Commissioner of Income-tax-6, Mumbai v. Balkrishna Industries Ltd
[Citation -2017-LL-1121-20]

Citation 2017-LL-1121-20
Appellant Name Commissioner of Income-tax-6, Mumbai
Respondent Name Balkrishna Industries Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 21/11/2017
Judgment View Judgment
Keyword Tags remission or cessation • sales tax liability • trading liability • capital receipt • revenue receipt • deferral scheme
Bot Summary: 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. The High Court also repelled the contention of the Revenue that the assessee obtained the benefit of reduction of sales tax liability under Section 43B of the Act as per the CBDT Circular No. 496 dated 25th September, 1987. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the Scheme we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the Assessee of his obligation, but that is not by way of obtaining remission. The argument of Mr. Gupta is not that the Assessee having paid Rs.3.37 crores has obtained for himself anything in terms of section 41(1), but the Assessee is deemed to have received the sum of Rs.4.14 crores, which is the difference between the original amount to be remitted with the payment made. The Tribunal has found that 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 the Assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, 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 loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to the amendment made to the 4 th proviso to section 38 of the Bombay Sales Tax Act, 1959, the Assessee accepted the offer of SICOM, the implementing agency of the State Government, paid an amount of Rs.3,37,13,393/- to SICOM, which, according to the Assessee, represented the NPV of the future sum as determined and prescribed by the SICOM. In other words, what the Assessee was required to pay after 12 years in 6 equal installments was paid by the Assessee prematurely in terms of the NPV of the same.


IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 19587 OF 2017 (Arising out of SLP (C) No. 30896 of 2015) COMMISSIONER OF INCOME TAX-6, MUMBAI Appellant VERSUS M/S. BALKRISHNA INDUSTRIES LTD. Respondent WITH CIVIL APPEAL NO. 19616 OF 2017 (Arising out of SLP(C) No. 1803 of 2016) CIVIL APPEAL NO. 19590 OF 2017 (Arising out of SLP(C) No. 21345 of 2015) CIVIL APPEAL NO. 19639 OF 2017 (Arising out of SLP(C) No. 17847 of 2015) CIVIL APPEAL NO. 19589 OF 2017 (Arising out of SLP(C) No. 30888 of 2015) CIVIL APPEAL NO. 19637 OF 2017 (Arising out of SLP(C) No. 17848 of 2015) CIVIL APPEAL NO. 19588 OF 2017 (Arising out of SLP(C) No. 30903 of 2015) CIVIL APPEAL NO. 19609 OF 2017 (Arising out of SLP(C) No. 16833 of 2016) CIVIL APPEAL NO. 19600 OF 2017 (Arising out of SLP(C) No. 28991 of 2015) CIVIL APPEAL NO. 19594 OF 2017 (Arising out of SLP(C) No. 30890 of 2015) Signature Not VerifiedCIVIL APPEAL NO. 19592 OF 2017 Digitally signed by NIDHI AHUJA (Arising out of SLP(C) No. 17882 of 2015) Date: 2017.12.04 17:12:32 IST Reason: CIVIL APPEAL NO. 19591 OF 2017 (Arising out of SLP(C) No. 17731 of 2015) 1 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) CIVIL APPEAL NO. 19599 OF 2017 (Arising out of SLP(C) No. 28328 of 2015) CIVIL APPEAL NO.8784 OF 2015 CIVIL APPEAL NO. 19593 OF 2017 (Arising out of SLP(C) No. 20595 of 2015) CIVIL APPEAL NO. 19596 OF 2017 (Arising out of SLP(C) No. 24656 of 2015) CIVIL APPEAL NO. 19595 OF 2017 (Arising out of SLP(C) No. 22747 of 2015) CIVIL APPEAL NO. 19607 OF 2017 (Arising out of SLP(C) No. 5270 of 2016) CIVIL APPEAL NO. 19610 OF 2017 (Arising out of SLP(C) No. 23630 of 2016) CIVIL APPEAL NO. 19598 OF 2017 (Arising out of SLP(C) No. 25987 of 2015) CIVIL APPEAL NO. 19638 OF 2017 (Arising out of SLP(C) No. 23666 of 2015) CIVIL APPEAL NO. 19597 OF 2017 (Arising out of SLP(C) No. 25030 of 2015) CIVIL APPEAL NO. 13829 OF 2015 CIVIL APPEAL NO. 19601 OF 2017 (Arising out of SLP(C) No. 31153 of 2015) CIVIL APPEAL NO. 19623 OF 2017 (Arising out of SLP(C) No. 1804 of 2016) CIVIL APPEAL NO. 19608 OF 2017 (Arising out of SLP(C) No. 522 of 2016) CIVIL APPEAL NO. 19615 OF 2017 (Arising out of SLP(C) No. 1802 of 2016) CIVIL APPEAL NO. 19617 OF 2017 (Arising out of SLP(C) No. 2573 of 2016) CIVIL APPEAL NO. 19614 OF 2017 (Arising out of SLP(C) No. 1801 of 2016) CIVIL APPEAL NO. 19611 OF 2017 (Arising out of SLP(C) No. 20486 of 2017) 2 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) CIVIL APPEAL NO. 19612 OF 2017 (Arising out of SLP(C) No. 24259 of 2017) O R D E R With consent of parties, we have heard arguments in matters finally. Leave granted. Department has filed these appeals against judgments of Bombay High Court passed in various cases whereby High Court has concurred with view taken by Income Tax Appellate Tribunal (hereinafter referred to as 'Tribunal') and held that amount in question could not be treated as income under Section 41(1) of Income Tax Act, 1961 (hereinafter referred to as 'Act'). main judgment is dated 05.12.2014 which was rendered in batch of appeals with leading case known as 'The Commissioner of Income Tax-8 v. M/s. Sulzer India Limited'. It is this judgment which has been followed in other cases. Therefore, for sake of convenience, we shall refer to facts as noted in M/s. Sulzer India Ltd.'s case. Assessee M/s. Sulzer India Ltd. filed return of income for assessment year 2003-04 on 27 th November, 2013, declaring total income at Rs.10,59,76,986/-, claiming deduction under section 80HHC of I.T. Act in sum of Rs.82,48,864/-. 3 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) During assessment proceedings, Assessing Officer observed that Assessee had credited amount of Rs.4,14,87,985/- to capital reserve contending that said amount was remission of loan liability. Assessee stated that under Industrial Backward Area Scheme of Government of Maharashtra, it was entitled to defer Sales Tax liability for period of 7 years under Deferral Scheme of 1983 and for period of 6 years under Deferral Scheme of 1988. In response to Notification issued by Government of Maharashtra regarding premature repayment of deferral Sales Tax at Net Present Value (NPV), Assessee made repayment of Rs.3,37,13,393/- against total liability of Rs.7,52,01,378/-. Assessee remitted balance amount of Rs.4,14,87,985/- and credited said amount to its capital reserve account. Assessing Officer asked Assessee to show cause as to why said amount should not be taxed in hands of Assessee as revenue receipt. Relying on Circulars of Central Board of Direct Taxes being Nos. 496 and 674, Assessee claimed that deferral Sales Tax under Deferral Scheme was required to be treated as actually paid for purposes of section 43B of I.T. Act. Further, conversion of Sales Tax liability into loans would be taken as discharge of liability of Sales Tax and, therefore, deferral amount was in form of loan and not trading receipt. On this basis, Assessee 4 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) contended that remission of loan cannot be treated as revenue receipt and taxed as its income. Assessing Officer rejected this claim and by holding that Board's Circular is in context of section 43B of Income Tax Act and therefore not relevant for present issue. Against aforesaid Assessment Order passed by Assessing Officer, M/s. Sulzer India Ltd. (hereinafter referred to as 'assessee') preferred appeal before Commissioner of Income Tax (Appeals) who dismissed same by sustaining assessment. This was challenged by assessee before Tribunal. In view of difference of opinion of two coordinate Benches on this issue, special Bench was constituted. special Bench decided case in favour of assessee and allowed appeal. As mentioned above, it is this judgment, which has been upheld by High Court as well and in these circumstances, Revenue is in appeal before us. glimpse of facts taken note of, shows that assessee herein had collected sales tax in sum of Rs.7,52,01,378/-. As per Scheme floated by Government of Maharashtra, for those assessees who set up their industries in backward area, sales tax liability was deferred for period of 7 years and, thereafter, it can be paid over period of 7 years under Deferral Scheme of 1983 and over period of 6 years under Deferral Scheme of 1988. However, under 5 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) Scheme of 1988, Government of Maharashtra promoted premature or payment of deferral sales tax at Net Present Value (NPV). In meantime, section 38 of Sales Tax Act was amended which provides that where NPV of deferred tax as may be prescribed was paid, deferred tax was deemed to have been paid. Taking advantage of this Scheme, assessee made repayment of Rs.3,37,13,393/- against total liability of Rs.7,52,01,378/-. In this manner, assessee could save sum of Rs.4,14,87,985/-. issue is as to whether this amount, which assessee could save, is to be treated as 'income' by applying provisions of Section 41 of Act. Assessing Officer treated it as revenue receipt and thereby income. Contention of assessee is that it is capital receipt, which is accepted by High Court. In very detailed and exhaustive judgment rendered by High Court, it has discussed view taken by Assessing Officer, which was confirmed by Commissioner of Income Tax (Appeals). Thereafter, High Court noted in detail manner in which Tribunal has dealt with issue. perusal of judgment would show that High Court took into consideration provisions of Section 41 of Act and conditions which are required to be satisfied for bringing particular receipt as income 6 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) within ambit thereof and found that those conditions are not satisfied in present case. High Court also repelled contention of Revenue that assessee obtained benefit of reduction of sales tax liability under Section 43B of Act as per CBDT Circular No. 496 dated 25th September, 1987. relevant portion of discussion in this behalf reads as under: It is not possible to agree with Mr. Gupta. Because, premature payment of Sales Tax already collected but its remittance to Government, as Mr. Gupta envisages, is not covered by this provision else subsections 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 applicability is to be considered in light of liability. It is loss, expenditure or trading liability. In this case, scheme under which Sales Tax liability was deferred enables Assessee to remit Sales Tax collected from customers or consumers to Government not immediately but as agreed after 7 to 12 years. If amount is not to be immediately paid to Government upon collection but can be remitted later on in terms of Scheme, then, we are of opinion that exercise undertaken by Government of Maharashtra in terms of amendment made to Bombay Sales Tax Act and noted above, may relieve Assessee of his obligation, but that is not by way of obtaining remission. worth of amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by find out its NPV. If that is value of money that State Government would be entitled to receive after end of 7 to 12 years, then, we do not see how ingredients of sub section (1) of section 41 can be said to be fulfilled. obligation to remit to Government Sales Tax amount already recovered and collected from customers is in no way wiped out or diluted. obligation remains. All that has happened is option is given to Assessee to approach SICOM and request it to consider application of Assessee of premature payment and discharge of liability by finding out its NPV. If that was 7 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) permissible exercise and in terms of settled law, then, we do not see how Assessee can be said to have been benefited and as claimed by Revenue. argument of Mr. Gupta is not that Assessee having paid Rs.3.37 crores has obtained for himself anything in terms of section 41(1), but Assessee is deemed to have received sum of Rs.4.14 crores, which is difference between original amount to be remitted with payment made. Mr. Gupta terms this as deemed payment and by State to Assessee. We are unable to agree with him. Tribunal has found that first requirement of section 41(1) is that allowance or deduction is made in respect of loss, expenditure or trading liability incurred by Assessee and other requirement is Assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained benefit in respect of such trading liability by way of remission or cessation thereof. As rightly noted by Tribunal, Sales Tax collected by Assessee during relevant year amounting to Rs.7,52,01,378/- was treated by State Government as loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to amendment made to 4 th proviso to section 38 of Bombay Sales Tax Act, 1959, Assessee accepted offer of SICOM, implementing agency of State Government, paid amount of Rs.3,37,13,393/- to SICOM, which, according to Assessee, represented NPV of future sum as determined and prescribed by SICOM. In other words, what Assessee was required to pay after 12 years in 6 equal installments was paid by Assessee prematurely in terms of NPV of same. That State may have received higher sum after period of 12 years and in installments. However, statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of Assessee's liability assuming same to be trading one. Rather that obtains payment to State prematurely and in terms of correct value of debt due to it. There is no evidence to show that there has been any remission or cessation of liability by State Government. We agree with Tribunal that one of requirement of section 41(1)(a) has not been fulfilled in facts of present case. After hearing counsel for parties at length, 8 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) we are of view that aforesaid approach of High Court is without any blemish, inasmuch as all requirements of Section 41(1) of Act could not be fulfilled in this case. We, therefore, do not find any merit in these appeals which are accordingly, dismissed. .........................., J. [ A.K. SIKRI ] .........................., J. [ ASHOK BHUSHAN ] New Delhi; November 21, 2017. 9 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) ITEM NO.1 COURT NO.6 SECTION IX S U P R E M E C O U R T O F I N D I RECORD OF PROCEEDINGS Petition(s) for Special Leave to Appeal (C) No(s). 30896/2015 (Arising out of impugned final judgment and order dated 10-12-2014 in ITA No. 1214/2012 passed by High Court of Judicature at Bombay) COMMISSIONER OF INCOME TAX-6, MUMBAI Petitioner(s) VERSUS M/S BALKRISHNA INDUSTRIES LTD. Respondent(s) WITH SLP(C) No. 1803/2016 (IX) SLP(C) No. 21345/2015 (IX) SLP(C) No. 17847/2015 (IV-A) SLP(C) No. 30888/2015 (IX) SLP(C) No. 17848/2015 (IV-A) SLP(C) No. 30903/2015 (IX) SLP(C) No. 16833/2016 (IX) SLP(C) No. 28991/2015 (IX) SLP(C) No. 30890/2015 (IX) SLP(C) No. 17882/2015 (IX) SLP(C) No. 17731/2015 (IX) SLP(C) No. 28328/2015 (IX) C.A. No. 8784/2015 (III) SLP(C) No. 20595/2015 (IX) SLP(C) No. 24656/2015 (IX) SLP(C) No. 22747/2015 (IX) SLP(C) No. 5270/2016 (IX) SLP(C) No. 23630/2016 (IX) SLP(C) No. 25987/2015 (IX) SLP(C) No. 23666/2015 (IV-A) SLP(C) No. 25030/2015 (IX) C.A. No. 13829/2015 (III) SLP(C) No. 31153/2015 (IX) SLP(C) No. 1804/2016 (IX) SLP(C) No. 522/2016 (IX) SLP(C) No. 1802/2016 (IX) SLP(C) No. 2573/2016 (IX) SLP(C) No. 1801/2016 (IX) SLP(C) No. 20486/2017 (IX) (With IA No.50453/2017-CONDONATION OF DELAY IN FILING and IA No.50459/2017-EXEMPTION FROM FILING C/C OF IMPUGNED JUDGMENT) SLP(C) No. 24259/2017 (IX) (With IA No.80518/2017-CONDONATION OF DELAY IN FILING) 10 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) Date : 21-11-2017 These matters were called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ASHOK BHUSHAN For Petitioner(s) Mr. Arijit Prasad, Adv. Mr. S. A. Haseeb, ADV. Mr. Swarupama Chaturvedi, Adv. Mrs. Anil Katiyar, AOR For Respondent(s) Mr. Rohit Rathi, Adv. Mr. Sameer Shrivastava, AOR Mr. R. V. Easwar, Sr. Adv. Mr. Niraj Sheth, Adv. Mr. Rustom B. Hathikhanawala, AOR Mr. Tanveer Zaki, Adv. Mr. Kunal Chatterji, AOR Ms. Matrayee Banerjee, Adv. Mr. Saurav Gupta, Adv. Mr. Percy J. Pardiwalla, Sr. Adv. Mr. Niraj Sheth, Adv. Mr. Kunal Cheema, AOR Mr. Satyen Sethi, Adv. Ms. Geetanjali Mohan, AOR Mr. Rashmikumar Manilal Vithlani, AOR Mr. Chinmoy Khaladkar, Adv. Mr. B. K. Pal, AOR Ms. Monika Ghai, Adv. Ms. Shyamalima Borah, Adv. Mr. Ambhoj Kumar Sinha, AOR Mr. Ajay Vohra, Sr. Adv. Ms. Kavita Jha, AOR Mr. Bhuwan Dhoopar, Adv. Ms. Devika Jain, Adv. Mr. Ashish Wad, Adv. Mr. Jayashree Wad, Adv. Ms. Paromita Majumdar, Adv. 11 C.A. NO. 19587/ 2017 etc. (@ SLP (C) No. 30896/ 2015 etc.) Ms. Sukriti Jaggi, Adv. M/S. J S Wad and Co, AOR Ms. Anagha S. Desai, AOR UPON hearing counsel Court made following O R D E R Leave granted. appeals are dismissed in terms of signed order. (NIDHI AHUJA) (MALA KUMARI SHARMA) COURT MASTER COURT MASTER [Signed order is placed on file.] 12 Commissioner of Income-tax-6, Mumbai v. Balkrishna Industries Ltd
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