In DCIT v. ThyssenKrupp Electrical Steel India Pvt. Ltd, the ITAT Mumbai held that the remissioned under deferral sales tax scheme constitute capital receipt which is not taxable in the hands of the assessee.
In the instant case, the AO held that the amount which has been remissioned under deferral sales tax scheme is revenue receipt in the hands of assessee.
Assessee explained that as per the sales tax deferral scheme introduced by the Maharashtra State Government, a new industry being set up in a designated backward area is exempt from depositing sales tax collected by it in the State Government Account for a period of 10 years from commencement of business. The amount of sales tax so collected remains with this industrial undertaking for 10 years, following which it has to be paid in 5 equal annual installments from the 10th to 15th year. Under the scheme, the assessee paid a discounted sum of Rs.9,78,27,031/- i.e. out of the sales tax collected, instead of paying the whole amount collected since it was paying the amount prior to the due date. It has paid the net present value and this amount of Rs. 9,78,27,031/- is the discount given by the Government of Maharashtra and claimed the same as capital receipt.
The bench noticed the decision of the Bombay High Court in CIT Vs. Sulzer India Ltd. wherein the Court had elaborately considered the packaging scheme of State Government of Maharashtra and the amendments to section 38 of the Bombay Sales Tax Act and the assessability of difference between sales tax collected under the deferral sales tax scheme and its NPV and the balance thereon and has held the same to be capital receipt. Accordingly, it was held that the amounts are not chargeable to tax under section 41(1) of the Income Tax Act.
Following the decision, the bench held that the amount is so received by the assessee must be treated as capita receipt.
Read the full text of the Order below.
