TMI Blog1995 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of collection and payment of excise duty ? " The case has given rise to a furious debate on points of law between the two learned advocates who represent the assessee and the Revenue, the principal reason being that it concerns the interpretation of section 41(1) of the Income-tax Act. It is not for the first time that a relatively large amount has been received by an assessee by way of a refund in a particular assessment year and the tax authorities have sought to invoke the provisions of this section for purposes of treating it as income from business or profession for that year which position has been seriously disputed. The point has been the subject-matter of several decisions some of which we will refer to presently, including earlier decisions of this court but the situation as often happens renders the decisions slightly inconclusive principally because of the fact that it is rarely that one finds an absolutely identical set of facts. The learned advocate, who appears on behalf of the assessee, submits that it is in this background that the reference has come up to this court and that it cannot be said that the law is conclusive on the point which was why he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directed to refund to them the aggregate amount paid under this head which the authorities did by way of one lump sum repayment totalling Rs. 9,11,618 and the refund in question was made during the assessment year 1983-84. The assessees contended that this amount related to a separate account altogether ; that they had at no point of time earlier claimed any deductions or allowances in respect of this amount in so far as it was neither reflected in their profit and loss account or for that matter in the assessments for the years in question and that, consequently, they were not liable to tax as far as this amount goes. The assessing authority accepted this position whereas when the matter went up higher, the Commissioner of Income-tax took the view that the provisions of section 41(1) of the Act would clearly apply and that, consequently, the amount was liable to be included in the taxable heads for that assessment year. The Commissioner relied on a number of judicial decisions principally the case reported in Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj), which we will have occasion to refer to in some detail, and, therefore, included the amount as a taxable head. The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction has taken place during the assessment year as an item. His submission is that undoubtedly the intention behind this provision having been placed on the statute book is that if a party is permitted to reduce the taxable income by a certain percentage on the ground that an allowance or deduction is permissible under the Act such as payment of central excise, etc., the party has already derived a tax benefit during that year and it is, therefore, considered only logical that if the party were to thereafter receive a refund of this amount which in other words clearly indicates that the amount was not deductible, the same when received as a refund, will have to be added on to the income in the corresponding year when it has been received as otherwise it would create an unfair advantage to the assessee. The learned advocate draws a distinction between such a situation and the one present before us in this case because he contends that since a separate account was maintained in respect of the various sundry payments under the head of central excise which were paid and thereafter reimbursed, these did not make any difference to the overall status of the case as far as the computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee's learned advocate initially drew our attention to a passage from the Commentary on the Income-tax Act by the well-known authors Kanga and Palkhivala and referred to page 720 in the Eighth edition of their book. The learned authors have observed while dealing with this provision which corresponded to section 10(2A) of the 1922 Act, that sub-section (1) fastens a liability only on the assessee who had been granted a deduction, i.e., if the remission or other benefit referred to in the sub-section is obtained by the assessee in the course of assessment proceedings that had been completed in an earlier year. The learned authors have emphasised the fact that a liability to tax is created only in cases where an allowance has been actually granted. The assessee's learned advocate has placed very heavy reliance on the decision of the Supreme Court reported in Tirunelveli Motor Bus Service Co. P. Ltd. v. CIT [1970] 78 ITR 55. The Supreme Court had occasion to consider a situation more or less similar to the present one, wherein the assessees were sought to be charged tax in respect of a certain excess amount for which provision had been made for payment of bonus in an ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to operation. This position has been vehemently disputed by learned counsel who represents the Revenue. The respondent's learned advocate has placed very strong reliance on the decision of the Gujarat High Court in Motilal Ambaidas v. CIT [1977] 108 ITR 136. We shall refer to this decision in some detail because the appellate authority in this case has relied on it and so had the Tribunal at an earlier point of time. Briefly stated, in that case, a refund of Rs. 42,263 was received by way of a refund on the levy of sales tax by the assessee-firm. The firm had followed a similar practice to the one in the present case, namely, that when the earlier tax payments had been made by it, these had been on the basis of a separate account which was not reflected in the balance-sheet or profit and loss account of the firm in so far as their contention was that it had nothing to do with their profits or trading liability. The same argument was advanced that in so far as no deduction had been claimed by the firm in the earlier assessment year that it was impermissible to invoke the provisions of section 41(1) in respect of the refund and that consequently it was not amenable to tax. The Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent's learned advocate submits that this is virtually the leading case on the point and that it concludes the entire issue, the assessee's learned advocate has pointed out two things, the first of them being that the Full Bench of the Gujarat High Court in a subsequent decision reported in CIT v. Bharat Iron and Steel Industries [1993] 199 ITR 67 had occasion to reconsider this decision, that the court had observed that the fiction is an indivisible one and that it cannot be enlarged by importing another fiction. The Full Bench decision indicates that the dispute before the court was as regards the point of time when the refund was assessable and that as far as the earlier findings in Motilal Ambaidas' case [1977] 108 ITR 136 (Guj) and the scope of section 10(2A) and the applicability of that section are concerned, the same have remained undisturbed. The assessee's learned advocate, however, submitted that the deeming provision of section 41(1) is something that is sacrosanct and that therefore the court cannot go beyond what has been clearly provided for by the Legislature by altering it or enlarging its scope. More importantly, the learned advocate submits that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court once again reiterated the position that the refund amount falls within the purview of section 41 as the amount was received by the assessee in its character as a profit and constituted its trading receipt and was includible in computing its total income. The aforesaid conclusion was arrived at by the court after once again examining the various contentions that have been canvassed at earlier points of time in the following decisions (page 45): "Abdul Quader (R.) and Co. v. STO [1964] 15 STC 403 (SC) ; Chowringhee Sales Bureau P. Ltd. v. CIT [1977] 110 ITR 385 (Cal); CIT v. Kumardhubi Engineering Works Ltd. [1978] 115 ITR 58 (Cal); CIT v. Jug Sah Muni Lal Sah [1939] 7 ITR 522 (Patna); CIT v. Poonam Chand Trilok Chand [1976] 105 ITR 618 (All); CIT v. Lakshmamma [1964] 52 ITR 789 (Mys) ; CIT (Addl.) v. Nagireddy (T.) and Co. [1976] 105 ITR 669 (AP); Ikrahnandi Coal Co. v. CIT [1968] 69 ITR 488 (Cal) ; Indian Motor Transport Co. v. CIT [1978] 114 ITR 677 (All); Jagatnarain Durga Prasad v. CIT [1970] 76 ITR 214 (All); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Laxmipat Singhania v. CIT [1969] 72 ITR 291 (SC) ; Madalai Nadar (T. M. M.) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction. BY THE COURT : 'The evil consequences of tax avoidance are manifold. First, there is substantial loss of much needed public revenue, particularly in a welfare State like ours. Next, there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community by some of the best brains in the country being involved in the perpetual war waged between the tax avoider and his expert team of adviser lawyers and accountants on one side and the tax gatherer and his, perhaps not so skilful, advisers, on the other side. Then again there is the "sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it". Last, but not the least, is the ethics of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the "artful dodgers".'." As indicated by us earlier the short point that falls for consideration in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed, it is on the basis that a benefit has accrued. It is this aspect of the matter that the law takes cognizance of. It is in this spirit that section 41(1) will have to be interpreted. This is very essential in so far as if section 41(1) is sought to be given the narrow technical interpretation which the assessee's learned advocate has insisted upon, the consequences of the same would be not only against the legislative intent but would in fact defeat it. For this purpose, we need to emphasise that a reading of section 41 very clearly indicates that an assessee in certain circumstances cannot get a double benefit. In other words, what the section effectively seeks to check or control is a situation whereby deductions under the head of payment of tax dues, allowances, etc., which are permissible under the provisions of the Income-tax Act and which consequently therefore deplete the overall income for purpose of remission if subsequently reversed by order of a court by virtue of refund confer a benefit on the assessee which is not permissible in so far as but for the deduction in the earlier assessment years that amount would have been added on to tax. It is, therefore, virtu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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