The Commissioner Of Income Tax Chennai v. T.t.k.health Care Limited

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.231 of 2011 The Commissioner of Income TaxChennai ...Appellant/RespondentVs.T.T.K.Health Care LimitedNo.6, Cathedral RoadChennai 600 086....Respondent/Appellant Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal 'D' Bench, Chennai dated 16.12.2010 in ITANo.474/Mds/2010 for the assessment year 2005-06 against thecommissioner of Income Tax Chennai-1, Chennai dated 26/02/2010made in C.No.218(18)/CIT-1/263/09-10 for the assessment year2005-06 against the Assistant Commissioner of Income Tax CompanyCircleIII(4)Chennaidated31/12/2007madeinGIR.No.PAN: /875-V for the assessment year 2005-06. (Judgment of the Court was delivered by DR.VINEET KOTHARI,J) The Revenue has filed the present appeal under Section 260Aof the Income Tax Act, against the order of the learned IncomeTax Appellate Tribunal 'D' Bench, Chennai dated 16.12.2010 forAssessment Year 2005-06, whereby the learned Tribunal allowedthe appeal of the Assessee and set aside the order passed by thelearned Income Tax Commissioner under Section 263 of the Act on26.02.2010. 2. A Coordinate Bench of this Court admitted the present Page 1 of 7 https://hcservices.ecourts.gov.in/hcservices/ appeal on the following substantial question of law on15.06.2011. “Whether on the facts and circumstances of the case,the Income Tax Appellate Tribunal was right in settingaside the order of the Commissioner of Income Taxunder Section 263 of the Income Tax Act?” 3. The Assessee in the present case availed the benefit ofdeferred sales tax payment under the Scheme announced by theState of Maharashtra and under the Scheme made a prematurepayment at NPV (Net Present Value) of the deferred amount ofsales tax collected by it for the year in question. TheAssessing Authority allowed the said benefit to the Assessee anddid not invoke Section 41(1) of the Income Tax Act, treating theremaining part of the deferred sales tax as neither remissionnor cessation of sales tax liability of the Assessee. 4. However, the learned Commissioner passed the impugnedorder under Section 263 of the Act treating the said AssessmentOrder as erroneous and prejudicial to the interest of theRevenue and refused the same under Section 263 of the Act videorder dated 26.02.2010. 5. The Assessee took up the matter to the learned Tribunal,which however allowed the appeal of the Assessee with thefollowing observations. “We have considered the rival submissions and thematerial available on record. Both the parties havetaken similar stand as was taken before the ld.CIT(A)in support of its case. The ld.AR has placed beforeus for our perusal a copy of the decision of the ITAT,Mumbai 'E' Special Bench in the cases of Sulzer IndiaLtd., -Vs- Jt.CIT and Others, order dated 10.11.2020.It is a lengthy order and supports the version takenby the assessee. To controvert the above decision, itwas stated by the ld.DR that there are other decisionswhich have been mentioned in the order of the ld.CITwhich settled the law that sales tax forms part of thetrading result of the assessee. Be that as it may,all these factors were considered by the AssessingOfficer at the time of assessment proceedings andundoubtedly two opinions were available in thisregard, out of which one possible view has beenadopted by the Assessing Officer. However, theAssessing Officer has considered a particular aspect Page 2 of 7 Page 2 of 7 of income and has adopted one of the possible view onthe subject point, therefore, his order cannot be saidto be erroneous on that particular point. To reviseany order u/s 263, the twin conditions of erroneousplus prejudicial to the interests of Revenue to thatextent must co-exist. In this case, when the order isnot erroneous, even if it is prejudicial to theinterests of the Revenue, the same cannot be revised.Hence, we set aside the impugned order and uphold theassessment order.” 6. Learned counsel for the parties fairly submit that thecontroversy is no longer res integra as the Hon'ble SupremeCourt, in the case of “Commissioner of Income Tax, Mumbai -Vs-Balkrishna Industries Ltd” reported in [2017] 88 taxmann.com 273(SC), has decided that Section 41(1) of the Act does not applyin such circumstances and the Hon'ble Supreme Court has affirmedthe view taken by the Bombay High Court with the followingobservations. “7. A glimpse of the facts taken note of, shows thatthe assessee herein had collected the sales tax in thesum of Rs.7,52,01,378/-. As per the Scheme floated bythe Government of Maharashtra, for those assessees whoset up their industries in the backward area, thesales tax liability was deferred for a period of 7years and, thereafter, it can be paid over a period of7 years under the Deferral Scheme of 1983 and over aperiod of 6 years under the Deferral Scheme of 1988.However, under the C.A. NO. 19587/ 2017 etc. (@ SLP(C) No. 30896/ 2015 etc.) Scheme of 1988, theGovernment of Maharashtra promoted premature orpayment of deferral sales tax at Net Present Value(NPV). 8. In the meantime,section 38 of the Sales Tax Act wasamended which provides that where the NPV of deferredtax as may be prescribed was paid, the deferred taxwas deemed to have been paid. Taking advantage of thisScheme,theassesseemaderepaymentofRs.3,37,13,393/- against the total liability ofRs.7,52,01,378/-. In this manner, the assessee couldsave a sum of Rs.4,14,87,985/-. The issue is as towhether this amount, which the assessee could save, isto be treated as 'income' by applying the provisionsof Section 41 of the Act. The Assessing Officer Page 3 of 7 treated it as the revenue receipt and thereby income.Contention of the assessee is that it is a capitalreceipt, which is accepted by the High Court. 9. In a very detailed and exhaustive judgment renderedby the High Court, it has discussed the view taken bythe Assessing Officer, which was confirmed by theCommissioner of Income Tax (Appeals). Thereafter, theHigh Court noted in detail the manner in which theTribunal has dealt with the issue. A perusal of thejudgment would show that the High Court took intoconsideration the provisions of Section 41 of the Actand the conditions which are required to be satisfiedfor bringing a particular receipt as “income” withinthe ambit thereof and found that those conditions arenot satisfied in the present case. The High Court alsorepelled the contention of the Revenue that theassessee obtained the benefit of reduction of salestax liability under Section 43B of the Act as per theCBDT Circular No. 496 dated 25th September, 1987. Therelevant portion of the discussion in this behalfreads as under: “It is not possible to agree with Mr. Gupta.Because, premature payment of Sales Taxalready collected but its remittance to theGovernment, as Mr. Gupta envisages, is notcovered by this provision else thesubsections and particularly section 43B(1)would have been worded accordingly.Therefore Section 43B has no application.Insofar as applicability of section 41(1)(a), there also the applicability is to beconsidered in the light of the liability. Itis a loss, expenditure or trading liability.In this case, the scheme under which theSales Tax liability was deferred enables theAssessee to remit the Sales Tax collectedfrom the customers or consumers to theGovernment not immediately but as agreedafter 7 to 12 years. If the amount is not tobe immediately paid to the Government uponcollection but can be remitted later on interms of the Scheme, then, we are of theopinion that the exercise undertaken by theGovernment of Maharashtra in terms of theamendment made to the Bombay Sales Tax Act Page 4 of 7 Page 5 of 7 and noted above, may relieve the Assessee ofhis obligation, but that is not by way ofobtaining remission. The worth of the amountwhich has to be remitted after 7 to 12 yearshas been determined prematurely. That hasbeen done by find out its NPV. If that isthe value of the money that the StateGovernment would be entitled to receiveafter the end of 7 to 12 years, then, we donot see how ingredients of sub section (1)of section 41 can be said to be fulfilled.The obligation to remit to the Governmentthe Sales Tax amount already recovered andcollected from the customers is in no waywiped out or diluted. The obligation remains. All that hashappened is an option is given to theAssessee to approach the SICOM and requestit to consider the application of theAssessee of premature payment and dischargeof the liability by finding out its NPV. Ifthat was a permissible exercise and in termsof the settled law, then, we do not see howthe Assessee can be said to have beenbenefited and as claimed by the Revenue. Theargument of Mr. Gupta is not that theAssessee having paid Rs.3.37 crores hasobtained for himself anything in terms ofsection 41(1), but the Assessee is deemed tohave received the sum of Rs.4.14 crores,which is the difference between the originalamount to be remitted with the payment made.Mr. Gupta terms this as deemed payment andby the State to the Assessee. We are unableto agree with him. The Tribunal has foundthat the first requirement of section 41(1)is that the allowance or deduction is madein respect of the loss, expenditure or atrading liability incurred by the Assesseeand the other requirement is the Assesseehas subsequently obtained any amount inrespect of such loss and expenditure orobtained a benefit in respect of suchtrading liability by way of a remission orcessation thereof. As rightly noted by theTribunal, the Sales Tax collected by theAssessee during the relevant year amounting to Rs.7,52,01,378/- was treated by the StateGovernment as loan liability payable after12 years in 6 annual/equal installments.Subsequently and pursuant to the amendmentmade to the 4 th proviso to section 38 ofthe Bombay Sales Tax Act, 1959, the Assesseeaccepted the offer of SICOM, theimplementing agency of the State Government,paid an amount of Rs.3,37,13,393/- to SICOM,which,accordingtotheAssessee,represented the NPV of the future sum asdetermined and prescribed by the SICOM. Inother words, what the Assessee was requiredto pay after 12 years in 6 equalinstallments was paid by the Assesseeprematurely in terms of the NPV of the same.That the State may have received a highersum after the period of 12 years and ininstallments.However,thestatutoryarrangement and vide section 38, 4[th] provisodoes not amount to remission or cessation ofthe Assessee's liability assuming the sameto be a trading one. Rather that obtains apayment to the State prematurely and interms of the correct value of the debt dueto it. There is no evidence to show thatthere has been any remission or cessation ofthe liability by the State Government. Weagree with the Tribunal that one of therequirement of section 41(1)(a) has not beenfulfilled in the facts of the present case.” 10.After hearing the counsel for the parties atlength,C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/2015 etc.) we are of the view that the aforesaidapproach of the High Court is without any blemish,inasmuch as all the requirements of Section 41(1) ofthe Act could not be fulfilled in this case. 11.We, therefore, do not find any merit in theseappeals which are accordingly, dismissed.” Page 6 of 7 7. Following the said decision of the Hon'ble Supreme Court,a Coordinate Bench of this Court also dismissed a similar appealfiled by the Revenue in the case of “Commissioner of Income Tax-Vs- M/s.Wheels India Limited” (T.C.A.No.285 of 2018) on11.06.2019. 8. In view of the aforesaid submissions made at Bar, thepresent appeal filed by the Revenue in the present case alsodeserves to be dismissed and the question of law framed abovedeserves to be answered in favour of the Assessee and againstthe Revenue. We hereby do so. 9. The Tax Appeal is accordingly dismissed. No costs. Sd/- Asst.Registrar (CCC) /true copy/Sub Asst. Registrar KSTToIncome Tax Appellate Tribunal'D' Bench,Chennai. 2.The Commissioner of Income TaxChennai 3.The Assistant Commissionerof Income tax Company Circle III(4)Chennai +1 cc to Mr.M.Swaminathan Advocate sr15023+1 cc to Mr.Subbraya Aiyar Advocate sr15396 T.C.(A) No.231 of 2011 vba(co)aa17/03/2020 Page 7 of 7 https://hcservices.ecourts.gov.in/hcservices/