Income Tax Appellate Tribunal - Delhi
Eicher Ltd. vs Deputy Commissioner Of Income Tax on 4 June, 2003
Equivalent citations: (2004)83TTJ(DELHI)673
ORDER
S.K. Yadav, J.M.
1. These cross-appeals, one by the assessee and the other by the Revenue, are preferred against the order of the CIT(A) pertaining to the asst. yr. 1994-95. Since these appeals were heard together, these are being disposed of by this single consolidated order for the sake of convenience.
ITA No. 1168/19982. This is an appeal of the assessee through which the assessee has assailed the order of CIT(A) on various grounds which are as under :
"1. The CIT(A), New Delhi has grossly erred on facts and in law in confirming an addition of Rs. 4,135 under Rule 6D of the IT Rules.
2. The CIT(A) has grossly erred on facts and in law in rejecting the appellant's claim for deduction of Rs. 3,65,15,643 under Section 43B on account of sales-tax deferral granted by the Maharashtra Government pursuant to the directions of Board for Industrial and Financial Reconstruction (BIFR).
3. The CIT(A) has grossly erred on facts and in law in not holding that Maharashtra Government had granted deferral of outstanding sales-tax and, therefore, the same should be deemed to have been paid under Section 43B of the IT Act, 1961.
4. The CIT(A) has grossly erred on facts and in law in confirming disallowance of Rs. 8,57,143 on account of premium payable on redemption of non-convertible debentures.
4.1 The CIT(A) has grossly erred on facts and in law in observing inter-alia, that the liability to the premium could be said to arise only in the year of redemption and that till such time that the debentures are redeemed, the same is contingent liability."
3. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record.
4. Apropos ground No. 1, it is noticed from the record that while scrutinising the details of travelling expenses, the AO noticed that the assessee had offered a sum of Rs. 8,291 in excess of Rule 6D. The AO asked the assessee to give details of travelling expenses as per Rule 6D on the basis of each journey undertaken by a person and not on the basis of aggregate of all the journeys undertaken by a person. In response thereto, it was stated on behalf of the assessee that the disallowance as per the aggregate basis is in order. In support of his contention, he has relied on the Tribunal order. The explanation of the assessee was not accepted by the AO and after relying upon the judgement of Andhra Pradesh High Court in CIT v. Coramandel Fertilisers Ltd, (1996) 220 ITR 298 (AP), the AO added a further sum of Rs. 4,135 (Rs. 12,326 - Rs. 8,291). In appeal before the CIT(A), the assessee has reiterated its earlier contention. Besides relying upon the case laws in S.V. Ghatalia v. ITO (1983) 4 ITD 583 (Bom), Dy. CIT v. Hindustan Drr Oliver Ltd. (1994) 48 TTJ 552 (Bom), Modipan Ltd. v. ITO (1985) 22 TTJ (Bom) 108, the CIT(A) re-examined the issue but was not convinced with the contentions of the assessee and following the order of Andhara Pradesh High Court in the case of CIT v. Coramandel Fertilizers Ltd. (supra), in which it has been specifically held that the disallowance is to be computed with reference to expenditure of each trip of individual employee, the CIT(A) confirmed the disallowance.
5. Aggrieved, the assessee has carried the matter before us and we have carefully examined it in the light of judgment of Hon'ble High Court of Andhra Pradesh and find that the impugned issue is squarely covered by the said judgment. As such, no interference is called for in the order of the CIT(A).
6. Apropos grounds No. 2 and 3, it is noticed from the record that the assessee has raised a claim for deduction of Rs. 3,65,15,643 under Section 43B on account of sales-tax. During the course of proceedings, the assessee was asked to show cause as to why the said claimed deduction should not be disallowed as the payment of the same has actually not been made. In reply, it was stated before the AO that in view of CBDT Circular No. 496, dt. 25th Sept., 1987, the sales-tax deferred under any scheme shall be treated as actually paid for the purpose of Section 43B of the IT Act and the statutory liability shall be treated to have been discharged for the purpose of the said section. He further contended through another reply that the sum of Rs. 3,65 crores claimed under Section 43B being deferred by the State Government pursuant to the direction of BIFR call for being allowed in view of the CBDT Circular No. 496. The AO did not find force in the contention of the assessee and he disallowed the claim of the assessee for following reasons :
"(a) The assessee-company was incorporated in the year 1964 and the provisions of deferred sales-tax are not applicable to it for the purpose of deduction without payment of the outstanding dues. Sales-tax deferred scheme clearly lays down that several State Governments have introduced sales-tax deferred schemes as a part of incentives offered to entrepreneurs setting up industries in the backward areas. Under the schemes eligible units are permitted to collect sales-tax and retain such tax for a prescribed period. Thus, its is quite evident that such incentive of deffered scheme is applicable only to the newly set up industries and not to the old and defaulting industries like Ramon & Demon Ltd.
(b) The submission of the assessee that since the outstanding sales-tax has been funded and is deemed to be paid, is not correct. The assessee is paying the same from time to time as sales-tax and interest thereon and not as a loan as is evident from the photocopies of challans of payment of sales-tax.
(c) It is also pertinent to point out here as to what was the intention of the legislature to introduce the provisions of Section 43B in the IT Act.
(d) Even in the order dt. 2nd June, 1992 of BIFR in para 4, Shri Bhargava MD of Eicher Tractors Ltd. admitted that certain set-off included in the accumulated loss of RDL will be available to Eicher on actual payment of the related dues under Section 43B of the IT Act.
(e) Even in the certificate dt. 10th March, 1997 of Asstt. CST (Asst.) it has been mentioned that RDL was registered dealer under BST and CST Act. They were in arrears of sales-tax dues under BST Act and CST Act at Rs. 4,18,60,501 for the period 1st April, 1985 to 31st March, 1992. They were allowed to liquidate the above mentioned outstanding dues in 60 instalments payable monthly from September, 1992. It has nowhere been mentioned in the said certificate that as a result of such instalment facility, the entire liability will be treated as fully paid-up.
(f) The assessee has not been given any certificate from the Government of Maharashtra to the effect that as result of granting instalment of sales-tax dues, the outstanding sales-tax liability will be treated to have been paid."
7. Aggrieved, the assessee has preferred an appeal before the CIT(A) with the submission that the business of Ramon & Demn Ltd. was taken over by the assessee-company pursuant to revival and rehabilitation scheme sanctioned by the Board of Industrial & Financial Construction (BIFR). As a result of the scheme, the assessee-company was to take "over all the liabilities of the said Ramon & Demn Ltd. including the statutory dues, such as sales-tax, excise duty and liability for interest to financial institution and banks vide BIFR order dt. 2nd June, 1992, Assessee has also placed reliance on GBDT Circular No. 496, dt. 25th Sept., 1987 whereby the sales-tax deferred under any scheme will be treated as actually paid for the purpose of Section 43B of the IT Act and the statutory liability shall be treated to have been discharged. It was further urged that out of the aforesaid sum, the Government of Maharashtra had waived Rs. 1,13,11,510 from time to time and the assessee had written back the said sum waived into its taxable income for the year. It was further submitted that it paid an amount of Rs. 1,10,71,912 including Rs. 33,55,604 paid after 31st March, 1994 but before furnishing of return out of Rs. 3.65 crores, disallowed in earlier years. It was also argued in the alternative that without prejudice to the aforesaid submissions regarding the disallowance of deduction of Rs. 3.65 crores, if the claim is to be disallowed for any reason, the sum of Rs. 1,10,71,912 paid the assessee during the year be allowed as deduction under Section 43B to the assessee in addition to Rs. 1,13,11,510 representing the amount of waiver. With regard to this alternative plea, the CIT(A) has observed in his order that the AO has already allowed. deduction of Rs. 1,10,71,912 subject to the disallowance of Rs. 5,51,697 being penalty. With regard to the main controversial issues whether the sales-tax liability was deferred by the Government of Maharashtra after converting it to be loan liability and whether the deferred sales-tax is deemed to have been paid for the purpose of Section 43B of the Act and the statutory liability is treated to have been discharged, the CIT(A) re-examined the issue in the- light of the order of the BIFR, relevant provisions of SICA and the scheme of the Government of Maharashtra but was not convinced with the contentions of the assessee. The CIT(A) confirmed the disallowance after making the following observations :
"7.5 I have considered the submissions of the appellant and the facts and circumstances of the case. I have also gone through the various papers as also the case law relied by the learned counsel. As per the BIFR Scheme, copy of which as furnished by the appellant, "The sales-tax and electricity overdue as on 31st March, 1992 (approximately Rs. 4.98 lacs) to carry interest at 13 pertent p.a. and be repaid in 60 monthly instalments commencing 1st Sept., 1992 in line with the Government of Maharashtra policy guidelines." Further, the certificate dt. 10th March, 1997/13th March, 1997 obtained by the assessee from ST Department, Bombay clearly says " ......... They were allowed to liquidate the abovementioned outstanding dues in 60 instalments payable monthly starting from Sept., 1992". The assessee is paying the same from time to time as sales-tax and interest thereon and not as a loan as is evident from the photo copies of challan of payment of sales-tax. The assessee's claim that the outstanding sales-tax has been funded and is, therefore, deemed of be paid or that they are covered by the sales-tax deferral scheme is thus found to be false and incorrect. It is equally wrong to say that requirement of law in this regard stood dispensed with in the assessee's case as no such concessions can be read into the facts obtaining in this case.
The assessee has referred to order dt. 16th Jan., 1997 of the CIT(A) in the earlier year. It is seen that the same was in the context of funding of interest and on facts and circumstances which are clearly distinguishable. The said appellate order has no application to the issue involved in the instant appeal. Appellant's reliance is thus found to be totally misplaced.
Similarly, the other case law relied by the assessee-company, it is stated with respect, is distinguishable and is of no assistance to them.
In view of the aforesaid and for the reasons discussed in the assessment order, the AO's action is upheld. The addition is confirmed."
8. Now, the assessee has carried the matter before us. Learned counsel for the assessee Shri Ajay Vohra has emphatically argued that before the BIFR, Government of Maharashtra was also one of the parties and it was represented through its liaison officer. As such, whatever order is passed by the BIFR that is also binding upon the State Government. Since the benefit of deferral of sales-tax was granted by an order of the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and consented to by the Government of Maharashtra, there was, therefore, no necessity for obtaining a formal eligibility certificate or SICOM to raise a loan liability as envisaged in Section 38 of the Bombay ST Act, 1959. The technical requirement of obtaining an eligibility certificate from the State Department of Industries and creation of other liability by the SICOM stood dispensed with when the State Government of Maharashtra controlling both the Department of Industries and SICOM conveyed its acceptance for the granting of benefit of deferral of sales-tax to the sick unit. Accordingly, 60 instalments of outstanding dues were made which were payable monthly starting from Sept., 1992. In support of his contention, Mr. Vohra has relied upon Circular No. 496 of CBDT and following judgments :
1. Mula Sahakari Sakhar Trading Co. (P) Ltd. v. ITO (1996) 55 TTJ (Pune) 375
2. Cosmo Films Ltd. v. IAC (1994) 50 TTJ (Del) 54
3. Central Trading Co. v. Asstt. CIT (ITA No. 466/Del/1993)
4. CIT v. Bhagwati Autocast Ltd. (2002) 124 Taxman 452 (Guj)
5. CIT v. Shree Talal Taluka Sahakari Khand Udyog Mandi Ltd. (2002) 125 Taxman 248 (Guj)
6. Asstt. CIT v. Shanti Dyeing & Finishing Works (2000) 68 TTJ (Ahd) 214
7. Dy. CIT v. Udaipur Distillery Co. Ltd. (2002) 74 TTJ (Jd) 193 : (2001) 119 Taxman 206 (Jd)(Mag)
9. The assessee has also placed reliance on the Tribunal order in his own case for the asst. yr. 1993-94.
10. The learned Departmental Representative strongly opposed the contentions of the assessee. Besides relying upon the orders of the lower authorities, Mr. Rajul Awasthi, learned Departmental Representative has invited our attention to the provisions of Section 38 of Bombay ST Act, 1959 according to which the State Government may grant an incentive by way of deferment of sales-tax or purchase tax by virtue of eligibility certificate, if such dealer fulfils certain conditions, as the State Government or the Commissioner may, by general or special order, specify 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 Corpn. or the District Industries Centre concerned and then such sales-tax shall be deemed in the public interest to have been paid. The learned Departmental Representative further submits that the State Government, by a specific order, laid down a scheme or the mode how the dealer can apply for deferment of sales-tax and under what circumstances, the State Government grants the eligibility certificate for the purpose of Section 43B of the IT Act,. But in the instant case, admittedly, the assessee has not obtained any eligibility certificate for deferment of sales-tax by the State Government. It is straightway claiming the deduction under Section 43B of the IT Act on the ground that by an order of the BIFR, the amount of sales-tax dues as on 31st March, 1992 has been converted into a loan liability and the sales-tax due is automatically deemed to have been paid because the Government of Maharashtra is one of the parties before the BIFR. The learned Departmental Representative further invited our attention to the order of the BIFR which is appearing at page. Nos. 43 to 70 of the compilation of the assessee according "to which BIFR has ordered under the head "Government of Maharashtra" that the sales-tax and electricity overdues as on 31st March, 1992 (approx. Rs. 4 lakh) to carry interest at 13 per cent p.a. and be repaid in 60 monthly instalments commencing 1st Sept., 1992 in line with the Government of Maharashtra policy guidelines. In this order, BIFR has not certified anywhere that outstanding sales-tax liability is converted into a loan liability of SICOM nor has certified that the outstanding sales-tax is deemed to have been paid. In these circumstances, it cannot be said that by virtue of an order of the BIFR, the outstanding sales-tax has been converted into a loan liability of SICOM or other agencies and outstanding sales-tax is deemed to have been paid and the assessee is entitled for incentive of deferment of sales-tax under Section 43B of the IT Act. As per the orders of the BIFR, the assessee was required to fulfill certain conditions as prescribed by the scheme issued by the State Government by general or special order to obtain the eligibility certificate for claiming an incentive of deferment of sales-tax. Since the assessee neither fulfilled any requisite conditions nor obtained the eligibility certificate, it cannot claim the deferment of sales-tax for the purpose of Section 43B of the Act. With regard to the circular issued by the CBDT, Mr. Awasthi has contended that by this circular, the CBDT has clarified that the benefit of deferment of sales-tax can be given by an amendment in the ST Act and also by issuing a notification. It has not been specified by CBDT through these circulars that by virtue of an order of the BIFR, the sales-tax liability automatically converts into loan liability of other agency set up by the State Government and the outstanding sales-tax shall be deemed to have been paid and the assessee is entitled for the benefit of deferment of sales-tax under Section 43B of the IT Act. Mr. Awasthi further invited our attention to a certificate issued by the Asstt. CST dt. 13th March, 1997 appearing at page No. 75 of the compilation of the assessee through which Asstt. CST has certified that the assessee was in arrears of sales-tax dues under BST Act and CST Act at Rs. 4,18,60,501 as on 31st March, 1992 and the assessee was allowed to liquidate the abovementioned outstanding dues in 60 instalments payable monthly starting from September, 1992. By this certificate, the sales-tax authorities have simply made 60 instalments of sales-tax dues for its payment. It means that outstanding sales-tax are to be paid in 60 instalments but it does not amount that the sales-tax liability has been converted into a loan liability of some other agency specified by the State Government and the assessee is entitled for incentive of deferment of sales-tax.
11. Mr. Awasthi further urged that since there is no iota of evidence on record to establish that the sales-tax liability has been converted into the loan liability which is essential ingredient for granting an eligibility certificate, the assessee is not entitled for the said benefit under Section 43B of the IT Act.
12. Having considered the rival submissions and from a careful perusal of the record, we find that the assessee has taken over the assets and liabilities of business of Ramon & Demn Ltd. pursuant to a revival and rehabilitation scheme sanctioned by BIFR. On the basis of this order of the BIFR, the assessee claimed the benefit of deferment of sales-tax under Section 43B of the IT Act. On a careful perusal of the rehabilitation scheme sanctioned by the BIFR, we find that under the head "Government of Maharashtra", the scheme says that the sales-tax and electricity overdues as on 31st march, 1992 (approx Rs. 4.98 lakh) to carry interest at 13 per cent p.a. shall be repaid in 60 monthly instalments commencing 1st Sept., 1992 in line with the Government of Maharashtra policy guidelines. Consequent to the scheme, Asstt. CST by its order dt. 13th March, 1997 made 60 instalments of outstanding sales-tax dues under BST Act and the CST Act payable monthly starting from September, 1992. Thereafter, the assessee started making payments of instalments as arrears of sales-tax as admitted by it during the course of hearing. Now, the question posed before us is whether the instalment of sales-tax made by sales-tax authorities amounts to a deferment of sales-tax under Section 38 of the Bombay ST Act and outstanding sales-tax was deemed to have been paid in public interest for claiming deduction under Section 43B of the IT Act. In order to adjudicate the aforesaid question, we have to examine the provisions of Section 38 of the Bombay ST Act, 1959. We therefore, reproduce the same as under :
"38. Payment of tax and deferred payment of tax, etc. Tax shall be paid in the manner herein provided, and at such intervals as be prescribed.
(1) A registered dealer furnishing return as required by Sub-section (1) of Section 32, shall first pay into a Government treasury, in such manner and at such interval as may be prescribed, the amount of tax due from him for the period covered by a return along with the amount of penalty or interest or both payable by him under Section 36.
(2) A registered dealer furnishing return as required by Sub-section (1) of Section 32, shall first pay into a Government treasury, in such manner and at such interval as may be prescribed, the amount of tax due from him for the period covered by a return along with the amount of penalty or interest or both payable by him under Section 36.
(3) A registered dealer furnishing a revised return in accordance with Sub-section (3) of Section 32, which revised return shows that a large amount of tax than already paid is payable, shall first pay into a Government treasury the extra amount of tax.
4(a) The amount of tax--
(i) due where return have been furnished without full payment thereof, or
(ii) assessed or reassessed for any period under Section 33 or Section 35 less than any sum already paid by the dealer in respect of such period.
(iii) Assessed under Sub-section (3) of Section 41; and
(b) the amount of penalty or interest or both (if any) levied under Section 63 or 37, and
(c) the sum (if any) forfeited to the State Government under Section 37, and
(d) the amount of fine (if any) imposed under Sub-section (3) of Section 53, and
(e) any other dues under this Act shall be paid by the dealer or the person liable therefor into a Government treasury within thirty days from the date of service of the notice issued by the Commissioner in respect thereof;
Provided that the Commissioner may, in respect of any particular dealer or person and for reasons to be recorded in writing extend the date of payment or allow him to pay the tax or penalty or interest (if any) or the sum forfeited by instalments but such extension or grant of instalment to pay tax shall be without prejudice to the levy of the penalty, interest, or both :
Provided further that the Commissioner may, in respect of a dealer to whom an eligibility certificate has been granted extend the date of payment or grant a moratorium for payment of the dues or provide for payment of the dues thereafter in instalments, subject to such conditions 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 Corpn. or the District Industries Centre concerned then such tax shall be deemed, in the public interest, to have been paid :
Provided also that the dealer referred to in the third proviso may, at his option discharge his loan liability in respect of any period by payment of such reduced amount as may be prescribed.
(5) Any tax penalty, interest or sum forfeited which remains unpaid after the service of notice under Sub-section (4), or any instalment not duly paid, shall be recoverable as arrears of land revenue ........"
13. From a bare reading of the aforesaid section, we find that according to 3rd proviso below Sub-section (4), the State Government may grant an eligibility certificate enabling the dealer to claim an incentive by way of deferment of sales-tax or purchase-tax under 1978 scheme, 1983 scheme or as the case may be, if the said dealer fulfils certain conditions as the State Government or the Commissioner may, by general or special order, specify and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by SICOM or the relevant Regional Development Corpn. or the District Industries Centre concerned, then such sales-tax shall be deemed in the public interest to have been paid. It means for claiming a benefit of deferment of sales-tax by virtue of an amendment in Bombay Sales-tax Act, 1959, for the purpose of Section 4.3B of the IT Act, the assessee is required to fulfill the requisite conditions so that a sales-tax liability may be converted into a loan liability of some agency in order to obtain an eligibility certificate for the said incentive of deferment of sales-tax. An identical issue came up for hearing before the Indore Bench in the case of Frijoscanda Winner Food Process System v. Dy. CIT in ITA No. 1225/Ind/1996 in which the assessee has claimed a benefit of deferment of sales-tax on the basis of eligibility certificate issued by specified agency. In that case, the Tribunal has examined the amendments brought into the M.P. General ST Act and the scheme notified by the State Government for conversion of deferred sales-tax into the loan liability. According to that scheme, the assessee was required to fulfill certain conditions and to undergo various stages before obtaining an eligibility certificate from the competent authority for claiming the incentive deferment of sales-tax under Section 43B of the IT Act. Since the Tribunal has made a threadbare analysis of the effect of the circular issued by the CBDT and the amendments in the Act and the conversion scheme launched by the State Government, we feel it proper to reproduce the relevant portion of the said order as under :
"11. Before dwelling upon the impugned issue whether the assessee is entitled to the deduction on account of deferment of sales-tax in view of Section 22(3B) of the MPGST Act, it is all the more necessary for us to examine the object of the new amendment and other consequential steps taken by the State Government and the CBDT to give proper effect to the newly amended provisions.
12. With the intent to give a fillip the State Government has introduced Sub-section (3B) to Section 22 of MPGST Act vide Act No. 14 of 1988 with retrospective effect from 1st April, 1981. According to the new provision, a registered dealer who belongs to any of the specified categories and had been granted the facility of deferment of payment of sales-tax, is liable to pay tax under other sub-sections of Section 22 and where a loan liability equal to the amount of tax payable by the dealer has been created by any specified agency, then such tax shall be deemed to have been paid in accordance with the provisions of other sub-sections of Section 22 of the MPGST Act. For ready reference, we reproduce Sub-section (3B) of Section 22 of the MPGST Act as under :
"(3-B) Notwithstanding anything contained in any other provisions of this Act, but subject to such conditions as may be prescribed, a registered dealer who belongs to any of the categories specified in Section 22D and has been granted the facility of deferment of payment of tax, is liable to pay tax under the provisions of Sub-section (2) or Sub-section (3) or Sub-section (4) and where a loan liability equal to the amount of tax payable by the dealer as aforesaid for the period of eligibility to avail of the said facility has been created by any agency or agencies as the State Government may, by general or special order, specify then such tax shall be deemed to have been paid in accordance with the provisions of Sub-section (2) or Sub-section (3) or Sub-section (4), as the case may be."
13. After this amendment, the State Government has laid down a scheme for conversion of deferred sales-tax into the loan vide notification No. 16-16-86-XI-B-(89), dt. 30th Dec., 1989. In this scheme a detailed procedure for conversion of deferred tax into the loan liability has been given. As per Rule 3 of this scheme an eligible unit shall apply in Form-A to the competent authority for conversion into a provisional loan liability of the deferred tax payable by it according to the returns of every year or part thereof covered by the period of the eligibility. Such applications accompanied with other documents i.e. copies of returns under the State and Central Sales-tax Acts and the certified copy of the eligibility certificate issued by the competent authority, shall be made within 60 days of the date of expiry of the year or part thereof covered by the period of eligibility.
14. On receipt of the application in Form-A and the certificate in Form-B from the appropriate sales-tax officer, the competent authority shall verify the contents and if on verification the competent authority is satisfied, it shall pass an order in Form-D converting the amount of deferred tax into the provisional loan liability. A copy of the order sheet is sent by the competent authority to the eligible unit and the appropriate sales-tax officer. Thereafter, again the eligible unit shall make further application in Form-A to the competent authority to convert the total tax assessed into the final loan liability within 60 days from the final sales-tax assessment order and such application shall be accompanied by the copy of the final assessment order. On receipt of this application in Form-A and certificate in Form-B from the appropriate sales-tax officer, the competent authority shall verify the contents of the application and it on verification the competent authority is satisfied with the contents, it shall direct the eligible unit in writing to execute an agreement in Form-C within 60 days of the receipt of such direction. On execution of the agreement by the eligible unit the competent authority shall pass an order in Form D converting the amount of tax assessed by the AO representing the deferred tax into the final loan liability. As per this scheme, the eligible unit has to undergo the entire process for obtaining the conversion certificate of its deferred tax into the loan liability. If the scheme is read in view of the amended Sub-section (3B) of Section 22 of the MPGST Act, one would find that the deferred tax shall only be deemed to have been paid in accordance with the provisions of Sub-section (2) or Sub-section (3) or Sub-section (4) of Section 22 of the MPGST Act, when the deferred sales-tax has been converted into the final loan liability and an order in Form-D is passed by the competent authority as per Rule 3(2)(C) of the scheme for conversion of deferred tax into the loan liability. In this scheme, a specific provision has also been made for modification in the conversion certificate if the assessed tax is modified by an order in reassessment appeal revision or by order of any Court. For ready reference, we reproduce the relevant provisions of the aforesaid scheme governing the procedure for conversion of deferred sales-tax into the loan liability :
"3. Application for conversion of deferred tax into a loan liability.
(1)(a)(i) An eligible unit shall apply in Form 'A' to the competent authority for the conversion into a provisional loan liability of the deferred tax payable by it according to the returns for every year or part thereof covered by the period of eligibility. Such an application shall be made within 60 days of the date of expiry of the year or part thereof covered by the period of eligibility.
(1)(a)(ii) Such eligible units that have gone into production on or after 1st April, 1981 and upto the date of publication of this scheme and have opted for the deferment of payment of sales-tax under M.P. Deferment of Payment of Tax Rules, 1983 or the M.P. Deferment of Payment of Tax Rules, 1986, as the case -may be, will also be eligible to apply for the conversion of the deferred tax payable by them into a provisional loan liability according to the returns for every year or part thereof, covered by the period of eligibility, within 60 days of publication of this scheme.
(1)(b) Every such application shall be accompanied by :
(1) copies of the returns under the State Act and/or the Central Act, as the case may be, relating to the year or part thereof, the tax relating to which is sought to be converted into a loan liability.
(iv) a certified copy of the eligibility certificate issued by the competent authority.
(1)(c) On receipt of the application in Form 'A' and the certificate in Form 'B' from the appropriate sales-tax officer, the competent authority shall verify the contents of the application and satisfy itself that the particulars furnished therein are correct, and complete and that the amount of deferred tax sought to be converted into a provisional loan liability is the same as indicated by the appropriate sales-tax officer in his certificate in Form 'B'. If, on verification, the competent authority finds that the application is incomplete, it shall require the eligible unit to furnish the relevant particulars. On furnishing such particulars by the eligible unit the competent authority shall passman order in Form 'D' converting the amount of deferred tax into a provisional loan liability.
(1)(d) A copy of the order passed under Clause (c) shall be sent by the competent authority to the eligible unit and the appropriate sales-tax officer.
(2)(a) An eligible unit whose assessment under the ST Act and/or Central Act for any year or part thereof covered by the period of eligibility has been completed by the assessing authority, shall within 60 days of date of receipt of the order of assessment, make a further application in Form 'A' to the competent authority to convert the total tax assessed into a final loan liability.
(2)(b) Every such application shall be accompanied by a copy of the assessment order passed by the assessing authority.
(2)(c) On receipt of the application in Form 'A' and the certificate in Form 'B' from the appropriate sales-tax officer, the competent authority shall verify the contents in the application in the manner stated in Clause (c) of Sub-rule (2) and having satisfied itself that the application is correct and complete and that the deferred tax sought to be converted into final loan liability is the same as indicated in the certificate in Form 'B' received from the appropriate sales-tax officer, the competent authority shall direct the eligible unit, in writing to execute an agreement in Form 'C' within 60 days of the date of receipt of such directions. On execution of the agreement by the eligible unit the competent authority shall pass an order in Form 'D' converting the amount of tax assessed by the assessing authority representing the deferred tax into a final loan liability.
(2)(d) A copy of the order passed under Clause (c) shall be sent by the competent authority to the eligible unit and appropriate sales-tax officer.
(3)(a) Where an eligible unit has obtained an eligibility certificate under the deferment rules before the date of publication of these rules in the "Madhya Pradesh Gazette, it shall make an application in Form 'A' for each year, or part thereof covered by the period of eligibility preceding such date within 60 days of that date for conversion of the deferred tax into.
(i) a provisional loan liability, if the assessment for the year or part thereof has not been made by the assessing authority, or
(ii) a final loan liability, if the assessment for the year or part thereof has been made by the assessing authority.
(3)(b) the application in Form 'A' shall be accompanied by--
(i) copies of the returns under the State Act and/or Central Act, a copy of the order of assessment.
(ii) a certified copy of the eligibility certificate issued by the competent authority.
(3)(c) On receipt of the application in Form 'A' from the eligible unit and the certificate in Form 'B' from the appropriate sales-tax officer, the competent authority shall verify the contents of the application and pass an order converting the deferred tax into a provisional or final loan liability in the manner specified in Clause (c) of Sub-rule (1) or Clause (c) of Sub-rule (2), as the case may be.
(4)(a) Where any deferred tax relating to any year or part thereof covered by the period of eligibility and converted into a final loan liability is modified by an order in reassessment appeal, revision or by order of any Court, the eligible unit shall make an application in Form 'E' to the competent authority within 60 days of the date of receipt of such order to modify the amount of the final loan liability."
15. Realising the difficulty in giving effect to the amended provisions in the IT Act, the CBDT has issued Circular No 496, dt. 25th Sept., 1987 and clarified that if the State Government makes, an amendment in the Sales Tax Act to this effect, the sales-tax deferred under the scheme shall be treated as actually paid and the statutory liability shall be treated to have been discharged for the purpose of Section 43B of the Act. Necessary directions were also issued to all CITs for giving proper effect to the scheme of deferment of sales-tax launched by various State Governments. Later, on, the CBDT has issued another Circular No. 674, dt. 29th Dec., 1993 clarifying therein that the deferral scheme notified by the State Government, through the Government orders would also meet the requirements of the Board Circular No. 496, dt. 25th Sept., 1987 though the aforesaid scheme was not brought by amending the. Sales-tax Act. The board has also clarified through this circular that the amount of sales-tax liability converted into the loans may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders. If the amendments brought by the State Government in the MPGST Act, the scheme launched by the Government for giving effect to the amendment and the aforesaid circulars issued by the CBDT are read together, only one and one inference would be drawn that they are inextricably connected with each other. None of them can be read in isolation. The contention of the assessee that Circular No. 674, dt. 29th Dec., 1993 should not be considered in those cases in which the deferment of sales-tax scheme was launched by the State Government by bringing an amendment in the Sales Tax Act, is not acceptable to us inasmuch as this was issued to overcome certain difficulties faced by the assessee arid the Department in giving proper effect to the aforesaid schemes. A careful perusal of the relevant provisions of Sales Tax Act, Scheme and the Board circulars would lead to only one inference that the deduction or deferment of sales-tax can only be allowed in the assessment for the previous year in which the sales-tax liability was converted into the loan liability and the necessary orders were issued by the competent authority in Form D as per Rule 3(2) of scheme for conversion of deferred tax into loan. Until and unless the deferred sales-tax is converted into the final loan liability, the assessee is not entitled to claim deduction for the same in view of Section 22(3B) of the MPGST Act and the aforesaid circulars issued by the CBDT. An eligibility certificate issued by the competent authority to the eligible unit for making the application in Form 'A' to the competent authority for the conversion into a provisional loan liability of the deferred tax as per Rule 3(1)(a) would not entitle the eligible unit to claim the deduction of deferment of sales-tax in view of the provisions of Section 22(3B) and the aforesaid circulars of the CBDT because before issuing a final conversion certificate the authorities concerned have to make detailed verification. We are, therefore, of the view that the deduction of deferment of sales-tax can only be claimed by the assessee after the order was passed by the competent authority in Form 'D' converting the amount of sales-tax assessed by the AO representing the deferred tax into a final loan liability and the claim of deduction can only be raised in those previous years in which the deferred sales-tax was converted into a final loan liability."
14. We have also carefully examined the judgments and the orders of the Tribunal quoted on behalf of the assessee and we find that all the judgments talk about the allowability of the claim of deferment of sales-tax under Section 43B if the outstanding dues have been converted into a loan liability. In these judgments, CBDT circular issued in this regard was also examined and it was repeatedly held that if sales-tax due to the Government is converted as a loan liability of any agency specified by the State Government which may be repaid by the assessee subsequently in instalments, sales-tax due is deemed to have been paid for all purposes and the assessee is entitled to relief and benefit given under Section 43B for unpaid sales-tax liability. Similar is the position in the order of the Tribunal in the assessee's case for the asst. yr. 1993-94 in ITA No. 2162/Del/1992. On careful perusal of all these judgments and orders, we find that neither the Hon'ble High Court nor the Tribunal has examined the nitty gritty of the scheme launched by the State Government for conversion of deferred sales-tax into a loan liability. As such, the judgment referred to by the assessee is of no assistance in his favour.
15. Turning to the case in hand, we find that the assessee had claimed the benefit of deferment of sales-tax on the basis of an order passed by the BIFR and sanctioned rehabilitation scheme through which it was directed that the sales-tax dues as on 31st March, 1992, with interest be repaid in 60 monthly instalments commencing from 1st Sept., 1992, in line with the Government of Maharashtra policy guidelines. Consequently, Asstt. CST has granted 60 instalments of the outstanding sales-tax dues under Bombay Sales-tax Act and Central Sales-tax Act payable starting from 1st Sept., 1992, and in none of the orders, it has been stated that the sales-tax liability was converted into a loan liability of any agency and the assessee is entitled for deferment of sales-tax. In the absence of specific averment to this effect, it is not proper to infer that once the assessee has taken over the assets and the liabilities of M/s Ramon & Demn Ltd. through the order of the BIFR as per the sanctioned rehabilitation scheme, it automatically entitles to claim the benefit of deferment of sales-tax under Section 43B of the IT Act. It is also pertinent to mention here that after this order of instalment, the assessee had made the payment of instalment as sales-tax and not as the instalment of loan liability. As such, all these factors clearly indicate that by the virtue of an order of the BIFR, the sales-tax authorities had made 60 instalments of the outstanding sales-tax and it was never converted into a loan liability to any agency specified by the State Government under any scheme enabling the assessee to claim the benefit of deferment of sales-tax under Section 43B of the IT Act. It is also an admitted fact that except the order of the BIFR, the assessee did not take any step in accordance with the scheme launched by the State Government of Maharashtra for conversion of deferred sales-tax into a loan liability. As such there was no question of issuing any eligibility certificate by the competent authority. In these circumstances, we are of the considered view that unless and until assessee fulfills the requisite conditions specified by the State Government and obtains the eligibility certificate from a competent authority, it cannot claim any benefit to deferment of sales-tax under Section 43B of the Act. We, therefore, do not find any merit in the assessee's contention. Accordingly, this issue is decided against the assessee.
16. Apropos ground No. 4, it is noticed that in the miscellaneous expenses, the assessee has claimed an amount of Rs. 8,57,143 as premium on redemption on debentures. This scheme was rejected by the AO after holding that the liability to pay the premium can be said to arise only in the year of redemption. Till such time, it is only a contingent liability and the claim for deduction cannot be allowed. Against the disallowance, assessee preferred an appeal before the CIT(A) with the submission that deduction for the premium payable on redemption of debentures has been allowed year after year. The CIT(A) re-examined the issue in the light of various decisions quoted by the assessee but finally confirmed the additions made by the AO after holding that in the case of redemption of debentures, the liability to the premium can be said to arise only in the year of redemption and till the debentures are redeemed, it is only a contingent liability.
17. Aggrieved, the assessee has preferred an appeal before the Tribunal and reiterated its earlier submissions. In support of his contentions, he placed heavy reliance upon the judgments of the apex Court in the case of Madras Industrial Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC) in which it has been held that the discount issue of debentures would be allowed over a period of debentures. The assessee has also relied upon the judgments of the Calcutta High Court in the case of National Engineering Industries Ltd. v. CIT (1999) 236 ITR 577 (Cal) and Universal Cables Ltd. v. CIT (2000) 243 ITR 371 (Cal).
18. Learned Departmental Representative, on the other hand, has relied upon the orders of the CIT(A).
19. Having considered the rival submissions and from a careful perusal of record, we find that allowability of claim of premium on redemption of debentures and discount on debentures was examined by the apex Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT (supra) in which their Lordships have held that when a company issues the debentures on discount, it incurs a liability to pay a larger amount than what it has borrowed. The liability to pay the discounted amount over and above the amount received for the debentures is a liability which has been incurred by the company for the purposes of its business in order to generate funds for its business activities. The amount so obtained by the issue of debentures are used by the company for the purposes- of its business. This would, therefore, be expenditure. Their Lordships further examined the question whether a particular expenditure is a revenue expenditure incurred for the purpose of business and held that it must be determined on a consideration of all facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of the business, that it may be regarded as an integral part of profit-making process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. Any liability incurred for the business of obtaining a loan would be revenue expenditure.
20. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business, must be allowed in its entirely in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee, who has incurred expenditure in particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. This judgment of the apex Court was consistently followed by the Calcutta High Court in the case of Universal Cables Ltd. v. CIT and National Engineering. Industries v. CIT (supra). In the case of Universal Cables Ltd., their Lordships have categorically held that since there was a continuing benefit to the business of the assessee-company over the entire period, the premium payable on redemption of loan convertible secured debentures issued during the year should be spread over the period of debentures. In the case of National Engineering Industries v. CIT (supra) following the judgment of the apex Court in the case of Madras Industrial Investment Corpn. (supra); their Lordships have categorically held that there is no distinction between a discount and a premium, The result in both is that if something over and above the face value and the specified interest is paid, the accounting procedure is one case being by way of preliminary deduction from the mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount. The extra premium is to be spread over all the years which are occupied between the date of issue and the date of ultimate redemption.
21. Turning to the case in hand in the light of ratio laid down by the aforesaid judgment, we find that the assessee has claimed a spread over of the premium payable on redemption over the period of redemption of debentures but the lower authorities have disallowed the claim of the assessee after holding that being a contingent liability, it can be allowed only in the year of redemption. Now, this controversy has been set at rest by the aforesaid judgment of the apex Court that the premium on debentures shall be spread over the period of redemption of debentures and the proportionate claim should be allowed in each and every year. Following the aforesaid ratio, we set aside the order of the CIT(A) and direct the AO to allow the claim of the assessee.
ITA No. 2107/199822. In this appeal, the Revenue has assailed the order of the CIT(A) on following grounds :
"On the facts and in the circumstances of the case the CIT(A) has erred :
(i) in deleting the disallowance of Rs. 1,36,680 and Rs. 87,015 on account of rent and repairs of guest-house, respectively, following his earlier year's orders which have not been accepted by the Department and despite the fact that such expenses are clearly disallowable under the provisions of Sections 37(4) and 37(5).
(ii) in deleting the disallowance of Rs. 1 lac made out of a sum of Rs. 4.74 lacs held as hospitality expenses despite the fact that the assessee could not produce any evidence to the contrary.
(iii) in directing to allow depreciation on assets of household use given to the employees of the company by following his earlier year's orders which have, not been accepted by the Department, and despite the fact that such assets were clearly not used for business purposes and were, therefore, not eligible for claim of depreciation.
23. Apropos ground No. 1, it has been admitted on behalf of the assessee that this issue is squarely covered by the judgment of this special Bench in the case of Eicher Tractors Ltd. v. Dy. CIT in ITA No. 3033/D/1994 against the assessee. Copy of the order is placed on record at page Nos. 93 to 107 of the compilation of the assessee. Following the aforesaid order, we decide this issue against the assessee.
24. Apropos ground No. 2, it is noticed that the AO has made the ad hoc disallowance of Rs. 1 lakh as hospitality expenses out of the expenditure on advertisement. This claim of the assessee was re-examined by the CIT(A) in its order in the light of judgment of the Tribunal in case of Jay Engineering Works Ltd. and did not find any merit in the disallowance made by the AO, He, accordingly, deleted the addition. We have also carefully examined the orders of the lower authorities on this issue but do not find any merit in the Revenue's contention in this regard. We therefore, uphold the order of the CIT(A).
25. Apropos ground No. 3, it has been contended on behalf of the assessee that this issue is also covered by the order of the Tribunal in the case of Dy. CIT v. Eicher Tractors Ltd. in ITA No. 2162/D/1997. Copy of the same is appearing at page Nos. 138 to 150 of the compilation of the assessee. On its careful perusal, we find that identical issue was adjudicated by the Tribunal in the aforesaid order and finally directed the AO to allow depreciation on the assets purchased by the assessee-company for the use of their employees in their houses. Following the aforesaid order, we decide the issue against the Revenue.
26. In the result, the appeal of the assessee as well as of the Revenue are partly allowed.