2010 (1) TMI 112 - HC - Income Tax

Business Income under section 41 Refund of excise duty The assessee received a sum of Rs. 26, 782.22/- on account of refund of excise duty during the assessment year 1978-79 but Show Cause Notice wee issued disputing the refund. In this case Haryana High Court-held that the refund of excise duty received during the relevant assessment year would be taxable in that year and mere issue of show cause notice to dispute such refund did not mean that income was not taxable during the said year. The assessee shall be entitled to claim expenditure of such excise duty if it was found payable in pursuance of the Show cause Notice during the assessment year in which such liability was discharged. Decision in favor of revenue against the assessee.

Summary

Issues:
1. Taxability of refunds received from Central Excise Department during the accounting period.

Analysis:
The main issue in this case revolves around the taxability of refunds received by the assessee from the Central Excise Department during the accounting period. The question of law referred to the court was whether the amount of refunds received should be included in the assessee's taxable income for the relevant assessment year.

The assessee received a sum of Rs.26,782.22 as a refund of excise duty during the assessment year 1978-79. Although the cheques for the refunds were issued, show-cause notices disputing the refunds were also issued to the assessee. The contention put forth by the assessee was that since the issue of refund was not finalized during the relevant assessment year, the amount of refund should not be included in the taxable income as per section 41(1) of the Income-tax Act, 1961.

The Tribunal relied on a previous judgment in Des Raj Chiranji Lal Steel Rolling Mills to conclude that since the issue of refund was not finalized, it should not be included as part of the taxable income for the relevant assessment year. However, the Revenue cited the Supreme Court judgment in Polyflex (India) Pvt. Ltd. v. CIT to argue that the date of receipt is crucial in determining the inclusion of the refund in taxable income, regardless of any ongoing disputes.

The Supreme Court's interpretation of section 41(1) of the Act emphasized that when an assessee obtains a refund in respect of business expenditure incurred earlier, it falls under the clause of "obtained any amount in respect of such expenditure." This means that the refund should be considered as part of the taxable income for the year in which it was received, irrespective of any future dispute outcomes.

Based on the Supreme Court's ruling, the court held that the refund of excise duty received during the relevant assessment year should be taxable in that year. The mere existence of show-cause notices disputing the refund does not negate the taxability of the income. The assessee can claim the expenditure of excise duty if it is found payable in the future due to the show-cause notices during the assessment year when the liability is discharged.

Therefore, the court answered the reference in favor of the Revenue and against the assessee, confirming the taxability of the refunds received from the Central Excise Department during the relevant assessment year.