Prepaid Sales Tax Benefit Taxable as Income | ITAT

Case Details: Oricon Enterprises Ltd. vs. Deputy Commissioner of Income-tax Central Wing - [2025] 176 taxmann.com 27 (Mumbai-Trib.)

Judiciary and Counsel Details

• Smt. Beena Pillai, Judicial Member & Omkareshwar Chidara, Accountant Member
• Vijay Mehta & Tarang Mehta, Advs. for the Appellant.
• Uodal Raj Singh for the Respondent.

Facts of the Case

The issue before the Mumbai Tribunal was:

“Whether the benefit from prepaying deferred sales tax at its Net Present Value counts as taxable income or not?”

ITAT Held

The Tribunal held that section 2(24)(xviii) intends to tax all types of subsidies, grants, cash incentives, duty drawback, waivers, concessions or reimbursement by whatever name called by the Central or State Government. There was a lot of litigation that went up to the Supreme Court on the issue of whether grants, etc., fall into the revenue/capital field, or are taxable or non-taxable. To put a full stop to this litigation, the Central Government has brought an amendment to tax all the benefits/assistance/grant, etc., which can be inferred from the wording used “by whatever name called”. So, it encompasses all benefits accrued to the appellant that will come under the tax net, after the amendment, and that is the intent of the legislature.

In the instant case, the assessee was supposed to repay Rs. 1.83 crores, which it kept for ten years as sales tax collected from customers. The assessee received a benefit or incentive from the State Government to retain this money for setting up an industry in a backwards area. Otherwise, the assessee had to pay the entire sales tax collected from customers to the Government immediately as per the due dates mentioned under the Maharashtra Sales Tax Act. Over a period of 10 years, the assessee had collected and kept with it an amount of Rs. 1.83 crores, and this amount had to be repaid in five equal instalments.

The Maharashtra State Government had come out with a “Scheme of Incentive” as per which it scientifically calculated the Net Present Value of sales tax collected. In simple terms, if the assessee pre-pays, i.e., before five years, they would be paying a lesser amount. During the year under consideration, the assessee opted to repay its sales tax liability at its NPV, which was arrived at scientifically by the State Government. Thus, the assessee had collected and kept sales tax for 10 years and repaid (prepaid) only a lesser amount as the final payment in this year, i.e., no further payment was to be made by the assessee.

Thus, the assessee had got a benefit and the waiver amount comes within the ambit of section 28(iv), to be brought under the head ‘profits and gains of business or profession’, which says that the value of benefit/perquisite/whether convertible into money or not, arising from business.

List of Cases Reviewed

• CIT(A) Vs. Ponni Sugar and Chemicals Ltd. (306 ITR 392)(SC) (Para 6.7) Followed.

List of Cases Referred to

• CIT-6, Mum. v. Balkrishna Industries Ltd. [2017] 88 taxmann.com 273/252 Taxman 375 (SC) (para 4.1)
• Serum Institute of India (P.) Ltd. v. Union of India [2023] 157 taxmann.com 107/463 ITR 582 (Bombay) (para 4.1)
• CIT v. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87/306 ITR 392 (SC) (para 6.7)
• CIT v. G.R. Karthikeyan [1993] 68 Taxman 145/201 ITR 866 (SC) (para 6.8)
• Aero Leather (P.) Ltd. v. Union of India [1993] 67 Taxman 486/194 ITR 7 (Delhi) (para 6.8)
• Emil Webber v. CIT [1993] 200 ITR 483/67 Taxman 532 (SC) (para 6.8)
• Dooars Tea Co. Ltd. v. CIT [1962] 44 ITR 6 (SC) (para 6.8).