The Commissioner of Income-tax, Chennai v. T.T.K. Health Care Limited
[Citation -2020-LL-0220-74]

Citation 2020-LL-0220-74
Appellant Name The Commissioner of Income-tax, Chennai
Respondent Name T.T.K. Health Care Limited
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 20/02/2020
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags prejudicial to the interest • erroneous and prejudicial • interests of the revenue • remission or cessation • trading liability • net present value • revenue receipt • capital receipt • deferral scheme
Bot Summary: The Assessee in the present case availed the benefit of deferred sales tax payment under the Scheme announced by the State of Maharashtra and under the Scheme made a premature payment at NPV of the deferred amount of sales tax collected by it for the year in question. The Assessing Authority allowed the said benefit to the Assessee and did not invoke Section 41(1) of the Income Tax Act, treating the remaining part of the deferred sales tax as neither remission nor cessation of sales tax liability of the Assessee. The Assessee took up the matter to the learned Tribunal, which however allowed the appeal of the Assessee with the following observations. In Judgment in TCA No.231 of 2011 CIT -Vs- TTK Health Care Ltd dated 20.02.2020 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. 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. 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.


Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 20.02.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.231 of 2011 Commissioner of Income Tax Chennai Appellant Vs. T.T.K.Health Care Limited No.6, Cathedral Road Chennai 600 086. Respondent Tax Case Appeal filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal 'D' Bench, Chennai dated 16.12.2010 in ITA No.474/Mds/2010. For Appellant : Mrs.V.Pushpa Senior Standing Counsel For Respondent : Mr.R.Venkatnarayanan for M/s.Subbaraya Iyer Padmanabhan JUDGMENT (Judgment of Court was delivered by DR.VINEET KOTHARI,J) Revenue has filed present appeal under Section 260A of Income Tax Act, against order of learned Income Tax Appellate Tribunal 'D' Bench, Chennai dated 16.12.2010 for Assessment Year 2005-06, whereby Page 1 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 learned Tribunal allowed appeal of Assessee and set aside order passed by learned Income Tax Commissioner under Section 263 of Act on 26.02.2010. 2. Coordinate Bench of this Court admitted present appeal on following substantial question of law on 15.06.2011. Whether on facts and circumstances of case, Income Tax Appellate Tribunal was right in setting aside order of Commissioner of Income Tax under Section 263 of Income Tax Act? 3. Assessee in present case availed benefit of deferred sales tax payment under Scheme announced by State of Maharashtra and under Scheme made premature payment at NPV (Net Present Value) of deferred amount of sales tax collected by it for year in question. Assessing Authority allowed said benefit to Assessee and did not invoke Section 41(1) of Income Tax Act, treating remaining part of deferred sales tax as neither remission nor cessation of sales tax liability of Assessee. Page 2 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 4. However, learned Commissioner passed impugned order under Section 263 of Act treating said Assessment Order as erroneous and prejudicial to interest of Revenue and refused same under Section 263 of Act vide order dated 26.02.2010. 5. Assessee took up matter to learned Tribunal, which however allowed appeal of Assessee with following observations. We have considered rival submissions and material available on record. Both parties have taken similar stand as was taken before ld.CIT(A) in support of its case. ld.AR has placed before us for our perusal copy of decision of ITAT, Mumbai 'E' Special Bench in cases of Sulzer India Ltd., -Vs- Jt.CIT and Others, order dated 10.11.2020. It is lengthy order and supports version taken by assessee. To controvert above decision, it was stated by ld.DR that there are other decisions which have been mentioned in order of ld.CIT which settled law that sales tax forms part of trading result of assessee. Be that as it may, all these factors were considered by Assessing Officer at time of assessment proceedings and undoubtedly two opinions were available in this regard, out of which one possible view has been adopted by Assessing Officer. However, Assessing Officer has considered particular aspect of income and has adopted one of possible view on subject point, therefore, his order Page 3 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 cannot be said to be erroneous on that particular point. To revise any order u/s 263, twin conditions of erroneous plus prejudicial to interests of Revenue to that extent must co- exist. In this case, when order is not erroneous, even if it is prejudicial to interests of Revenue, same cannot be revised. Hence, we set aside impugned order and uphold assessment order. 6. Learned counsel for parties fairly submit that controversy is no longer res integra as Hon'ble Supreme Court, in 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 Act does not apply in such circumstances and Hon'ble Supreme Court has affirmed view taken by Bombay High Court with following observations. 7. 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 C.A. NO. 19587/ Page 4 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 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). 8. 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. 9. 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 within ambit thereof and found that those conditions are not satisfied in present case. High Court also repelled Page 5 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 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 Page 6 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 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 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 Page 7 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 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 Page 8 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 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. 10.After hearing counsel for parties at length,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. 11.We, therefore, do not find any merit in these appeals which are accordingly, dismissed. 7. Following said decision of Hon'ble Supreme Court, Coordinate Bench of this Court also dismissed similar appeal filed by Revenue in case of Commissioner of Income Tax -Vs- M/s.Wheels India Limited (T.C.A.No.285 of 2018) on 11.06.2019. Page 9 of 10 http://www.judis.nic.in Judgment in TCA No.231 of 2011 [CIT -Vs- TTK Health Care Ltd] dated 20.02.2020 DR.VINEET KOTHARI, J. AND R.SURESH KUMAR, J. KST 8. In view of aforesaid submissions made at Bar, present appeal filed by Revenue in present case also deserves to be dismissed and question of law framed above deserves to be answered in favour of Assessee and against Revenue. We hereby do so. 9. Tax Appeal is accordingly dismissed. No costs. (V.K.,J.) (R.S.K.,J.) 20.02.2020 KST To Income Tax Appellate Tribunal 'D' Bench,Chennai. T.C.(A) No.231 of 2011 Page 10 of 10 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. T.T.K. Health Care Limited
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