Whether amount of sales tax liability converted into loans may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government orders
Circular No. 674 was issued by the Central Board of Direct Taxes on 29 December 1993. Its subject is Whether amount of sales tax liability converted into loans may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government orders.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Extends the section 43B concession for sales tax deferral schemes to States that used executive orders rather than an amendment of the Sales Tax Act. Circular No. 496 dated 25th September 1987 had allowed the deduction where a State amended its Sales Tax Act to treat deferred sales tax as actually paid. Here the Board accepts that Government Orders which deem the sales tax to have been collected and disbursed as loans, with matching entries crediting the sales tax receipt heads and debiting the loan disbursal heads in the Government accounts, achieve the same effect in a different form. So the sales tax liability converted into a loan is to be allowed as a deduction in the assessment for the previous year in which the conversion was permitted by or under the Government Orders.
It was brought to the Board's notice that some State Governments had notified deferral schemes by Government Order instead of amending the Sales Tax Act, and it was represented that the effect was the same and the deduction should follow.
Whether amount of sales tax liability converted into loans may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government orders
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 Board’s Circular No. 496, dated 25-9-1987 [Clarification 2], 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 Board’s 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 Government Orders.
Circular : No. 674, dated 29-12-1993.
In a section 43B disallowance of unpaid sales tax in an assessment or in a section 143(1) adjustment, and in appeal where the assessee relies on a State deferral Government Order.
Source: the Income Tax Department’s own published text — its page for this instrument.