anr. vs. M/s. McDowell and Co. Ltd. 20)With the assistance of the learned Senior Counsel, we have perused the Memo of Appeals and the Annexures to it so also the orders impugned therein. We have also perused the relevant statutory provisions and the decisions construing or interpreting them brought to our notice. 21)At the outset, it is necessary to refer to some basis facts, at the cost of repetition. The Assessing Officer made additions of Rs.4,14,87,985/- to the income of the Assessee, being remission of loan liability for premature payment of the same at Net Present Value by invoking section 41(1) of the I.T. Act. That section reads as under: “S. 41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, -assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, - (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 - For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2 - For the purposes of this sub-section, "successor in business" means, - (i) where there has been an amalgamation of a company with another company, the amalgamated company;with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company.”company.” 22)A perusal thereof indicates that wherein allowance or deduction has been made in the assessment for any year in respect of Explanation 2 - For the purposes of this sub-section, "successor in business" means, - (i) where there has been an amalgamation of a company with another company, the amalgamated company;with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person;other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company.”company.” 22)A perusal thereof indicates that wherein allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the Assessee (referred to as the first mentioned person) and subsequently during any previous year, this first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to Income Tax as the income of that previous year. That irrespective whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. That is what is stipulated in clause (a) of sub-section (1) of section 41 of the I.T. Act and for purposes of the sub-section, the explanation (1) defines the term “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” to include the remission or cessation of any liability by unilateral act by the first mentioned person or his successor by way of writing of such liability in his accounts. 23)In this case, the Assessee argued before the Commissioner that the Assessing Officer failed to appreciate that the remission is made pursuant to “premature repayment of loan”, which is on account of capital and not on account of revenue. The provisions of section 41(1) would only apply when the Assessee receives, either in cash or otherwise in respect of loss, expenditure or trading liability, any benefit which was allowed as deduction in the earlier assessment year. The loan liability in the present case was never charged to profit and loss account by the Assessee and as such this question did not arise in past, the loan in question was never debited to P. and L. Account and such question of invoking section 41(1) does not arise. Thus, there was a without prejudice argument. The Commissioner of Income Tax (Appeals), in his order of 19[th] January, 2007, held that the Assessee was beneficiary of Sales Tax Deferral Scheme of the Government of Maharashtra. It was allowed to defer payment of Sales Tax liability for a period of 7 years and 6 years respectively under the two Schemes. Subsequently, the State Government introduced a Scheme of premature repayment of deferral Sales Tax at some amount, on the payment of which, balance amount was allowed to be remitted. Therefore, against the total liability of Rs.7,52,01,378/-, the Assessee paid a sum of Rs.3,37,13,393/- and the Department allowed him to keep the amount of Rs.4,14,87,985/-. The Assessee did not offer the remitted amount as income and credited the same to the capital reserve account stating that this is a remission of capital receipt. The Assessing Officer held that the Assessee did not furnish any document or order in terms of which the Sales Tax liability was treated as a loan or converted into a loan at any subsequent stage. The Assesse's claim that the liability was a loan by the State Government and which came to be remitted was therefore doubted and questioned. The Assessing Officer held that the amount was nothing but deferred Sales Tax liability and since this was already allowed under section 43B of the I.T. Act, the remission was covered by section 41(1) of the Act. He therefore held that the amount was taxable under section 41(1) of the I.T. Act. 24)If the industry was established in the backward area and the benefit of the scheme to defer the liability of Sales Tax for a period of 7 years was obtained, then, the Commissioner, after noting all these facts and the terms of both Schemes, the Trade Circular No.PST/2002/91/ADM-13/B-1041, dated 12[th] December, 2002, held that there is a letter addressed to M/s. SICOM Ltd., which is the Nodal Authority. This letter has been reproduced by the Commissioner in his order at internal page 14 and running page 60 of the paper book. Relying on the contents of this letter, the Commissioner held that till 8[th ]October, 2002 deferred Sales Tax was not converted into loan. The Assessee also filed supplementary agreement under the 1983 Scheme dated 10[th] October, 2002 to the principal agreement dated 16[th ]September, 1989 requesting conversion of the Sales Tax deferral into loan. M/s. SICOM Limited forwarded the Assessee's application to the Deputy Commissioner of Sales Tax on 21[st] October, 2002. The Assistant Commissioner of Sales Tax addressed a letter dated 30[th] October, 2002 to the Assessee seeking additional information in this regard. Another document filed by the Assessee is a copy of the letter dated 11[th] October, 2002 submitting the required details. After this, there is no communication. From the above, according to the Commissioner, it is apparent that there were no official communication to the Assessee that his request for conversion of deferred Sales Tax into loan has been accepted and to that extent, the finding of the Assessing Officer is correct. The Assessee indeed made a misleading statement that it had availed a loan and not benefit of deferral Sales Tax liability. This claim was found to be not supported and by any documentary material. 25)Therefore, proceeding on these lines, the Commissioner examined the claim of the Assessee that this is nothing but premature repayment of loan and which is on account of capital and therefore, not exigible to tax. 26)The commissioner proceeded to hold as under: “..... However, appellant never got this deferred payment of sales tax liability converted into loan as no evidence in this regard has been produced. Appellant's letter dated 8[th] October, 2002 addressed to M/s. SICOM Limited has already been reproduced above. This is also factually incorrect on the part of appellant to state that the amount of Rs.7.52 crores was never claimed u/s. 43B. Appellant has claimed this amount in the years of accrual of liability on the basis of CBDT's Circular Nos. 496 and 674 as 25)Therefore, proceeding on these lines, the Commissioner examined the claim of the Assessee that this is nothing but premature repayment of loan and which is on account of capital and therefore, not exigible to tax. 26)The commissioner proceeded to hold as under: “..... However, appellant never got this deferred payment of sales tax liability converted into loan as no evidence in this regard has been produced. Appellant's letter dated 8[th] October, 2002 addressed to M/s. SICOM Limited has already been reproduced above. This is also factually incorrect on the part of appellant to state that the amount of Rs.7.52 crores was never claimed u/s. 43B. Appellant has claimed this amount in the years of accrual of liability on the basis of CBDT's Circular Nos. 496 and 674 as pointed above. In fact, appellant has made note on non-taxability of this amount, which appears on page 151 of paper book, which was the submission made by appellant before A.O. This note is enclosed as Annexure 2 of this order. In this note at para 3, appellant has stated that although the sales tax collected from the customers was a trading receipt due to the deferral scheme the same is deemed to have been paid to the Government, thereby discharging the liability. It is, therefore, absolutely misleading on the part of appellant to state that amount of Rs.7,52,01,378/- was never claimed u/s. 43B in earlier years. Thus factual position is that appellant had collected sales tax, opted for deferral scheme of the State Government and claimed the sales tax so collected but not paid u/s. 43B in view of the Board's Circulars referred above. Now when there has been part remission of the same liability, appellant cannot turn around and try to alter the facts with sole intention to evade payment of legitimate tax. Even presuming that at later stage, permission has been granted to the appellant to convert that deferral tax to loan, the fact cannot change that the initial receipt was in the form of trading receipt. We have already noted the undisputed facts that what had been collected by the appellant was sales tax which was not paid to the Sales Tax Department. Reference may be made to various eligibility certificates issued by Sales Tax Department. One such certificate, which is dated 06.02.1997 for period between 01.03.1997 to 28.02.2003 states that: “the holder of this Eligibility Certificate will be entitled to the benefits as sanctioned by the Government of Maharashtra under the 1988 Scheme, (the Resolution referred to above), as modified from time to time. In particular, the Sales Tax Incentive under Part-I will be admissible by way of Deferral of the Sales Tax Liability.” This amount was liable to tax under Income-tax u/s. 43B but it was not so taxed because of the above referred Board's Circulars. Yet they were deemed to have been paid in view of the amendments made in Sales Tax Act. Therefore, the initial nature of receipt was trading receipt which is undisputed. We have already noted that it was only in 2002 that the appellant had sought to convert this deferred sales tax liability to loan. ….. In para 3 of the note referred above as also in written submission reproduced above, appellant has admitted that the sales tax collected from customers was a trading receipt. It is, therefore, every strange on the part of appellant to state now that the sales tax collected was a loan in the first place. It is undisputed that sales tax so collected was not paid but was allowed through a legal fiction on the basis of Board's Circular Nos. 496 and 674. These circulars are reproduced below: ….. In para 3 of the note referred above as also in written submission reproduced above, appellant has admitted that the sales tax collected from customers was a trading receipt. It is, therefore, every strange on the part of appellant to state now that the sales tax collected was a loan in the first place. It is undisputed that sales tax so collected was not paid but was allowed through a legal fiction on the basis of Board's Circular Nos. 496 and 674. These circulars are reproduced below: “a. The scope of application of provisions of section 43B to the sales tax collected but not actually paid under deferral schemes of the State Governments was considered in Board's Circular No. 496, dated 25-9-1987 (Clarification 2), and it was decided that, where the State Government make an amendment in the Sales-tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, the statutory liability shall be treated as discharged for the purposes of Section 43B. b.It has since been brought to the notice of the Board that some Governments, instead of amending the Sales-tax Act, have issued Government Orders notifying schemes under which sales tax is deemed to have been actually collected and disbursed as loans. Such Government accounts giving effect to deemed collections by crediting the appropriate receipt-heard relating to sales-tax collections and debiting the heads relating to disbursal of loans. It has, therefore, been represented that, as such conversion of the sales-tax liability into loans have similar statutory effect as can be achieved through amendments of the Sales-tax Act, the amounts covered under the scheme should be allowed as deduction for the previous year in which the conversion has been permitted by the State Governments. (emphasis supplied)” Therefore, sales tax collected was not paid to the Sales Tax Department and was taxable u/s. 43B of I. T. Act. But it was not taxed because it was deemed to have been paid on the basis of amendments made in Sales Tax Act. It is a settled law that full effect must be given to the legal fiction and all consequences emanating from such legal fiction must be visited. ….. In the case of appellant, a legal fiction was created when sales tax was deemed to have been paid and appellant was given benefit. Now when remission of liability has occurred, the appellant cannot escape logical consequences of the initial legal presumption. Now further presuming that sales tax so collected by the appellant was converted into loan at the initial stage itself, even then it would not affect the taxability of the amount u/s. 41(1) at this stage. Section 38 and its 3[rd] proviso of Sales Tax Act refer to payment of tax as follows: “S. 38 Payment of tax [and deferred payment of tax, etc.] - (1) Tax shall be paid in the manner herein provided, and at such intervals as may be prescribed. provided also that, notwithstanding anything contained in this Act or in the rules made thereunder but subject to such conditions as the State Government or the Commissioner may by general or special order specify, where a dealer to whom incentives by way of deferment of sales tax or purchase tax or both under the 1979 Scheme the 1983 Scheme or as the case may be, the Electronic Scheme falling under the Package Scheme of Incentives designed by the State Government or of the tax under the 1988 or the 1993 Package Scheme of Incentives designed by the State Government have been granted by virtue of eligibility Certificate, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or the relevant Regional Development Corporation or the District Industries Centre concerned then such tax shall be deemed, the public interest, to have been paid.” This provision of Sales Tax Act read with Circular No. 674 reproduced above makes it very clear that conversion into loan of any tax collected would also be deemed payment of tax u/s. 43B. This provision of Sales Tax Act read with Circular No. 674 reproduced above makes it very clear that conversion into loan of any tax collected would also be deemed payment of tax u/s. 43B. Thus the deferral of sales tax or conversion into loan are on the same footing so far section 43B is concerned. In fact, the said section says that even where a loan liability has been raised, equal to the amount of tax payable, this loan amount also shall be deemed in the public interest to be payment of sales tax. Therefore, even if it is presumed that deferred sales tax liabilitywas converted into loan, the same would be remission within theambit of revenue/trading receipt/expenditure and would attractprovisions of section 41. There are various other documents which show that appellant, itself, has treated the repayment of deferred sales tax on account of repayment of tax and not as repayment of loan. In this regard, the complete set of documents which show the repayment of this amount are at page nos. 153 to 196 of paper book. A letter dated 08.09.2003 by one, Mr. Mahendra Kulkarni, Deputy Manager of the appellant addressed to Joint Director of Industries is very relevant. ….. Then another letter dated 10.02.2003 addressed by the appellant to the Dy. Commissioner of Sales Tax (Adm.) wherein appellant has requested Dy. Commissioner of Sales Tax (Adm.) to issue “Certificate of Payment of deferred tax at the Net Present Value”. Copy of this letter is also enclosed as Annexure 4 of this order. There are several such letters covering all the payment wherein appellant has requested for issue of certificate that it has paid sales tax liability and the Sales Tax Department has issued the certificate that the appellant has paid the deferred sales tax liability. None of these documents mentioned the word 'loan'. All ….. Then another letter dated 10.02.2003 addressed by the appellant to the Dy. Commissioner of Sales Tax (Adm.) wherein appellant has requested Dy. Commissioner of Sales Tax (Adm.) to issue “Certificate of Payment of deferred tax at the Net Present Value”. Copy of this letter is also enclosed as Annexure 4 of this order. There are several such letters covering all the payment wherein appellant has requested for issue of certificate that it has paid sales tax liability and the Sales Tax Department has issued the certificate that the appellant has paid the deferred sales tax liability. None of these documents mentioned the word 'loan'. All these documents only mentioned 'deferred sales tax liability'. The combined reading of these documents proves beyond a shadow of doubt that appellant had collected sales tax which was not paid earlier and which remained as deferred sales tax liability. It was never converted into loan. What was paid was Net Present Value of the deferred sales tax liability resulting into remission of balance amount. In view of these undisputed facts, it is not open to the appellant to claim that what it had received was a loan and the remission of the same was on capital account. The appellant has also made a plea that it has not gained any benefit on the remission of liability. In its written submission, it has given an analogy of X & Y wherein if X pays his dues of Rs.500/- prematurely valued at Rs.100/-, the gain of Rs.400/- would be only notional. This analogy is completely baseless and intended to mislead. In the case of appellant, the liability is not increasing with efflux of time. The Sales Tax Department is not charging any interest on the deferred tax. The amount of Rs.7.52 crores have actually been collected and appropriated by the appellant. It has been given the benefit to use this money for a period without any cost. The amount of Rs.7.52 crores is not a notional figure but actually collected and determined in Sales Tax Orders. Net Present Value (NPV) refers to value as it would accrue to Sales Tax Department. According to Deferral Scheme, the Sales Tax Department has to wait for a number of years to recover its own money. However, if the Sales Tax Department realizes a part of that money in presenti, it would be value-wise same as full amount due after 12 years. In the present example, the NPV means that Rs.3,37,13,393/- is same as Rs.7.52 crores after 12 years so far as Sales Tax Department is concerned. For appellant, it is only a remission of an actual liability of Rs.4,14,87,985/-. The question is if it is only a notional figure, why the appellant has taken the amount to reserve. Therefore, this ground of appeal is dismissed and it is held that the amount of Rs.4,14,87,985/- has been correctly brought to tax u/s. 41 of the I. T. Act.” 27)Thus, the Assessing Officer's order was upheld by dismissing the Appeal. In the meanwhile, what one finds is that there was a Special Bench constituted to resolve the divergence of views of coordinate Benches of the Tribunal. In the case of Deputy Commissioner of Income Tax vs. Sterlite Optical Technologies Ltd. 27)Thus, the Assessing Officer's order was upheld by dismissing the Appeal. In the meanwhile, what one finds is that there was a Special Bench constituted to resolve the divergence of views of coordinate Benches of the Tribunal. In the case of Deputy Commissioner of Income Tax vs. Sterlite Optical Technologies Ltd. and vice-versa in Income Tax Appeal Nos. 7136 and 7177/M/2004 for assessment year 2001-02, an order was passed by the Tribunal on 8[th ]January, 2008 treating the difference between the deferred Sales Tax and its present value as capital receipt, not chargeable to tax, whereas, in another case, the Special Bench of the Tribunal has referred to in para 2, it was held that the same was chargeable under section 41(1). Then, reference was made to an order passed by this Court in the case of SI group India Ltd. vs. Assistant Commissioner of Income Tax (2010) 326 ITR 117, answering the question subsequently framed and reproduced in para 2 of the Tribunal's order in favour of the Assessee. The requirement spelt out for applicability of section 41(1)(a) has not been fulfilled in the facts of the present case. The argument before the Tribunal was since there was divergence of views, once the Hon'ble High Court has decided in favour of the Assessee, hence, no reference is required to be made to the larger Bench. However, the departmental representative argued that this Court has not decided the issue but has kept it open for being adjudicated and at an appropriate stage and in appropriate proceedings. Therefore, the issue remains alive and there is indeed divergence in views of the Tribunal. That is how the Special Bench framed the question on which its opinion was sought in para 5. Thereafter, it noted the facts as are available on record, including in the order of the Commissioner of Income Tax (Appeals). The special Bench noted all the arguments of the Assessee as also that of the departmental representative. The facts and these arguments are noted up till para 61 of the order. 28)The Special Bench, in para 62 held thus: noted all the arguments of the Assessee as also that of the departmental representative. The facts and these arguments are noted up till para 61 of the order. 28)The Special Bench, in para 62 held thus: “62.We have carefully considered the submission of the parties and perused the material available on record. We find that the material facts are not in dispute.