The assessee was entitled to an adjustment or set off the amount of Rs. 7,06,590 as a liability adjusted deeming actual payment by legal friction. Such adjustment was deemed to be actual payment of the tax liability and would be deductible under Section 43B of the Act as held by the Hon’ble Bombay High Court before the Hon’ble Mr. Justice K.R. Shriram and M.S. Karnik in the matters of Merch Ltd. v. Commissioner of Income Tax and Ors. [Income Tax Appeal No. 208 of 2003].
The case arises from the fact wherein the appellant had claimed a sum of Rs.7,06,590/- being sales tax set off as deduction under Section 43B of the Income Tax Act, 1961. The appellant sales tax set off represents that part of the purchase tax paid by appellant on purchase of raw materials and packing material, which is allowed to be retained by it as the materials purchased are consumed in the manufacture of finished goods which are again liable to sales tax. The amount is not payable to the sales tax authorities at the time of paying the sales tax on the sale of finished goods by the appellant. Appellant stated the facts that are entitled to claim the set off would mean that a legal fiction is created to the effect that this amount of Rs. 7,06,590/- be treated to been paid as a tax liability deductible under Section 43B of the Act.
The petitioner preferred the appeal under Section 216 of the Act says any installment due before the expiry of six months from the commencement of the previous year in respect of which it is to be paid and shall be deemed to have become due fifteen days after the expiry of the said six months. The Corporate Income Tax upheld the disallowance of Rs.7,06,590/- by the Assessing Officer. Petitioner challenged the order of Corporate Income Tax before Income Tax Appellant Tribunal [ITAT] and dismissed at the same time. Petitioner filed a Miscellaneous Application for the disallowance of Rs. 7,06,590/- under Section 43B of the Act, which was also rejected without hearing.
The appellant was entitled to set-off or adjustment made on the sales tax amount is not disputed. The amount Rs. 7,06,590/- was never paid but was retained by the appellant and even if any adjustment or set-off is claimed, there is no actual payment and unless there is actual payment, Section 43B of the Act does not come into play and therefore appellant cannot claim any benefit.
The Tribunal concluded that Appellant had not pressed the grounds related to the disallowance under Section 43B of the Income Tax Act. Section 43B of the Act provides for deduction notwithstanding anything contained in any other provision of the Act in the respect of any sum payable by the assessee by way of tax, duty, cess or fee, or whatever name called, under any law for the time being in force. The amount Rs. 7,06,590/- has been liability due to be paid having been adjusted is deemed payable amounting to actual payment within the meaning of Section 43B of the Act. Since the law permits the appellant to set off or adjust the sales tax already paid at the time of purchase of raw material against the sales tax collected at the time of sale of finished goods, the assessee has retained the sales tax amount which has already been paid and claimed a set-off. In fact, to the extent of the sales tax paid on the raw materials, the assessee has actually been reimbursed to that extent by the sales tax collected at the sale of the finished product. Therefore, it is presumed to be a deemed payment within the time to be included in the relevant assessment.
Since, the legislation left nothing unambiguous to express its intention that such deduction is allowed once, either on the actual payment or on the liability. It is presumed that the deemed payment within the time to be included in the relevant assessment. The allowance is allowed in respect of the sales tax payable by the assessee which is qualified by the explanation to section 43B of the Income Tax Act to mean to have been actually paid or incurred. The Appellant has not actually paid but sought to be adjusted or set off against payment of sales tax by the assessee on its purchase of raw material used for the product against which the sales tax has since been collected by the assessee on sale of the product concerned.
The Hon’ble Court held that the disallowance for sales tax set off Rs. 7,06,590/- for the Assessment year is legally unsustainable. Hon’ble Mr. Justice K.R. Shriram and M.S.Karnik stated, “The Appeal disposed of with no order as to costs. The amount is tax payable.” It was further held that “Rule 41D of the Bombay Sales Tax Rules allows incentive by way of exemption of sales tax to the extent of payment of sales tax purchased by raw material used for the product. Rule 45(3) entitles the assessee to adjust or set off the amount in the return itself. It is a provision parallel to Section 199 and 245 of the Income Tax Act creating legal friction.”
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Judgment reviewed by Kaviya S
