Assignment of Deferred Sales Tax at NPV Not Cessation u/s 41(1) | HC

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Case Details: Commissioner of Income-tax vs. India Cements Ltd. [2025] 180 taxmann.com 564 (Madras)

Judiciary and Counsel Details

  • Manindra Mohan Shrivastava, CJ. & Sunder Mohan, J.
  • T. Ravikumar, Sr. Standing Counsel for the Appellant.
  • R. Vijayaraghavan for the Respondent.

Facts of the Case

The assessee had a liability of Rs. 31.75 Crores for Sales Tax, treated as a loan payable after 12 years under the State Government’s deferral scheme. This deferred sales-tax liability arose because the State permitted the Sales Tax collected by new undertakings to be converted into a loan repayable after twelve years.

The assessee assigned this outstanding future liability to another company for a consideration of Rs. 5.94 crores, being the NPV of Rs. 31.75 crores payable after twelve years. This assignment substituted the deferred loan obligation with an equivalent present-value payment.

Assessee offered a difference of Rs. 25.81 crores as income for computing tax liability. However, the Assessing Officer sought to include difference amount, i.e., Rs. 5.94 crores, also as income, considering it to be a cessation of liability

The matter reached the Madras High Court.

High Court Held

The Court held that the assignment of the said liability for the value of Rs. 5.94 Crores would not be a cessation of liability, because on such assignment at that value, the entire liability to pay the tax stood discharged. Therefore, treating the transaction as cessation under Section 41(1) is misconceived.

It was noted that it was not the Revenue’s case that the Net Present Value of the tax of Rs. 31.75 Crores payable after twelve years was not Rs. 5.94 Crores. Since the correctness of NPV was not challenged, the assignment at NPV cannot generate a remission or cessation.

The Court accepted the view that the assessee need not even have offered the differential amount of Rs. 25.81 Crores as income, since there was no real income or benefit arising from cessation of liability. The voluntary offer of income by the assessee cannot convert a lawful discharge of liability into a Section 41(1) event.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied