1983 (8) TMI 76 - AT - Income Tax

Issues Involved:
1. Deletion of additions made for excise duty for the assessment years 1978-79 and 1979-80.
2. Validity of the excise duty levy under the Opium Act, 1878, and subsequent amendments.
3. Treatment of excise duty collected by the assessee as income.
4. Application of retrospective amendments to the Opium Act, 1878.
5. Legal status of the excise duty liability pending Supreme Court decision.

Issue-Wise Detailed Analysis:

1. Deletion of Additions Made for Excise Duty for the Assessment Years 1978-79 and 1979-80:
The primary issue in both appeals was the deletion of additions made by the Income Tax Officer (ITO) for excise duty. The assessee, a wholesale dealer in poppy heads, followed the mercantile system of accounting. The ITO added Rs. 98,699 and Rs. 49,014 for the assessment years 1978-79 and 1979-80 respectively, treating the collected excise duty as income. The Commissioner (Appeals) deleted these additions, holding that the liability for excise duty had not ceased, pending the Supreme Court's final decision.

2. Validity of the Excise Duty Levy Under the Opium Act, 1878, and Subsequent Amendments:
The excise duty on poppy heads was initially levied under rule 42A(i) of the U.P. Poppy Head Rules, 1961, effective from 1-7-1969. The assessee, along with others, challenged this levy, and the Allahabad High Court declared rule 42A ultra vires in 1973. However, the Opium Act, 1878, was retrospectively amended by the Opium (U.P. Amendment) Act, 1982, validating the excise duty levy from 1-7-1969. The Commissioner (Appeals) upheld the assessee's claim based on this retrospective amendment.

3. Treatment of Excise Duty Collected by the Assessee as Income:
The ITO treated the excise duty collected by the assessee as income, arguing that the High Court's judgment nullified the liability to pay excise duty. The assessee contended that it made provisions for excise duty in its accounts due to ongoing demands from the Excise Department and pending Supreme Court litigation. The Commissioner (Appeals) agreed with the assessee, noting that the liability had not ceased and citing relevant case law, including Kedarnath Jute Mfg. Co. Ltd. v. CIT and J.K. Synthetics Ltd. v. O.S. Bajpai, ITO.

4. Application of Retrospective Amendments to the Opium Act, 1878:
The retrospective amendment of the Opium Act, 1878, by the Opium (U.P. Amendment) Act, 1982, was crucial. It validated the excise duty levied under rule 42A and deemed all duties levied or collected as valid. This amendment was applied retrospectively from 1-7-1969, impacting the assessment years in question. The Tribunal upheld the Commissioner (Appeals)'s view that the assessee's provisions for excise duty were justified, considering the retrospective amendment.

5. Legal Status of the Excise Duty Liability Pending Supreme Court Decision:
The Tribunal noted that the Supreme Court's interim order required the assessee to furnish a bank guarantee for the excise duty amount. This indicated that the liability had not ceased. The Tribunal also observed that the Excise Department continued to demand excise duty, as evidenced by the letter dated 12-10-1981 from the District Excise Officer. The Tribunal concluded that the assessee's liability for excise duty persisted, and the additions made by the ITO were unjustified.

Conclusion:
The Tribunal dismissed the department's appeals, upholding the Commissioner (Appeals)'s decisions to delete the additions for excise duty for the assessment years 1978-79 and 1979-80. The Tribunal emphasized the retrospective amendment of the Opium Act, 1878, the ongoing demands from the Excise Department, and the pending Supreme Court decision as key factors in its judgment.

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