income tax treatment on sales tax paid for last previous yea

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Querist : Anonymous

Querist : Anonymous (Querist)

16 August 2010 please tell me the income tax treatment on sales tax paid for last previous year for which no provision was made. My query is, is sales tax paid for the last previous year for which no provision was made in books of account will be allowable in current previous year? and under which section or case......

Ram Avtar Singh

Ram Avtar Singh (Expert)
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16 August 2010 its allowable

Sales tax

Deduction of sales tax is admissible only in year of actual payment - Once it is accepted that sales tax is allowed as expenditure under section 37, then the provision relating to actual payment under section 43B applies to sales tax as much as it applies to any other tax. It is not relevant that there is no specific provision in the Act regarding deduction of sales tax as an expenditure - Srikakollu Subba Rao & Co. v. Union of India [1988] 173 ITR 708 (AP).

In view of section 43B, deduction of sales tax can be claimed only in the year in which the payment is actually made, and cannot be allowed as per the principles of the mercantile system of accounting - Sanghi Motors v. Union of India [1991] 187 ITR 703 (Delhi).

Provision will not apply to sales tax collected and kept in deposit - Where the assessee collected from its purchaser-dealers the difference between the sales tax payable as registered dealers and the sales tax payable as unregistered dealers and, pending-production of declarations by them, kept the amount in a separate deposit account, the collection by the assessee would be in its essential nature a mere deposit to be released on the reciprocity of release of declaration would form by the purchasing dealers. This collection of sales tax would be the deposit of security not partaking the character of trading receipt. That being the case, section 43B could not have application to such amount - CIT v. Ellenbarrie Industrial Gases Ltd. [1994] 208 ITR 67 (Cal.).

Circular No. 496 - CBDT Circular No. 496, dated 25-9-1987 stating that sales tax paid under Deferred Payment Scheme cannot be disallowed under section 43B has retrospective effect - CIT v. K.N. Oil Industries [1997] 226 ITR 547/95 Taxman 557 (MP).

In a case where deferred sales tax was treated as interest-free loan granted to assessee - The provisions of CBDT Circular dated 25-9-1987 will 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, 1961.

Where notice did not appear to have been taken of the Gujarat Sales Tax Act, 1969, to ascertain whether or not there was such an amendment, a question of law would arise from the Tribunal’s order directing the Assessing Officer to allow the claim of the assessee in respect of unpaid sales tax if the same was covered by the specific scheme of the Gujarat Government whereby the deferred payment scheme was converted into interest-free loan and the High Court was not justified in declining to call a reference from the order of the Tribunal - CIT v. Gujarat Polycrete Pvt. Ltd. [2000] 246 ITR 463 (SC).

Querist : Anonymous

Querist : Anonymous (Querist)

16 August 2010 but we have not disallowed the expense in the last previous year. and now it become payable due to difference in VAT 20....

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Ram Avtar Singh

Ram Avtar Singh (Expert)
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16 August 2010 difference in DVAT 20 is not allowable.

Querist : Anonymous

Querist : Anonymous (Querist)

16 August 2010 where written in the income tax act, 1961..........

Ram Avtar Singh

Ram Avtar Singh (Expert)
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