9911796707
TMI Blog1989 (4) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... s grounds of appeal as preferred before the CIT(A)." In the assessee's appeal also, ground No. 1 is on the same point and is as under : " 1. For that the learned CIT(A) has erred in law in rejecting the contention of the appellant company that interest on some of its fixed deposits with banks, which under the terms of the said deposits was due and payable to the company only on the date of their maturity failing after the expiry of the relevant previous year, i.e., in the company's accounting year 1st Oct., 1981 to 30th Sept., 1982 (which interest amounted to Rs. 33,221) did not accrue or arise to the company in, and not taxable as its income of, the relevant previous year." 3. The assessee invested its funds in fixed deposits with banks and the question in the aforesaid ground is about the time when the income from interest on such fixed deposits should be deemed to have been earned by the assessee so as to be included in its income for tax purposes. The Revenue's contention has been that the interest from day to day and the ITO has, therefore, been calculating the assessee's income from interest on what is called de diem en diem basis. The assessee's case on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on fixed deposits should be taxable on de diem en diem basis. No fresh material has been placed before us in support of this contention and the facts and circumstances being identical to those in the earlier years, we find no reason to take a contrary view. Therefore, holding that interest will be deemed to have been earned by the assessee on the dates when the relevant fixed deposits matured, we order that the sum of Rs. 32,221 shall be excluded from the interest income of the assessee. The CIT(A)'s order on this point is set aside. The CIT(A) order about the sum of Rs. 1,73,022 is also set aside and this amount shall stand included in the assessee's income for the year under consideration on substantive basis. 8. The next ground raised in the Revenue's appeal is as under : "2. The CIT(A) was not correct in law and on facts in deleting the addition of Rs. 8,66,636 made on account of sales-tax liability." The facts are that the assessee sells skimmed milk powder produced by it, inter alia, in the State of West Bengal. The assessee paid sales-tax up to asst. yr. 1973-74 but for asst. yrs. 1974-75 onwards, it did not pay the sales-tax and challenged the leviability thereof in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) has followed the Tribunal's order for earlier years and for the reasons discussed above, we find no reason to take a different view than the view taken by this Tribunal earlier from year to year. We, therefore, uphold the order of the CIT(A) and reject this ground of the Revenue. 10. The third ground raised in the Revenue's appeal is as under : "3. The CIT(A) was not correct in law and on facts in deleting the addition of Rs. 24,06,528 being the amount of refund of excise duty received by the assessee during the relevant accounting year." The relevant facts are that the assessee was manufacturing skimmed milk powder and was paying excise duty @ 10% ad valorem. Subsequently, a Notification No. 45/77-CE, dt. 9th April, 1977 was issued by the Government of India by which the relevant clause was amended which indicated that prior thereto skimmed milk powder was not liable to excise duty. The amended clause was as under : "Entry XII : Milk powder including SMP but excluding milk powder specially prepared for feeding infants." Thereupon the assessee made a claim for the refund of excise duty paid by it for the period 25th Sept., 1971 to 8th April, 1977. This claim w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance of claim of excise refund is still alive. I direct the ITO to assess the whole of the claim on a protective basis without prejudice to the right of taxing it by the Department, in some other year when considered proper. This is done on a protective basis as the assessee had included the said receipt in its profit in the year under consideration and also that the assessee for the first time has come out by way of notes appended to the return of having made such claim, before the authorities." Thus the ITO included the aforesaid amount in the assessee's income on a protective basis reserving to himself the option to bring the same to tax in some other year when considered proper. The assessee appealed to the CIT(A) for asst. yr. 1981-82 raising, inter alia, the following grounds : "(7a) For that on the facts and in the circumstances of the case, the learned ITO has erred in law in bringing to tax on protective basis under the provisions of s. 28/41(1) of the IT Act, 1961, a sum of Rs. 66,11,701 claimed by the assessee company as a refund of excise duty levied on its production of SMP up to 8th April, 1977. 7(b). For that without prejudice to the foregoing ground, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers from whom it had charged excise duty and, therefore, the same did not amount to assessee's income taxable either under s. 41(1) or s. 28(4). Since the aforesaid finding was very stoutly challenged on behalf of the Revenue in the present appeal and was equally stoutly defended by the learned counsel for the assessee, we reproduce the relevant portion of the Tribunal's order for asst. yr. 1981-82 in extenso : "29. The 6th ground in assessee's appeal reads as under : 'For that the learned CIT(A) has erred in rejecting the contention, of the assessee company that the amount of Rs. 24,06,528 received by the company as a refund of Central Excise Duty was not its income liable to tax under the IT Act, 1961 in view of the provisions of s. 64A of the Sale of Goods Act, 1930.' Before addressing us on this ground, the learned counsel for the assessee narrated the facts in the background of the issue which may be briefly stated as under : 30. As abovesaid, the assessee company had been manufacturing skimmed milk powder, which was subjected to levy of excise duty. After obtaining a clarification from the Excise Department, the assessee company paid excise duty @ 10% ad valorem. Subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company had been charging excise duty from its customers and it was in the fiduciary capacity that the same was deposited. The dispute before us is not regarding point of time at which the said refund of Rs. 24,06,528 be subjected to tax, and therefore, the case law relied upon by the learned D.R. does not further Revenue's case. Even if the refund is received after the year but it cannot be subjected to tax once it has been incorporated in the books, but since it is a refund of excise duty, it cannot be subjected to tax in the hands of the assessee under s. 41(1). The Madras High Court decision in case of Thirumalaiswamy Naidu Sons, reported in 147 ITR 657 is a case applicable on all fours. Their Lordships in the said case observed that there are two important requisites for invoking s. 41(1)(i) that the assessee must have incurred a trading liability with respect to which he should have obtained a deduction or allowance in an assessment in former year, and (ii) subsequently in the assessment year under consideration, a diminution, remission or cessation of that liability should occur resulting in some benefit to the assessee. In other words, in s. 41(1) there must be a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yr. 1981-82, to which we invite a reference. The said amount was realised by us from time to time from our various customers on account of central excise duty and was paid by us to the Central Excise Department. The said amount, therefore, belongs to our various customers from whom we had, from time to time, realised the same. Under the law we are bound and liable to refund the said amount to our various customers. In this connection, we draw your kind attention to s. 64A of the Sales of Goods Act, 1930. In the circumstances, the said amount of Rs. 24,06,528 has not been and cannot be included in our assessable income." The assessee's contention was negatived and the sum of Rs. 24,06,528 was added to the assessee's income. The assessee preferred an appeal before the CIT(A), who deleted the same on the ground that it has already been included in the assessee's income for asst. yr. 1981-82 and the Revenue is, therefore, in appeal before us. 14. The learned counsel for the assessee raised a preliminary objection that the question whether the aforesaid amount is a taxable receipt or not has already been decided between the parties in proceedings for asst. yr. 1981-82 and now there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year that those shares formed part of the capital investment of the assessee if there are sufficient materials before the Officer to come to such a finding. To the same effect is the ratio in CIT v. Brij Lal Lohia and Mahabir Prasad Khemka [1972] 84 ITR 273 (SC). Reliance was also placed by the learned Departmental Representative on a Full Bench decision of the Hon'ble Patna High Court in CIT v. H.D. Agarwal Sons [1988] 169 ITR 617 in which an earlier Full Bench decision of the same Court in CIT v. Syed Saddique Imam [1978] 111 ITR 475, was referred to and it was reaffirmed that every year's assessment being based on a separate cause of action, an earlier finding by the Tribunal about the true import of certain transaction did not operate as res judicata. 16. In the case before us the question about the taxability of the amount is basically a question of law and as we would show later at the hearing of the appeal by the Tribunal for asst. yr. 1981-82, almost no material was placed before the Tribunal while at the hearing of the present appeal, the learned Departmental Representative placed a plethora of case law on the subject and there is thus cogent and relevant material be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged to assess this amount in asst. yr. 1981-82 on protective basis. On the other hand for asst. yr. 1982-83, the assessee never raised a plea that this amount according to the relevant principles could not be treated as the assessee's income for asst. yr. 1982-83 and was the income of asst. yr. 1981-82. The assessee had challenged the assessability of this amount in asst. yr. 1981-82 before the CIT(A) but later on gave up this contention. The result was that the CIT(A) also had no occasion to determine in which year this amount was legally taxable. When the matter came before this Tribunal, the question of the year in which the amount was taxable was not agitated by the parties. The assessee had given up its contention and the Revenue could not raise such a point. It is for this reason that the Bench observed that "the dispute before us is not regarding point of time at which the said refund of Rs. 24,06,528 be subjected to tax." Thus the Bench's observation is merely that the parties did not agitate this point. There is no finding whatsoever by the Bench that this amount was taxable for asst. yr. 1981-82 and was not taxable in asst. yr. 1982-83. We may also mention that when the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in January 1981. Both these dates fall in the accounting period relevant to asst. yr. 1982-83 and, therefore, the amount was taxable only in asst. yr. 1982-83 and we hold accordingly. 19. As a result of the above finding, it would be seen that the Tribunal's order for asst. yr. 1981-82 is in respect of an amount that was not taxable in that year and, therefore, any finding recorded in the proceedings for asst. yr. 1981-82 cannot preempt a decision for asst. yr. 1982-83. 20. As regards the assessee's contention that a decision by this Tribunal may result in double taxation, we are of the view that this apprehension is not justified. Firstly as the facts narrated above would indicate presently the amount stands excluded from the assessee's income for asst. yr. 1981-82 on the ground that it was not the assessee's income. The assessee's apprehension arises merely from the fact that since a reference is pending before the Hon'ble High Court, it is possible that the High Court may hold that the amount was taxable. The question that has been referred to the Hon'ble High Court is simply about the taxability of the sum of Rs. 24,06,528 and is not about the year in which it is taxable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in double taxation is thoroughly unfounded. 21. For the reasons discussed above, we hold that the sum of Rs. 24,06,528 was not the assessee's receipt/income for asst. yr. 1981-82 and it was the receipt relevant to asst. yr. 1982-83 and we will now proceed to examine whether this was taxable as income or not. 22. The aforesaid sum was paid by the assessee to the Government of India in respect of excise duty considered at the relevant time to be payable on the manufacture of skimmed milk powder. This was, therefore, an expenditure incurred by the assessee in connection with its business and was claimed as such and was allowed as a deduction in determining its income for the period in which the amount was paid. It was the assessee's own expenditure and it was stated before us by the learned counsel for the assessee that it was not the assessee's case that the amount of excise duty was paid to the Government in a fiduciary capacity as an agent or a trustee for the purchasers. Under s. 41(1), where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition ; and (b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction. (2) The provisions of sub-s. (1) apply to the following taxes, namely-- (a) any duty of customs or excise on goods ; (b) any tax on the sale or purchase of goods. Sec. 72 of the Indian Contract Act, on the other hand reads as under : "72. Liability of person to whom money is paid, or thing delivered by mistake or under Coercion -- A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it." Reliance was also placed by the learned counsel for the assessee on Thirumalaiswamy Naidu Sons' case in which it was held that a refund of sales-tax was not taxable under s. 41(1). As we would mention h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise duty, the situation is just the reverse. The manufacturer pays the excise duty at the time of manufacture as its own liability and then passes on the burden to the customer by including in the price the excise duty paid. This may be done by showing in the bill the excise duty separately or by otherwise including the same in the price itself. Therefore, the decision in the case of Thirumalaiswamy Naidu Sons is not an authority for the argument that on the facts of the present case, the assessee while receiving the amount from the Government was in the position of an agent or trustee on behalf of the customers. 24. We have reproduced above s. 64A of the Sale of Goods Act. Sub-cl. (a) thereof is in respect of taxes which are imposed or increased after the contract of sale and entitles the seller to add the tax to the contract price and gives him the right to sue for recovery of such addition. Sub-cl. (b) on the other hand is for the benefit of the purchaser and applies to cases where the tax is decreased or remitted. This clause gives the buyer a right to deduct from the contract price an amount as will be equivalent to the decrease of tax or remitted tax. What is impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of excise duty by the Government. It was held on the particular facts of that case that the Mills were not so entitled. The same view was taken subsequently in Dhrangadhra Municipality v. Dharangdhra Chemical Works Ltd. [1988] 174 ITR 77 (Guj). It was held that under s. 72 a plaintiff has to plead and prove : (i) that the amount was paid under a mistake ; (ii) that if the restitution is not granted to the plaintiff the plaintiff would suffer legal injury or prejudice. In the case before us, we have an assessee to whom the Government has actually refunded the money and the considerations of ss. 64A and 72 would arise when any person claim refund from the assessee. No such person has so far come forward to claim a refund and if anyone comes forward, he will have to establish that the money was paid, under a mistake and that if restitution is not granted to him, he would suffer a legal injury. The assessee is a manufacturer and, therefore, his customers would not be the actual consumers who suffered the ultimate burden of excise duty. The assessee's customers would be merely dealers or sub-dealers who in their own turn must have passed on the burden to the ultimate consumer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patently has no intention to voluntarily refund anything to any of the customers. It is, therefore, clear that the receipt of Rs. 24,06,528 is a receipt by the assessee of his own money and there is no question of the assessee receiving the same in any fiduciary capacity relatable to its customers. 28. The nature of excise duty came for consideration before the Hon'ble Supreme Court in McDowell Co. Ltd v. CTO [1985] 154 ITR 148/22 Taxman 11. In that case, the assessee was a manufacturer of liquor which was subject to excise duty. The assessee had to pay excise duty before removing the liquor produced from the distillery. According to the practice adopted by the assessee in that case, its buyers obtained distillery passes for the release of liquor from the assessee and they (buyers) removed the liquor purchased by them after payment of excise duty. Thereafter the buyers presented the goods to the assessee whereupon the bill of sale or invoice was prepared by the distillery showing the price of liquor but excluding the excise duty. Thus, according to the assessee, the excise duty paid by the buyer was not a part of the sale price and it contended that its turnover was the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position is not different when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the excise authorities or to the State exchequer." The above observations will show that when a manufacturer pays excise duty on the goods manufactured by it, it does not act as an agent or trustee of anybody and it discharges its own liability. Consequently when the amount is refunded to it, the money would belong to the assessee exclusively without any prior right of anyone else thereon. 29. In ACCE v. Andhra Fertilisers Ltd. [1989] 175 ITR 549 the Hon'ble Andhra Pradesh High Court held that the excise duty was leviable only on manufacturer and not on marketability. In that case, the assessee had filed a writ petition for the refund of excise duty which was illegally collected and the above observations were made to repel an argument of the Revenue that the refund could not be allowed as the assessee had passed on the burden of excise duty to the customers. Repelling the aforesaid argument, the Hon'ble High Court further held that the fact that the respondent made good its loss due to injust colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers will be entitled to be claimed as an expenditure in the revenue account but the mere potentiality of a claim did not rob the receipt of its character as income. Similarly in Jagat Narain Durga Prasad v. CIT [1970] 76 ITR 214, Hon'ble the Allahabad High Court held an amount received by way of refund of sales-tax to be the business income of the assessee. This was held to be so under s. 10(2A) of the 1922 Act which was in many respects akin to the present s. 41(1). In Motilal Ambaidas v. CIT [1977] 108 ITR 136, Hon'ble the Gujarat High Court also took the same view. In that case, the assessee was not showing sales-tax either as a receipt or as a payment in its account. The Hon'ble High Court held that the assessee was bound to show the amount of sales-tax collections on the credit side when received and was entitled to claim as deduction when sales-tax was paid and, therefore, for purposes of s. 41(1), the assessee has to be treated to have obtained a deduction and, therefore, the refund of sales-tax was taxable under s. 41(1). In CIT v. Kabbur Bros. [1981] 128 ITR 43, Hon'ble the Karnataka High Court also held a refund of sales-tax to be taxable under s. 41(1). In that case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be entitled to claim deduction of the sum so paid or refunded. This also shows that a person who collects excise duty, does not act as an agent of anybody. 36. A somewhat similar controversy had arisen before the Allahabad Bench 'A' of this Tribunal in M.P. Udyog Ltd. v. ITO [1989] 28 ITD 85 (TM) wherein on a difference of opinion, it was held by the majority that a refund of sales-tax is taxable under s. 41(1) of the IT Act. 37. From the above discussion, it would be seen that several High Courts have taken the view that refund of sales-tax is a taxable receipt in terms of s. 41(1) of the IT Act, 1961. The Madras High Court's judgment is the only contrary, if it can be so called, view and is conspicuously based on different facts indicating the assessee's intention to refund the amount to the buyers in case the tax was not levied. For a student of public finance, there is a vast difference in the nature of the two levies i.e. excise duty and sales-tax. But so far as the applicability of s. 41(1) to a refund of either of them is concerned, there is no distinction whatsoever. This is evident from the fact that the learned counsel for the assessee also relied upon a ruling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of packing material. This contention of the assessee was not accepted by the excise authorities. For the period 1st June, 1981 to 30th Sept., 1981, the assessee actually paid a sum of Rs. 1,56,077 on this account and for the period 1st Dec., 1980 to 31st May, 1981 the assessee claimed a liability of Rs. 1,98,988. The Excise Department issued a demand notice in respect of the sum of Rs. 1,98,988 on 2nd April, 1988 i.e. after the close of the accounting year. As would be seen the entire expenditure claimed relates to the period 1st Dec., 1980 to 30th Sept., 1981 which entirely falls within the relevant accounting period. The aforesaid amounts were made up of a larger claim of Rs. 6,01,798 and it is not necessary for us to give the break up thereof. It may be mentioned that the question whether the cost of packing has to be included in the cost of the goods for purposes of excise duty had been raised by various manufacturers and was ultimately decided by the Hon'ble Supreme Court in the case of Union of India v. Bombay Tyres International Ltd. [1983] 14 ELT 1896 in the year 1983. The ITO allowed the assessee's claim to the extent of Rs. 73,506 about which a demand notice had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee, this relates to excise duty for the period 1st June, 1981 to 30th Sept., 1981. The learned counsel for the assessee has placed in the paper book a chart at page 44 showing that this amount was paid in June, July, August and September, 1981. This chart does not show whether it was in respect of any earlier period or for the period, 1st June, 1981 to 30th Sept., 1981, itself. The assessee has also placed another chart at page 43 which is confusing. In this chart, the sum of Rs. 52,543 is mentioned in respect of, the period 3rd July, 1980 to 30th Sept., 1981 (asst. yr. 1981-82) the date 30th Sept., 1981 appears to be wrong as 30th Sept., 1981 would not fall in asst. yr. 1981-82. Probably this date is wrongly mentioned and the correct date may be 30th Sept., 1980. Therefore, some confusion does exist about the allowability of the sum of Rs. 1,56,072 and we therefore, restore this point to the assessing officer for determining the liability of Rs. 1,56,077. In case this amount relates to the accounting period relevant to asst. yr. 1982-83, the same shall be allowed as a deduction, if this expenditure has not earlier been allowed. 42. The last ground in the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces made by the ITO is reduced from Rs. 90,953 to Rs. 33,414. 44. The next ground raised in the assessee's appeal is about a sum of Rs. 63,773 being the amount of unclaimed interest on 6-1/2% bearer debentures. The debentures were redeemable in the year 1970 and since nobody turned up to claim the amount in respect of certain debentures and the interest thereon, the aforesaid amount was written back in the profit and loss account for the year ending 30th Sept., 1979. The ITO treated this amount as income for the year asst yr. 1980-81 but the CIT(A) deleted the addition observing that the last acknowledgement took place in the balance sheet for the year ended 30th Sept., 1978 and, therefore, the legal remedy for the enforcement of the liability would cease three years thereafter that is on 30th Sept., 1981. The addition was, therefore, deleted from assessment year 1980-81 and the ITO was directed to consider the taxability of the amount for asst. yr. 1982-83. A show-cause notice was issued to the assessee by the ITO during the proceedings for asst. yr. 1982-83 and it was stated by the assessee that it has been paying the amount of debentures and interest thereon as and when someon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istence of debentures with them or not. The debentures had matured in the year 1970 and after waiting for a sufficient long time, the assessee itself considered that nobody is likely to come forward to claim the amount and that was why in the year ending, 30th Sept., 1979, it had written back the amount and taken it to the profit and loss account. In Pioneer Consolidated Co. of India v. CIT [1972] 85 ITR 410 (All), it was held that where money due by the assessee company to its constituents was not claimed by the constituents and was transferred to the profit and loss account of the assessee company, it was the income of the assessee in the accounting year in which it was so transferred. In Indian Motor Transport Co. v. CIT [1978] 114 ITR 677 the Hon'ble Allahabad High Court after considering its own judgment in the case of Bhagwat Prasad Co.'s case, held that when the assessee itself treated certain amounts as its income because it felt that the claimants were not likely to come forward to make demands it implied that the assessee had treated its liability to have ceased to exist and the amount was, therefore, the assessee's income under s. 41(1). 47. The circumstances that in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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