TMI Blog1995 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessee Officer as well as by the CIT(A) on the ground that as it formed part of the trading receipt the refund allowed on account of the same constituted income of the assessee under section 41(1) of the Act. In support reliance was placed on the decisions of the Hon'ble Supreme Court in the cases of (1) 'Chowringhee Sales Bureau (P.) Ltd v. CIT [1973] 87 ITR 542; (2) Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ITR 615. While holding so it was also observed by the learned CIT(A) that refund of Excise Duty remained with the assessee and was not returned to the customers. In the circumstances, the argument that there was no cessation of liability was not correct. On the above facts it was submitted by the learned AR that since the amount was not claimed as a deduction in the Profit Loss account, question of taxing the same in the hands of the assessee did not arise. Even otherwise the amount was an 'Amanat' with the assessee and was payable to the parties from whom it was collected. On both counts the addition is not sustainable. In the alternative reliance was placed on the order of the ITAT for assessment year 1985-86 whereby a similar issue was restored to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is material and not the head under which it is reflected in the account books. The entries in the books do not alter or affect the nature or quality of a transaction. Being a trading receipt it is taxable in the year when received and deduction allowable as per method of accounting followed. In the case of CIT v. Motor General Finance Ltd. [1974] 94 ITR 582 (Delhi), it has been held by their Lordships of Delhi High Court that the nature of receipt is fixed once for all when it is received. Subsequent event do not change the character of receipt. As at its inception the excise duty so collected bears the character of trading receipt it is taxable in the year when collected. This is so far as undisputed receipt is concerned. In the case of the assessee the issue pertains to disputed amount of excise duty collected from customers and paid to the excise authorities which subsequently stood refunded to the assessee. In the case of the assessee a separate account in respect of excise duty is maintained which is credited with the amount when collected from the customers and debited when the amount is paid to the excise authorities. It is the net amount which is taken to the tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was not shown in the account books would not prevent the Assessing Officer from treating the same as a trading receipt. For this proposition we derive the support from the decision of their Lordships of Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. Thus despite accounting treatment as given by the assessee we would hold that the excise duty collected from the customers constituted trading receipt in the hands of the assessee when received and it was taxable as such. 9. We would now discuss the assessability of the refunded amount under section 41(1) of the Act. This is the section which has been invoked by the revenue authorities. As per the provisions of the aforesaid section where any allowance or deduction has been made in the assessment for any year in respect of the loss, expenditure or trading liability incurred by the assessee in case the assessee obtains in cash or in any other manner any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount so obtained is deemed to constitute an income of the assessee. The assessee's plea here is that as no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court that the provisions of section 41(1) were applicable. While holding so, they observed as under :--- " It seems to us on the facts of the present case that in order to make the machinery of assessment effective and in order to make the intention of the Legislature, namely, making the levy effective, it is necessary as in Gursahai Saigal's case [1963] 48 ITR 1 (SC). We should read the words 'deduction has been made' as 'deduction ought to have been made' because, in view of the decision of the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case [1973] 87 ITR 542 (SC), if the amounts of sales-tax had been shown on the receipts side what the assessee-firm paid to the Government as sales-tax dues even though disputing its liability to pay tax, would have been shown as a deduction on the debit side. The assessee-firm would have been entitled to this deduction in view of the decision in Chowringhee Sales Bureau's case [1973] 87 ITR 542 (SC) and Sinclair Murray Company's case [1974] 97 ITR 615 (SC). Under the circumstances, these amounts of sales-tax collections which the assessee's firm was bound to show on the credit side when received and was entitled to claim as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable in case the excise duty so collected is refundable to the parties from whom the same is made in case the amount so collected from the parties does not constitute a trading receipt at its inception and the same is refundable to the persons from whom it is collected in the form of deposits, the same is not assessable as a trading receipt when so collected. As to the assessability of the refunded amount under section 41(1) of the Act we are of the considered view that the amount so refunded is taxable in the hands of the assessee in view of the decision in the case of Motilal Ambaidas and that of Delhi Bench 'E'of the ITAT in the case of Sylvania Laxman Ltd. despite the accounting treatment so given in the account books. The deduction is allowable as and when the amount is refunded back to the depositors. The assessee's case is to be decided in the fight of the above proposition. In the case of the assessee the refunded excise duty constitutes an income in the year when the same has been received. The deduction is however allowable as and when the same is refunded back to the customers who are identifiable and specified. In case the assessee renders evidence to support the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the profits or gains are computed under the head "Profits and gains of business or profession";" Thus the claim of the assessee for consideration of the entire amount of 2,50,000 pounds has to be considered in the light of the method of accounting followed by it. In case of mercantile system of accounting what is to be seen is whether the liability for payment of the entire amount accrued in the year under consideration or not. For this we would turn to the terms of agreement for terms of the contract in pursuance of which the assessee was required to pay 2,50,000 pounds. We find that as per agreement the contract was for a period of 5 years. It was for acquisition of certain secret processes formulas and information relating to the economic and efficient production and the design and manufacture of automotive gaskets including cylinder head gaskets. In addition to other conditions as laid down as per clause 8 which regulated the payment the assessee was required to pay royalty of 50,000 pounds for each year of the terms of the agreement which was to last for five years. As per method of payment which is specified in clause 9 of the agreement, the payment has to be remi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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