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TMI Blog2002 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee-company produced the books of account which reveal that during the assessment proceedings excise duty refundable to the assessee was worked out to a sum of Rs. 2,91,500. Out of the said amount a sum of Rs. 1,09,381 was directly claimed by various customers from the Excise Department. Thus, the assessee-company received refund of excise duty amounting to Rs. 1,45,752. The assessee did not credit the said amount in the profit and loss account on the ground that the same was not taxable. It was contended that this amount was to be refunded in turn to its various customers and the assessee was under the obligation to repay the said amount, hence the said receipt did not constitute the income of the assessee. The assessing authority rejected all the contentions and treated the refund amount against the excise duty as income and, accordingly, added to the total income of the assessee. The Commissioner of Income-tax (Appeals) deleted the addition having held that it was not an income. However, the Tribunal relying on the decision of the Gujarat High Court in Motilal Ambaidas v. CIT [1977] 108 ITR 136 held that the subject refund constitutes the income of the assessee and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 41(1) of the Income-tax Act. It is submitted that the Revenue has accepted the said judgment, as such it is not open for them to take a different stand for the subsequent assessment years. On the other hand, it is submitted by Mr. Sundeep Bhandawat, learned counsel appearing for the Revenue, that the view of the Tribunal is in conformity with the view taken by the Supreme Court in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1; Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 (SC) and Sinclair Murry and Co. P. Ltd. v. CIT [1974] 97 ITR 615 (SC). It is also submitted that the decision of the Tribunal is based on the judgment of the Gujarat High Court in the case of Motilal Ambaidas v. CIT [1977] 108 ITR 136 which has been approved by the Full Bench of the same High Court in CIT v. Bharat Iron and Steel Industries [1993] 199 ITR 67. In order to better appreciate the controversy involved, it would be convenient to extract section 41(1) of the Income-tax Act as follows: "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 any previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that liability upon it was not valid or refund it to the persons from whom it had been collected. On these facts, the Supreme Court held that the amount collected as sales tax by the assessee in its character as an auctioneer formed part of its trading or business receipts. It was further held that the fact that assessee credited the amount received as sales tax under the head "Sales tax collection account" did not make any material difference. The apex court also observed that "it is the true nature and quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt". The court further observed that the assessee concerned would be entitled to claim deduction of the amount as and when it pays the amount to the State Government. The court observed as follows: "The fact that the appellant credited the amount received as sales tax under the head 'sales tax collection account' would not, in our opinion, make any material difference. It is the true nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax. The fact that no such entries showing credits and debits in respect of sales tax collected and sales tax paid were made by the assessee-firm does not alter the real substance of the transaction nor does it alter the real character of what was required to be done by the assessee in this case." The Full Bench of the Gujarat High Court in CIT v. Bharat Iron and Steel Industries [1993] 199 ITR 67 analysing section 41(1) observed that: "In our opinion, for considering the taxability of amount coming within the mischief of section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income-tax as income of that previous year." As far as the decision of this court in the case of CIT v. Wolkem Pvt. Ltd. [1997] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The liability for payment to the Central excise and/or to return to the customer, really take the entire matter to the perspective of a financial transaction and it does not amount to a trading receipt. We answer the questions thus that in our view the refund of excise duty received by the assessee from the Excise Department is not the income of the assessee and since it is not an income, it is neither covered by section 28(iv) nor section 41(1) of the Income-tax Act and it will be considered to be not a revenue receipt. On account of it, there is no liability for payment of incometax. It amounts to only a financial transaction and nothing beyond. Both the references stand answered accordingly." The question, whether in a case where a similar question has been answered in an earlier case in a particular way and identical question of law arising in a later year would be a referable one, has been answered by the apex court in D.B. Madan v. CIT [1991] 192 ITR 344. In the said case the assessee submitted an application before the High Court for calling for reference on the question whether expenditure on air travel of the assessee's wife who accompanied him for reasons of health wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable trading receipt of the assessee for 1974-75?" The assessee in the course of sale of its products, collected sales tax from the purchasers. The assessee, in its turn, was assessed under the Central Sales Tax Act and paid the tax. The sales tax collected by the assessee has to be treated as its income, according to the ruling of this court in the case of Chowringhee Sales Bureau Pvt. Ltd. v. CIT [1973] 87 ITR 542. Any payment of sales tax made by the assessee was equally liable to be deducted from the profits made by the assessee. In this case, the assessee had actually made the payment of sales tax under the provisions of the Central Sales Tax Act. Those provisions were under challenge and ultimately were struck down by the Madras High Court. The assessee got back an amount of Rs. 1,37,379 as refund. The entire amount of sales turnover of the assessee inclusive of the amount of tax collected was clearly includible in the assessee's taxable income. If any deduction was given from that income and later the same was refunded back to the assessee, the refund will have the character of revenue receipt. It has to be treated as a receipt on the revenue account and has to be assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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