1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T 1. INCOME TAX APPEAL No. 30 of 2005 C I T UDAIPUR V/S M/S RAVINDRA PLATIMUM PVT LTD 2. INCOME TAX APPEAL No. 49 of 2005 C I T UDAIPUR V/S M/S RAVINDRA PLATINUM PVT LTD 3. INCOME TAX APPEAL No. 132 of 2005 C I T UDAIPUR V/S M/S RRAVINDRA HERACUS LIMITDED Date of Judgment : 13.5.2008 PRESENT HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr. KK BISSA, for the appellant / petitioner Mr. DINESH MEHTA, for the respondent BY THE COURT : (PER HON'BLE GUPTA,J.) These three appeals relate to the same assessee and involve common question of law, and are therefore, being decided by this common order. Appeal No. 49 of 2005 relates to the assessment year 1993-94, Appeal No. 30/2005 relates to assessment year 1994-95, and Appeal No. 132 of 2005 relates to assessment year 1996-97. The learned Income Tax Appellate Tribunal 2 decided the appeals relating to the year 1993-94 and 1994-95 by a common order dt. 12.10.2004, out of which the two appeals no. 49 and 30 arise, while appeal relating to assessment year 1996-97 was decided vide order dt. 18.10.2004 by simply following its earlier judgment dt. 12.10.2004. Bereft of unnecessary details the facts are, that during these relevant years, after assessment having been made under Section 143(1)(a), the cases were taken up for scrutiny, and after completing requisite formalities revised assessment orders were passed. Since in the present matters the controversy relates only to the admissibility of deduction under Section 43B, we think it appropriate to confine on that aspect of the matter only. In the revised assessment order, the learned Assessing Officer found that the assessee had collected sales tax during the relevant year, and did not deposit it in the State Treasury, in view of the fact, that the assessee was issued Eligibility Certificate under the Rajasthan Sales-tax Deferment Scheme, 1987, published in the gazette on 29.9.1987, which was framed in exercise of the powers conferred under Section 7(2B) of the Rajasthan Sales Tax Act 1954, hereafter referred to as the Act of 1954, according to which the assessee was not required to pay to the Government the sales tax collected by it for a period of 7 years, and was to pay thereafter in accordance with the scheme, and during this 3 interregnum period, the amount of sales tax collected was deemed to have been actually collected by the Government, and disbursed as loan to the present assessee. In this regard the assessee relied upon a notification dt. 27.3.1995, issued by the State of Rajasthan, so also the CBDT circular no. 674, read with the provisions of said Rajasthan Sales Tax Deferment Scheme, 1987. The learned Assessing Officer in all the years disallowed the deduction, and made addition, by holding, that so far the assessment years 1993-94 and 1994-95 are concerned, the notification dt. 27.3.1995 is not retrospective, and so far as assessment year 1996-97 is concerned, the conversion of the sales tax amount into loan has not taken place during the financial year concerned, and that the assessee has failed to produce any evidence, to establish that any entry has been passed in the Government account regarding conversion of sales tax collected as loan during the financial year concerned. Against these assessment orders relating to all the three years, the assessee filed appeals before the learned Commissioner. The appeals relating to assessment year 1993-94 and 1994-95 were dismissed by the learned Commissioner, holding that according to circular no. 496 the sales tax deferred can be treated as actually paid if such an amendment is made by the State Government in the Sales Tax Act, and according to circular no. 674, the sales tax liability converted into loans under the notified schemes of the State Government, can be allowed as deduction under Section 4 43B in the previous year in which the conversion has been permitted under Government orders, and that, by notification dt. 27.3.1995 the State Government has notified, that deferred sales tax shall be deemed to have been paid where a loan liability equal to the amount of such tax payable by such dealer has been raised by RIICO/RFC or Industries Department. Thus, it was found that circular no. 496 will not be applicable, as Government has not made any such amendment in the Act of 1954, while circular no. 674 will not be applicable, because in the present case sales tax deferred has not been converted into loan either by RIICO/RFC or Industries Department during the year concerned. Thus addition was upheld. This order was passed by the learned Commissioner of Income Tax (Appeals) on 18.10.1996. However, the appeal relating to assessment year 1996-97 in this regard was allowed by the learned Commissioner (Appeals) vide order dt. 14.9.1999, interalia holding, that it is not in dispute, that the State Government has issued notification, to the effect, that the sales tax collected by the appellant to the equal of the loan liability raised by RIICO/RFC or Industries Department will be treated as loan, that too interest free, and the same should be paid in instalment in subsequent years, as desired by the Sales Tax Department. Thus, the observation of the Assessing Officer about no conversion of sales tax into loan was not accepted, in view of the certificate issued by the Industries Department. Thus, the CBDT 5 circular no. 674 was found applicable, and to the extent of this conversion of deferred sales tax amount as loan, the addition was deleted. In view of the above, for the assessment years 1993-94 and 1994-95, the assessee filed appeals before the learned Tribunal, which were decided, as noticed above, vide order dt. 12.10.2004, while in the case of assessment year 1996-97, the Revenue filed appeal before the learned Tribunal, which was decided vide order dt. 18.10.2004. Since the order dt. 18.10.2004 simply followed the order dt. 12.10.2004, the appeals do clearly involve common question of law. These appeals were admitted by this Court vide different orders, framing the following substantial question of law, common in all the three appeals:- “Whether on the facts and in the circumstances of the case, the assessee was entitled to deduction u/s 43B of the Act in respect of Sales tax amount deferred under the State Government's Deferment Scheme?” Assailing the impugned judgments of the learned Tribunal, it is contended by the learned counsel for the Revenue, that so far the assessment years 1993-94 and 1994-95 are concerned, since the State Government's notification dt. 27.3.1995 is not retrospective, no benefit thereof could be derived by, or allowed to the assessee, and so far assessment year 1996-97 is concerned, it was contended, that the 6 certificate of conversion of deferred sales tax into loan, has not been issued in that relevant financial year, therefore, it cannot be said that it was converted in the relevant previous year, so as to entitle the assessee to claim any deduction. It was also contended that even so far as CBDT circular no. 674 is concerned, since it is not shown on the side of the assessee, that entries have been made in the Government accounts giving effect to the deemed conversions by crediting appropriate receipt heads relating to disbursement of loan, and therefore, the assessee is not entitled to deduction under Section 43B. Learned counsel for the assessee, on the other hand, supported the impugned judgment of the learned Tribunal. Our attention was invited by the learned counsel for the Revenue, to the judgment of Hon'ble the Supreme Court, in Commissioner of Income-Tax Vs. Gujarat Polycrete Pvt Ltd., reported in 246 ITR-463, to contend, that in absence of amendment having been effected in the relevant Sales Tax Act to provide, that the sales tax deferred under incentive scheme would be treated as actually paid, it would not satisfy the requirement of Section 43B about the amount actually having been paid. Then, reliance was placed by the learned counsel for the Revenue on the judgment of this Court also, in the case of Commissioner of Income Tax Vs. Devendra Udhyog, 7 reported in 264 ITR-701. It may be observed here that the learned Tribunal while deciding the appeals in the assessment year 1993-94 and 1994-95, had also relied upon its earlier judgment in Devendra Udhyog's case, which according to the learned counsel for the Revenue, has been set aside by this Court in the said judgment reported in 264 ITR-701. To distinguish these cases, learned counsel for the assessee invited our attention to the provisions of Section 7(2B) of the Act of 1954, which was inserted by amendment w.e.f. 10.9.1987, and provides, that notwithstanding anything contained in sub-section (2) or sub-section (2A), where the State Government is of the opinion, that it is necessary or expedient in the public interest so to do, it may, by notification in the Official Gazette, defer the payment of tax payable by any class of dealers for any period on such conditions and under such circumstances as may be specified in the notification. According to the learned counsel, since the sales Tax Deferment Scheme, 1987 has been issued in exercise of powers conferred by this provision, it clearly amounts to effecting amendment in the State Sales Tax Act, as contemplated in the judgment of Hon'ble the Supreme Court in Gujarat Polycrete's case. It was also submitted, that in Devendra Udhyog's case, the above amendment, so also the amendment made in the scheme, were not brought to the notice of the Court; firstly it appears because nobody appeared for the assessee, and secondly the very basis of the judgment is, that 8 this Court has found that for the purpose of benefit of CBDT circular no. 496 dt. 25.9.1987, unless the Government made amendment in the Sales Tax Act to the effect, that sales tax collected under the Sales Tax Deferment Scheme shall be treated as actually paid, for the purpose of Section 43B, the addition under Section 43B should be made, and admittedly no such amendment had been made in the Sales Tax Act by the State Government, and therefore, the addition was upheld by setting aside the order of the Tribunal, while as a matter of fact amendment has been made, by introducing Section 7(2B), and then, by adding second proviso to para-4 in the Deferment Scheme, providing, that notwithstanding anything contained in this notification, but subject to such conditions as the State Govt. may, by general or special order specify, where a dealer to whom incentive by way of deferment of sales tax has been granted by virtue of Eligibility Certificate issued under this notification, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by RIICO/RFC or Industries Department, then such tax shall be deemed in the public interest to have been paid, and thus, since the judgment in Devendra Udhyog's case, is on the basic misconception of law, and attention of the Court having not been invited, that judgment is no better than 'per incuriam'. It was also submitted, that all said and done, in view of Deferment Scheme, it cannot be said that for the purpose of Section 43B of the Income Tax Act, this sum was “payable” by the assessee by way of tax, and therefore, the requirement 9 of the proviso, requiring actual payment, to entitle the assessee to claim deduction, was not even attracted. We have considered the submissions, and have gone through the orders of the learned authorities below, including those of the learned Tribunal, in all the three matters, and have gone through the various judgments cited at Bar. Before proceeding further we may gainfully quote the provisions of Section 7(2B) of the Act of 1954, which is introduced by amendment w.e.f. 10.9.1987, so also the provisions of proviso to para-4 of the Scheme, which was inserted vide notification dt. 27.3.1995, (without specifying as to, with effect from what date it has been introduced). These read as under:- “(2B) Notwithstanding anything contained in sub- section (2) or sub-section (2A), where the State Government is of the opinion that it is necessary or expedient in the public interest so to do, it may, by notification in the Official Gazette, defer the payment of tax payable by any class of dealers for any period on such conditions and under such circumstances as may be specified in the notification.” “4. Deferment of tax on sales:- ... (d).. (i)... Provided further that notwithstanding anything contained in this notification but subject to such conditions as the State Govt. may, by general or special order specify, 10 where a dealer to whom incentive by way of deferment of sales tax has been granted by virtue of Eligibility Certificate issued under this notification, and where a loan liability equal to the amount of any such tax payable by such dealer has been raised by RIICO/RFC or Industries Department, then such tax shall be deemed in the public interest to have been paid.” Then, we may straightway consider the judgments cited at the Bar. The judgment in Gujarat Polycrete's case is very short judgment, and a look thereat shows, that Hon'ble the Supreme Court considered the CBDT circular no. 25.9.1986 (this is CBDT circular no. 496), and found, that its provision would apply only if a State Government had amended its Sales Tax Act, to provide, that the sales tax, that was deferred under an incentive scheme framed by it would be treated as actually paid, so as to meet the requirements of section 43B of the Income Tax Act. It was also found, that notice does not appear to have been taken of the Gujarat Sales Tax Act, 1969 to ascertain, whether or not there was such an amendment. With these conclusions, it was found, that the question of law clearly arises requiring to be answered by the High Court, and therefore, the order of the High Court was set aside, and the question was directed to be referred by the Tribunal to the High Court for consideration, after drawing up a statement of case. In the first instance, it appears, that the attention of Hon'ble the Supreme Court was not invited to the CBDT circular no. 674, which is dated 29.12.1993, while the appeal before Hon'ble the Supreme Court was instituted in the year 1995, and was 11 decided on 17.3.1999. At this stage we may gainfully quote the said CBDT circular no. 674, which reads as under:- “Subject:- Scope of application of section 43B-Amounts covered under the sales tax deferral schemes of State Governments- regarding 1. The scope of application of the provisions of section 43B to the sales tax collected but not actually paid under deferral schemes of the State Governments was considered in Boards Circular No. 496 (F.No.201/34/86- ITA.II),dated 25-9-1987, and it was decided that, where the State Governments make an amendment in the Sales-tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, the statutory liability shall be treated as discharged for the purposes of section 43B. 2. It has since been brought to the notice of the Board that some State Governments, instead of amending the Sales-tax Act, have issued Government Orders notifying schemes under which sales tax is deemed to have been actually collected and disbursed as loans. Such Government Orders also provide that entries shall be made in the Government accounts giving effect to deemed collections by crediting the appropriate receipt-heads relating to sales-tax collections and debiting the heads relating to disbursal of loans. It has, therefore, been represented that, as such conversion of the sales tax liability into loans have similar statutory effect as can be achieved through amendments of the Sales-tax Act, the amounts covered under the scheme should be allowed as deduction for the previous year in which the conversion has been permitted by the State Governments. 3. The Board have considered the matter and are of the opinion that such deferral schemes notified by the State Governments through Government Orders meet the requirements of the Boards Circular No. 496, dated 25-9-1987 in effect though in a different form. Accordingly, the Board have decided that the amount of sales tax liability converted into 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.” 12 A look at this circular shows, that this has been issued for the purpose of clarifying the scope of Section 43B, to the sales tax, collected but not actually paid, under deferral schemes of the State Governments, and it was circulated, that the Board is of the opinion, that such deferral schemes notified by the State Governments through the Government orders, meet the requirements of the Board's circular no. 496, in effect, though in a different form. Accordingly, the Board had decided, that the amount of sales tax liability, converted into 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. A look at the circular no. 674 further shows, that this circular was necessitated because it was brought to the notice of the Board, that some State Governments, instead of amending the Sales Tax Act, have issued Government orders, notifying schemes, under which sales tax is deemed to have been actually collected, and disbursed as loans. In our view, thus, even as per the directions contained in the judgment of Hon'ble the Supreme Court, in Gujarat Polycrete's case, it was required to be seen, as to whether the provisions of the Act of 1954 does contain the requisite amendment. Obviously a look at Section 7(2B) does show, that it does contain an amendment, authorising the State to frame the necessary scheme, and in exercise of those powers, this Sales Tax Deferment Scheme of 1987 has been framed, and published, which clearly satisfies 13 the requirement of CBDT circular no. 674. Thus, this judgment in Gujarat Polycrete's case does not help the cause of the Revenue. So far as Devendra Udhyog's case is concerned, as noticed above, amendment in the Act were projected to have admittedly not been made, and as appears from the recapitulation of the submissions made before this Court by the learned counsel for the Revenue, that attention of this Court was invited to only circular no. 496, and it was contended, that admittedly no amendment has been made, and that, in the Circular no. 674, if the sales tax collected, has neither been paid actually, nor that liability has been converted into loan, that amount is hit by the provisions of Section 43B, and in that case, the amount of sales tax had not been converted into loan, as required by circular no. 674. This Court after noticing the submissions found, that neither there is an amendment in the Sales Tax Act, to give effect to the provisions of the scheme, nor sales tax collected has been converted into loan, as required by circular no. 674. With these conclusions, the judgment of the learned Tribunal was set aside. As against this, in the cases in hand, as is clear from the narration of facts, made above, that admittedly the sales tax collected has been converted into loan, as required by circular no. 674. Thus, this judgment also cannot be said to be of any assistance to the Revenue. Then, we may refer to recent Division Bench 14 judgment of Gujarat High Court, in the case of Commissioner of Income Tax Vs. Shree Talal Taluka Sahakari Khand Udyog Mandli Ltd., reported in 259 ITR- 21. In that case the judgment of Hon'ble the Supreme Court, in Gujarat Polycrete's case was also cited on the side of the Revenue, and it was noticed, that Gujarat Government had passed a resolution, dt. 21.3.1988, making it operative from 1.4.1983. This resolution was considered in the light of CBDT circular no. 496, and it was found, that if the tax due to the Government is converted as a loan, which may be repaid by the assessee subsequently, by installments, the Department shall treat the sales tax due as actually paid, for all purposes. Then, it was also considered, that an amendment was introduced in Gujarat Sales Tax Act, and second proviso was inserted to Section 47(4) w.e.f. 24.3.1988, which amendment has been quoted in the judgment. And we find, that the said proviso is in pari-materia, the proviso introduced in para-4, of the Sales Tax Deferment Scheme of 1987, and it was held, that the amendment made on 24.3.1988 is clarificatory in nature, and therefore, it was found, that the Tribunal was right in deleting the addition made by the Assessing Officer, by invoking the provisions of Section 43B, in respect of Sales tax liability. If the cases in hand are examined on the line of this judgment, with which we are inclined to concur, it is more than clear, that admittedly so far as the assessment year 1996-97 is concerned, this 15 amendment in the Deferment Scheme had already been effected. In so far as assessment years 1993-94 and 1994-95 are concerned, we are in agreement with the view taken by the learned Gujarat High Court, that the amendment is clarificatory in nature, and therefore, when the assessee has shown the certificate issued, showing that certain amount of tax collected has been converted into loan, obviously the assessee has rightly been held entitled to deduction, as it is being shown to have been paid, for the purpose of Section 43B. Consequently, the question as framed is answered in the affirmative, i.e. against the Revenue, and in favour of the assessee. Resultantly the appeals have no force, and are dismissed. (KISHAN SWAROOP CHAUDHARI),J. (N.P.GUPTA),J. /Sushil/