Kalpesh Classes

Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542. In the instant case, the assessee had realised certain amount by way of sales tax as an auctioneer and credited such amount to sales tax collection account and the same was neither deposited in State exchequer nor refunded to the buyers. It was held that: "Since, the impugned amount was realised by the assessee as an auctioneer, the amount formed part of the trading or business receipt and as such was liable to be included in its business income. The fact that the assessee credited the impugned amount under the head 'Sales tax collection amount' did not make any material difference since if a receipt was trading receipt, the fact that it was not so shown in the books of the assessee would not prevent the assessing: authority from treating it as trading receipt." This decision was followed by several High Courts and other tax assessing authorities to decide about taxability of unpaid sales tax liability.

A look at the Circular No. 674 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 the deferral schemes of the State Governments, and it was circulated that the Board was of the opinion that such deferral schemes notified by the State Governments through the Government orders, met the requirements of the Board’s Circular No. 496 ([1988] 169 ITR (St.) 53), in effect, though in a different form.​​ Accordingly, the Board had decided that the amount of sales tax liability converted into loans might be allowed as a deduction in the assessment for the previous year, in which such conversion had been permitted by or under the Government orders.​​ A look at Circular No. 674 ([1994] 205 ITR (St.) 119) further shows that that said circular was necessitated because it was brought to the notice of the Board, that some State Governments, instead of amending the Sales Tax Act, had issued Government orders notifying schemes, under which sales tax was deemed to have been actually collected and disbursed as loans. Thus, even as per the directions contained in the judgment of the Supreme Court, in CIT v. Gujarat Polycrete (P.) Ltd. [2000] 246 ITR 463/[2001] 114 Taxman 58, it was required to be seen, as to whether the provisions of the Rajasthan Sales Tax Act, 1954 do contain the requisite amendment.​​ 

As per the subsidy scheme of the state government some times the sales tax has been deferred. I.e. Assessee is given liberty to pay the monies at the future point of time. Say after 10 years. This is so done by converting the amount of sales tax due in to loan to assessee. I.e. assessee as good as made payment to the sales tax department and in turn borrowed money from the sales tax department. Held in the court that assessee was entitled to the deduction under section 43B of the income tax act for the amount covered by the deferred payment scheme of the state government even when actual payment is not made to the sales tax department. [Appropriate amendment under the sales tax must be brought to affect the scheme Or appropriate notification must be issued.] Circular 674, 496.​​ Gujarat Polycrete (P.) Ltd. [2000] 246 ITR 463/[2001] 114 Taxman 58.

Then, we may refer to a recent Division Bench judgment of the Gujarat High Court in the case of CIT v. Shree Talal Taluka Sahakari Khand Udyog Mandli Ltd. [2003] 259 ITR 211 . In that case, the judgment of the Hon’ble Supreme Court in Gujarat Polycrete (P.) Ltd.’s case (supra) was also cited on the side of the revenue, and it was noticed, that the Gujarat Government had passed a resolution, dated 21-3-1988, making it operative from 1-4-1983. This resolution was considered in the light of the Central Board of Direct Taxes Circular No. 496 (see [1988] 169 ITR (St.) 53),​​ 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 instalments, the Department shall treat the sales tax due as actually paid, for all purposes.​​