1996 (8) TMI 37 - HC - Income Tax

Excise Duty High Court Power To Call For Supplementary Statement Power To Reframe Question

Summary

Issues Involved:

1. Whether the refund of excise duty amounting to Rs. 35,696.66 and Rs. 1,61,316 was in the nature of income under section 28(iv) or section 41(1) of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Refund of Excise Duty as Income under Section 28(iv) or Section 41(1):

The primary question referred to the court was whether the refund of excise duty received by the assessee was taxable as income under section 28(iv) or section 41(1) of the Income-tax Act, 1961. The assessee, Wolkem Private Limited, initially credited the refund amounts to its profit and loss account but later claimed that these refunds were not taxable as income, relying on precedents set by CIT v. Alchemic Pvt. Ltd. and CIT v. Nathuabhai Desabhai.

Section 28(iv) Analysis:

The Tribunal found that section 28(iv) did not apply to the facts of the case because the amount received was in cash. The Tribunal referenced CIT v. Alchemic Pvt. Ltd., where it was held that section 28(iv) would not apply to cash receipts, and thus, the refund of excise duty could not be taxed under this section.

Section 41(1) Analysis:

The Tribunal also concluded that section 41(1) was not applicable. The Tribunal noted that the refund was not a trading receipt and did not bear the character of income. The Tribunal emphasized that the refund amount was trust money with the assessee, refundable to the customers, and thus did not constitute income. This conclusion was supported by the decision in CIT v. Nathuabhai Desabhai, which held that unless a deduction or allowance had been made in previous years in respect of the refunded amount, section 41(1) could not be invoked.

Tribunal's Findings and Supporting Case Law:

The Tribunal found that the refund did not constitute income as it was ultimately refundable to various customers. The Tribunal's decision was supported by several cases, including:

- CIT v. Tollygunge Club Ltd.
- CIT v. Bijili Cotton Mills (P.) Ltd.
- Sukhdeo Charity Estate v. CIT

The Tribunal's findings were that the refund of excise duty was not taxable under sections 28(iv) or 41(1) and did not bear the character of income.

High Court's Analysis and Conclusion:

The High Court agreed with the Tribunal's findings. The court noted that the jurisdiction under section 256 of the Income-tax Act is advisory and that the High Court cannot widen the controversy or call for a supplementary statement of the case beyond the specific questions referred to it. The court cited several Supreme Court decisions, including Kamlapat Motilal v. CIT and Lakshmiratan Cotton Mills Co. Ltd. v. CIT, to support this view.

The High Court concluded that the refund of excise duty received by the assessee was not income and was neither covered by section 28(iv) nor section 41(1) of the Income-tax Act. The court held that the refund amounted to a financial transaction and not a revenue receipt, thereby not attracting income tax liability.

Final Judgment:

The High Court answered the references by holding that the refund of excise duty received by the assessee was not income and was not taxable under section 28(iv) or section 41(1) of the Income-tax Act. Both references were answered accordingly.