1986 (9) TMI 64 - HC - Income Tax

Summary

Issues Involved:
1. Whether excise duty rebate and customs drawback could be assessed as income in the hands of the assessee for the assessment years 1972-73 and 1975-76.
2. Whether interest on fixed deposit amounting to Rs. 4,65,108 is assessable as income of the assessee for the assessment year 1975-76.

Summary:

Issue 1: Assessment of Excise Duty Rebate and Customs Drawback as Income
The assessee, engaged in the export of tea, entered into agreements with foreign governments stipulating that excise rebates and duty drawbacks received on exports would be passed on to the foreign buyers. The Income-tax Officer initially held that these rebates and drawbacks constituted trading receipts assessable to income-tax in the hands of the assessee. However, the Commissioner (Appeals) found that these amounts were diverted to the foreign buyers under the agreements and thus could not be considered the income of the assessee. The Tribunal upheld this view, stating that there was an "overriding title" in favor of the foreign buyers, meaning the amounts were never the real income of the assessee. The High Court affirmed this decision, citing several precedents, and concluded that the amounts received on account of customs duty drawback and excise duty rebate never constituted the real income of the assessee as they were diverted at the inception by an overriding title in favor of the foreign buyers.

Issue 2: Assessment of Interest on Fixed Deposits as Income
The Income-tax Officer also assessed the interest earned on fixed deposits of the rebate and drawback amounts as income of the assessee. The Commissioner (Appeals) and the Tribunal both held that since the principal amounts were not the income of the assessee, any interest accrued thereon could not be considered the income of the assessee either. The High Court agreed, noting that the foreign buyers, being the beneficial owners of the principal amounts, were also entitled to any accretion thereto, including interest. The High Court cited relevant case law to support this conclusion and answered the question in the negative, in favor of the assessee.

Conclusion:
Both questions were answered in the negative and in favor of the assessee. The excise duty rebate and customs drawback, as well as the interest on fixed deposits, were not assessable as income in the hands of the assessee for the relevant assessment years.