1987 (11) TMI 131 - AT - Income Tax

Summary

Issues Involved:
1. Nature of refund of excise duty amounting to Rs. 1,61,316.
2. Whether the refund constitutes income of the assessee.
3. Applicability of Section 41(1) of the Income Tax Act.
4. Whether a question of law arises from the Tribunal's findings.
5. Cessation of liability towards customers.

Issue-wise Detailed Analysis:

1. Nature of Refund of Excise Duty:
The central issue revolves around the nature of the refund of excise duty amounting to Rs. 1,61,316 received by the assessee. The Tribunal observed that the assessee was compelled to charge excise duty from its customers due to the excise authorities' view that the product manufactured was excisable. The amount received was termed as a deposit, and when the excise authorities granted the refund, it was determined that the product was not excisable. The Tribunal found that the assessee received the amount as an intermediary and not as the ultimate owner, as the ultimate owners were the customers who had purchased the goods.

2. Whether the Refund Constitutes Income:
The Tribunal noted that the Department did not dispute that the refund was not income of the assessee and that the amount was payable to several parties. The Department sought to tax the refund under Section 41(1) on the premise that the liability might not be paid ultimately and could be appropriated by the assessee, thus escaping tax. The Tribunal concluded that the refund did not constitute income as it represented a liability towards the customers and there was no cessation of liability. The Department's apprehension that the assessee might not pay the amounts to the customers was not sufficient to treat the refund as income.

3. Applicability of Section 41(1) of the Income Tax Act:
Section 41(1) of the Income Tax Act pertains to the taxability of amounts that cease to be liabilities. The Tribunal emphasized that for an amount to be considered income under this section, there must be a remission or cessation of liability. In this case, the Tribunal found no evidence of cessation of liability towards the customers, and therefore, the refund could not be taxed under Section 41(1).

4. Whether a Question of Law Arises:
The Tribunal discussed whether the issue at hand constituted a question of law. The learned Departmental Representative argued that it was a mixed question of law and facts, while the learned counsel for the assessee contended that the Tribunal's findings were factual and did not raise a question of law. The Tribunal referred to various case laws, including CIT v. Tollygunge Club Ltd., CIT v. Bijli Cotton Mills (P.) Ltd., and others, to support the view that not all questions are referable questions of law. The Tribunal concluded that the issue was a finding of fact and did not warrant a reference to the High Court.

5. Cessation of Liability Towards Customers:
The Tribunal found that the Department could not provide evidence to show that there was a cessation of liability from the customers in favor of the assessee. The Tribunal observed that the assessee received the refund for the purpose of passing it to the respective owners (customers) and that the liability had not ceased. The Tribunal rejected the Department's reference application, stating that the Department's apprehension about the non-payment to customers indicated that they accepted the amount as liabilities.

Separate Judgments Delivered by Judges:

Per Shri H. S. Ahluwalia, Judicial Member:
The Judicial Member opined that it would be safer to submit the reference rather than withholding it. He noted that the assessee received the amount from its business activities and credited it to the profit and loss account. He questioned how the assessee could claim that the amount was not its income after crediting it to the P&L account. He suggested that the following question should be submitted for the opinion of the High Court: "Whether on the facts and in the circumstances of the case the Tribunal was correct in law in deleting the amount of Rs. 1,61,316 already received by the assessee from the Excise Deptt. and credited to its profit and loss account?"

Per Shri A. Kalyanasundharam, Accountant Member:
The Accountant Member disagreed with the Judicial Member, stating that the manner of depiction of an item in the accounts does not establish cessation of liability. He emphasized that the fundamental requirement of remission or cessation of liability was absent, and thus the amount could not acquire the character of income. He concluded that no reference was called for.

Third Member Order by Shri Ch. G. Krishnamurthy, President:
The Third Member was called upon to resolve the difference of opinion. He noted that the issue involved was whether the liability to refund the money to customers had ceased. He found it difficult to agree with the Accountant Member's view and held that the conclusions arrived at by the Tribunal were mixed questions of law and fact. He opined that a question of law did arise and should be referred to the High Court. The matter was left to the Bench to decide the form of the question while drawing up the statement of the case.

Conclusion:
The Tribunal ultimately decided that the reference application by the Department was dismissed, concluding that the refund of excise duty did not constitute income of the assessee due to the absence of cessation of liability. The issue was deemed a finding of fact, and no question of law was found to arise from the Tribunal's order.