2013 (7) TMI 576 - HC - Income Tax

Whether the Tribunal was right in holding that the sum received from the Excise Commissioner during the current assessment year for the difference in supply of alcoholic products in earlier years cannot be treated as income of the assessee during the current assessment year Held that - When the Government Order is set aside, if the assessee repays the money, he is eligible for adjustment of tax paid for the income received or for refund of the said amount - the third party has filed the public interest litigation for the relevant assessment year, he cannot avoid payment of tax on the said revenue receipt - In the event of assessee losing the battle, he will be bound to refund the amount to the Government - If he were to pay tax under the Act, when once that amount is returned, he would be entitled for refund of the said tax or adjustment of tax in future, but that does not enable him to withhold payment of tax on the pretext of pending litigation - In that view of the matter, the approach of the Tribunal is not proper - order requires to be set aside appeal decided in favour of revenue.

Summary

Issues:
- Whether the amount received by the assessee is taxable for the assessment year 1993-94?
- Whether the income accrued to the assessee despite being wrapped with litigation?
- Whether the assessee is liable to pay tax on the amount received from the Excise Commissioner?

Analysis:
1. Taxability of Amount Received:
- The assessee, a manufacturing firm, received an enhanced price for rectified spirit supplied to bottling units on behalf of the Government, which was shown as liability in balance sheets for 1993-94 and 1997-98.
- The Assessing Officer initiated proceedings under Section 147, bringing the sum of Rs.2,06,33,600/- to tax for 1993-94, which the Appellate Authority later deleted, citing full disclosure and contingent nature of the receipt.
- The Tribunal upheld the deletion, stating that the amount was not unconditionally received, being wrapped with litigation, and the income did not accrue as the assessee was not the undisputed owner.

2. Accrual of Income Despite Litigation:
- The revenue contended that the amount accrued when paid by the Government, as per the mercantile system of accounts, and the liability to pay tax arose immediately upon receipt.
- However, the assessee argued that the income was contingent due to the pending public interest litigation challenging the Government's order, which was later withdrawn, making the income non-accrued.
- The High Court found that the payment was definite and ascertained, and the mere pendency of litigation did not extinguish the tax liability of the assessee, who would have to refund the amount if the litigation was lost.

3. Liability to Pay Tax on Amount Received:
- The High Court determined that the assessee, under Section 4 of the Income Tax Act, was liable to pay tax on the received income, regardless of the pending litigation challenging the payment.
- The Court emphasized that the assessee had the benefit of the amount for nearly 8 years, and the liability to pay tax arose upon receipt, irrespective of the subsequent events or pending litigations.
- Ultimately, the Court held in favor of the revenue, setting aside the impugned order and ruling that the assessee must pay tax on the received amount, with the possibility of refund or adjustment in case of repayment in the future.