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Issues involved:
The judgment involves a reference u/s 256(1) of the Income-tax Act, 1961 regarding the cancellation of an order u/s 263 by the Income-tax Appellate Tribunal and the tax liability of an excess amount collected by a public limited company over and above the price of sugar fixed by the Government. Facts and Decision: The public limited company, engaged in sugar manufacturing, challenged the Government's price fixation in court and was allowed to sell sugar at an enhanced rate during the legal proceedings. The company credited the excess amount received under "Current liabilities," which was accepted during assessment. The Commissioner of Income-tax invoked powers u/s 263, deeming the excess as income to be disclosed. The Tribunal, considering the legal liabilities, set aside the Commissioner's order, citing various court decisions. The Revenue appealed, arguing the amount formed part of trading receipts. The Tribunal's decision was upheld, emphasizing the disputed right to receive payment. Legal Principles: In cases where the right to receive payment is in dispute, no income arises until the amount is finally determined. This differs from cases where the right is admitted, and only the amount payable is in question. Court decisions like Kedarnath Jute Mfg. Co. Ltd. v. CIT highlight that liability accrues when sales subject to taxation occur, even if payment is due later. The Supreme Court's stance in such cases is that the right to income arises only upon final resolution of the dispute, not at the time of collection. This distinction was crucial in determining the tax liability of the excess amount collected by the company. Conclusion: The High Court upheld the Tribunal's decision, emphasizing that the disputed nature of the right to receive payment meant the excess amount did not form part of the company's income until the final determination of the levy price. This ruling aligned with legal precedents distinguishing cases based on the certainty of the right to payment. The judgment favored the company, affirming that no income tax liability arose until the legal dispute over the excess amount was conclusively settled.
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