2014 (10) TMI 256 - HC - Income Tax

Benefit of section 41(1) - Entitlement for refund on Conversion Unit - Cessation of liability or not - addition during the assessment year 1992-93 or assessment year 1994-95 - Whether the Tribunal was correct in holding that a sum is a contractual liability in terms of agreement between the assessee company and the conversion unit, even though the liability to assessee company arises only when the conversion unit pays the amount to the Central Excise Department Held that - The adjudication under the Central Excise Act vis-a-vis the Conversion Unit has taken place only in the hands of the Assistant Commissioner - It has also been mentioned that the Assistant Commissioner, Central Excise, did nothing more than indicating the parameters for determining or reckoning the excise duty - he directed that the nearest comparable unit must be taken as the basis for determining the excise duty for the products manufactured by the Conversion Unit. Barring that, he did not undertake any calculation or reckoning - It was only the Superintendent of Central Excise that had undertaken the entire exercise - once the respondent is relieved of the liability to pay the amount covered by bonds, Section 41 (1) of the Act gets attracted and the liability can be said to have ceased assessee had to pay the tax on the amount, regarding which he cleared exemption in the returns for the earlier AYs - The only difference would be that since the actual determination emerged only in May, 1993, it shall be under obligation to reflect the same in the returns for the year 1994-95 - So the amount was ordered to be refunded Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,66,62,866/- for the assessment year 1992-93.
2. Determination of contractual liability in terms of agreement between the assessee company and the conversion unit.
3. Determination of cessation of liability under Section 41(1) of the Income Tax Act.

Detailed Analysis of the Judgment:

1. Deletion of Addition of Rs. 1,66,62,866/- for the Assessment Year 1992-93:

The Tribunal deleted the addition of Rs. 1,66,62,866/- made by the assessing officer for the assessment year 1992-93, stating there was no cessation or remission of the assessee's liability under its contract with the Conversion Unit with regard to Central Excise duty payable by the Conversion Unit. The Tribunal concluded that the amount could not be brought under the purview of Section 41(1) of the Income Tax Act due to the absence of cessation or remission of liability. The High Court confirmed that the actual determination of the excise duty liability occurred only on 19.05.1993, and hence, the liability should be reflected in the assessment year 1994-95, not 1992-93. Therefore, Question No.1 was answered against the Revenue and in favor of the respondent.

2. Determination of Contractual Liability:

The Tribunal held that the sum of Rs. 1,66,62,866/- was a contractual liability in terms of the agreement between the assessee company and the conversion unit, which arose when the conversion unit paid the amount to the Central Excise Department. The High Court observed that the Assistant Commissioner of Central Excise's order on 19.02.1992 did not result in the actual determination of excise duty but set broad guidelines for its determination, which was later completed by the Superintendent of Central Excise on 19.05.1993. Thus, the liability was correctly assessed for the year 1994-95, and Question No.2 was answered, indicating that the amount should be dealt with under Section 41(1) of the Act for the assessment year 1994-95.

3. Determination of Cessation of Liability:

The Tribunal found that there was no cessation of liability when the Collector of Central Excise (Appeals) set aside the demands raised by the lower authorities. The High Court agreed that the cessation of liability occurred only after the Superintendent of Central Excise's order on 19.05.1993, which discharged the bonds and ordered a refund of Rs. 18,00,000/-. This cessation should be reflected in the assessment year 1994-95. Consequently, Question No.3 did not require a separate answer due to the answers provided to Questions Nos.1 and 2.

Conclusion:

The High Court dismissed I.T.T.A No.7 of 2002, subject to the condition that the excise duty refund ordered on 19.05.1993 should be reflected in the returns for the assessment year 1994-95. The miscellaneous petitions filed in the reference case and the appeal were also disposed of. There was no order as to costs.