TMI Blog1993 (8) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... goods supplied to the clients from whom central excise duty was recovered through the respective sales invoices. It was further submitted that since the items manufactured by the assessee were totally exempt from excise duty, the assessee submitted his claim for refund of excise duty which was granted by the central excise authorities. The assessee claimed before the ITO that the refund received by him from the excise department has to be refunded back to the various customers from whom the assessee has recovered the excise duty. For example, he stated that the assessee had already paid Rs. 35,270 to the various customers and that he undertakes to pay the balance amount to the customers. The ITO did not agree with the contention of the assessee on the ground that the assessee received the refund as a revenue receipt in the year under consideration, whereas the same is refunded to the customers in the subsequent year. The assessee's claim that the refund received during the year is repayable to the customers and hence the same is exempt was also not accepted by the ITO. On appeal, the CIT(A) also rejected the contention of the assessee following the decisions of the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of s. 41(1) of the Act and it was pointed out that 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 year the assessee has obtained, whether in cash or in any other manner whatsoever, 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 obtained by him or the value or benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year. It was pointed out that in this case when in respect of excise duty no concession or deduction was made in any assessment year, question of applicability of s. 41(1) does not arise. It was also pointed out that the goods of the assessee were classified under excise tariff item 15A(2) and were being cleared without payment of duty as per approved classification list under the Exemption Notification No. 68/71 dt. 29th May, 1971, and subsequently the excise department took the stand that the items man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was pleaded that assuming without admitting that the refund was assessable as income, the same could not be assessed in the captioned year since the same accrued in earlier year upon its notification (and not upon its receipt). Learned counsel for the assessee placed reliance on a plethora of decisions and tried to distinguish the cases referred to and relied upon by the CIT(A) in his order from the facts and circumstances involved in the present case. He has further placed reliance on the decision of Madras High Court in the case of CIT vs. Thirumalaiswamy Naidu Sons (1984) 147 ITR 657 (Mad), on the decision of Karnataka High Court in the case of Liquidator, Mysore Agencies Pvt. Ltd. vs. CIT 1978 CTR (Kar) 284 : (1978) 114 ITR 853 (Kar), on the decision of Rajasthan High Court in the case of CIT vs. Sadul Textiles Ltd. (1987) 59 CTR (Raj) 98 : (1987) 167 ITR 634 (Raj), on the decision of Bombay High Court in the case of J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom), on the decision of Madhya Pradesh High Court in the case of CIT vs. Nathu Bhai Desa Bhai (1981) 130 ITR 238 (MP), and the decision of Supreme Court in the case of Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 year the assessee has obtained, whether in cash or in any other manner whatsoever, 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 obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not." In the instant case, the contention of the assessee all through was that the product manufactured by it is not excisable commodity. In view of the excise authorities demanding payment of excise duty holding the assessee to be covered by the excise provisions, the assessee was compelled to make the deposit under protest. The assessee while contesting the levy of excise duty made it clear to the parties that apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case that the amount merely represented the amount of advances received by the assessee for supplying goods to its customers and in due course the assessee neither supplied these goods nor returned the advance received by him to its customers and with the passage of time the right of customers to claim it back from the assessee became barred by time. But, in terms of s. 41 of the IT Act, any benefit accruing to an assessee by remission or cessation of its trading liability is deemed to be its profits and gains of the assessee's business comes into play only if while computing its income for some assessment year an allowance or deduction in respect of the trading liability is made and subsequently the assessee acquires in respect of that trading liability some benefit whether in cash or in any other manner or it accrues to the assessee because of its ceasing to exist. In other words, the Revenue merely takes as income what it had earlier allowed as deduction. In that case it was observed that the Tribunal applied the fiction created by s. 41(1) of the Act only because, in its opinion, as the right of the customers to recover the amount had become barred by time, the assessee's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. In another case in the matter of CIT vs. P.K. Kaimal (1980) 123 ITR 755 (Mad), it was held that the provisions of s. 41 are applicable only in a case where the assessee obtains some benefit in cash or in kind in respect of a loss or expenditure or some benefit in respect of a trading liability by way of remission, which was earlier allowed as deduction. It was further held that the provisions of s. 41 are applicable to the assessee who had taken the benefit or advantage of deduction and the intention was to take away an allowance granted. If one did not get that benefit, he cannot be required to pay the tax. Realisation of a debt is not income. The provision enacted a fiction and would have to be construed strictly on its language. This is also, in a way, a charging provision and the charge must clearly be made out. It is not made out on the successor. 12. In the case of CIT vs. Thirumalaiswami Naidu Sons, the Madras High Court was faced with the question whether jaggery, which was an item exempt from local sales-tax, would be liable to tax under the Central Sales-tax Act. In this case, the assessee-firm was dealing in jaggery and it collected from its customers amounts to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount in the total income of the accounting year on the ground that the trading liability in respect of which deduction had been allowed had ceased to exist, and under s. 10(2A) (of Act, 1922) the amount in question should be deemed to be income. The Hon'ble Bombay High Court observed that even where a debit was allowed as an expenditure, the same cannot be taxed under s. 41(1) or 10(2A) in the year in which such debit became time-barred, even if such amount was credited to the profit and loss account. It may be mentioned here that the Hon'ble Bombay High Court while giving its decision in this case has referred to the decisions in the cases of Bombay Gas Co. Ltd. vs. Gopal Bhiva (1964) 3 SCR 709, Kohinoor Mills Ltd. vs. CIT (1963) 49 ITR 578 (Bom) and Ramkumar Kedarnath vs. CIT (1937) 5 ITR 261 (Bom). 13. In the case of ITC Ltd. vs. Chipkar (1985) 22 ELT 334 the assessee-company applied for refund of excise duty paid under mistake of law. It was held by the Bombay High Court that claim for refund of duty cannot be denied on the grounds that (a) the manufacturer has recovered the duty from the customer; and (b) it would result in unjust enrichment to the manufacturer. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court held that the amounts collected by way of under-loading charges had been received by the assessee as an agent and, therefore, in a fiduciary capacity vis-a-vis the consignees. Such amounts did not constitute trading receipts and accordingly neither the surplus of the receipts remaining unpaid nor the amounts transferred by the assessee to the profit and loss account could be assessed as income of the assessee. While deciding this issue in the above manner, the Hon'ble High Court has followed the decisions in the cases of Morley (H.M. Inspector of Taxes) vs. Tattersall (1938) 22 Tax Cas 51 : (1939) 7 ITR 316 (CA) and CIT vs. Sandersons Morgans (1970) 75 ITR 433 (Cal). 15. In the case of CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd., the Hon'ble Bombay High Court has laid down the principle that an amount may be deemed to be income under s. 41(1) of the IT Act, there must be a remission or cessation of a liability in respect of the said amount. A benefit contemplated by the section must be by way of remission or cessation of any liability and no other benefit is contemplated. 16. In its latest decision in the case of CIT vs. Chase Bright Steel Ltd. (1989) 75 CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration under s. 41(1) of the IT Act. The Hon'ble Rajasthan High Court held that where amounts represent time-barred trading liability of the assessee, there is neither remission nor cessation of the trading liability, inasmuch, as the law of limitation merely bars the remedy but does not wipe out the liability. There is neither remission nor cessation of the trading liability of the assessee, since there is neither any unilateral act of the creditor amounting to remission nor any bilateral act of the parties resulting in the liability ceasing to exist in law, merely because the recovery of the same has become time-barred. It was thus held that provisions of s. 41(1) of the IT Act are not attracted. 19. The theory of real income was accepted by the Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. vs. CIT, wherein it was observed as under: "There is a clear-cut distinction between deductions made for ascertaining the profit and distributions made out of profits. There is a distinction between real profits ascertained on commercial principles and profits fixed by statute for a specified purpose. Under s. 10(1) of the Indian IT Act, 1922, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has sold motor lorry chassis on hire purchase system. Under that system the assessee entered into an agreement with the customer who made an initial deposit and the balance consideration was paid in instalments over a number of months. When all the instalments were paid off, the customer got the option of buying the vehicle. On his exercising that option the sale became completed and the property passed on to him. Though the taxable event occurred only when the last instalment was paid, and the sale was completed in practice, the assessee collected in advance an amount equal to the sales-tax liability on the entire price of the lorry from the customers. The amount equal to sales-tax liability collected from the customers as aforesaid was credited in an account called "deposit against contingent liability" without it being credited to profit and loss account. So also, the payment to the sales-tax department was not debited to the profit and loss account and instead it was debited to an account styled "general sales-tax account". On these facts, when the Hon'ble Kerala High Court was faced with the question whether the sales-tax collected in advance from the customers is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction has been made in the assessment for any year" should be read as "Where an allowance or deduction ought to have been made in the assessment for any year" and where the assessee obtains benefit whether in cash or in any other manner whatsoever in respect of such loss, expenditure or liability, such amount of benefit clearly falls within the provisions of s. 41(1). As stated above, the Gujarat and Kerala High Courts hold this view. 27. It is useful to refer once again to the decision of the Madras High Court in the case of CIT vs. Thirumalaiswamy Naidu and it may be mentioned at this juncture that the Hon'ble Madras High Court while deciding the matter in that case has considered the decision of Kerala High Court in the case of CIT vs. Marikar (Motors) Ltd. and a distinction was drawn, in the matter cited above. 28. In the case of India Coffee Tea Distributing Co. Ltd. vs. IAC (Asst.), the Bombay Bench 'C' of the Tribunal was concerned with refund of excise duty where refund was received from the collector of central excise, consequent upon an order of the Bombay High Court, has accepted the ratio that a receipt can be brought to tax within the scope of s. 41(1) only wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is not liable to tax under the provisions of s. 41(1) of the IT Act. We, therefore, set aside the order of the CIT(A) and direct the ITO to delete the addition made in that behalf and reframe the assessment. 30. In the result, appeal of the assessee is allowed. R.N. SINGHAL, A.M.: 6th May, 1990 I have had the benefit of reading the order proposed by my learned brother, the Judicial Member. However, I have not been able to persuade myself to agree to the view taken in that order. Hence I proceed to write this dissenting order. 2. The assessee is an individual. Previous year relevant to this appeal ended on Sambat Year 2039, i.e. Dewali day of 1983. He was running a manufacturing unit as a sole proprietor in the name of Jyoti Plastic Works. There was some dispute between the assessee and the central excise authorities in regard to the classification of the goods manufactured by him and hence there was dispute about the exigibility of central excise. The assessee received a refund of Rs. 10,24,682 from the central excise department in pursuance of letter No. V(68)18-15/82 dt. 20th Dec., 1982 from the Asstt. Collector of Central Excise, Division-P, Bombay. He received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise has been shown and made part of the gross sale price. Thus it is clear that in assessee' books gross sale price inclusive of central excise charged is first computed and totalled. At the end of the year the central excise actually paid during the year has been deducted from the gross figure of sales. Therefore, it is clearly a case of central excise having been treated and charged as part of sale price. Then at the end of the year in place of putting it on the debit side of the trading and profit and loss account the assessee has deducted it from the total figure of sales but obviously the effect is exactly the same. Therefore, there is no substance in the assessee's claim that the central excise is not claimed as deduction in the respective years. 4. Coming to the aspect of receipt of refund I find that vide letter dt. 20th Dec., 1982 from the Asstt. Collector of Central Excise the refund was in respect of central excise paid by the assessee from 2nd May, 1979 to 30th Jan., 1982 and this represented the finality of central excise proceedings. In other words, the refund granted was not subject to any other revision or appeal in the assessee's matter of central excise liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were debited to this account. This kind of treatment was started some time 1st March, 1976 and continued till December, 1978. In the year under review the excise authorities came to the conclusion that the products dealt in by the assessee are exempted from the excise levied and consequently refunded the excise duty so collected. While refunding the amount, they had refunded an amount of Rs. 2,453 directly to the various parties from whom the amount was collected. The amount was refunded excluding the amount refunded directly to the customers by excise authorities. The assessee received Rs. 1,61,316." The Tribunal after taking note of the arguments and a plethora of cited decisions held in para, 5, inter alia, as follows: "5. In the instant case the contention of the assessee all through was that the product manufactured by it is not an exciseable commodity. In view of the excise authorities' demanding payment of the excise duty holding the assessee to be covered by the excise provisions, the assessee was compelled to make the deposit under protest. The assessee while contesting the levy of excise duty made it clear to its parties that apart from the sale price as per the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts from the assessee. I may note here that out of a total refund of Rs. 10,99,024 received by the assessee he has paid in the immediately succeeding year i.e., year ending Dewali 1984 Rs. 35,270 to some of its customers. For the remaining sum of more than Rs. 10,63,000 refund has been granted by the assessee to his customers till the date of hearing in March, 1990. Further the assessee has not been able to show that the customers were even aware of their right to receive this sum. Actually, it was assessee's duty to show how, why and when he refunded to the customers Rs. 35,270. Further for staking a claim that he was liable to pay the remaining sum of more than Rs. 10,63,000 to his customers it was assessee's duty to show how and why the said refund was not made. It was further his duty to show the distinguishing features of the cases of customers to whom Rs. 35,270 was refunded from those of the other customers to whom the assessee claimed that the remaining sum of more than Rs. 10,63,000 was refundable. None of these things has been done by the assessee and only a bald claim has been made that there subsisted a duty on the part of the assessee to pass on the remaining sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee at all. 8. Let me now refer to the assessee's reliance on the Bombay High Court decision in the case of CIT vs. Chase Bright Steel Ltd. (1989) 75 CTR (Bom) 67 : (1989) 177 ITR 128 (Bom) and also on Bombay High Court decision in J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom). Both these cases are undoubtedly in favour of the assessee. But in both of them the factual background was that some items were written back by the assessees to the credit side of the profit and loss account and it was held that merely unilateral act of any assessee to write back part of amounts allowed as deduction in past years would not result in cessation of liability. Obviously the case before me is that of refund actually received and not that of some deduction allowed in past being written back unilaterally to the credit side of the profit and loss account. So on factual basis these two cases are distinguishable from the instant case. This apart there is a Bombay High Court decision which is against the assessee even on the question of the writing back of some items to the credit side of the profit and loss account in the case of CIT vs. Batliboi Co. (1984) 41 CTR (Bom) 388 : (1984) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1978) 114 ITR 677 (All) also the position was similar before the Allahabad High Court as a sum of Rs. 24,869 was transferred to profit and loss account in respect of unclaimed wages, etc. But even then the Allahabad High Court held that the Tribunal was justified in holding that the amounts were taxable under s. 41(1). Obviously this decision is totally against the assessee and can never be relied on even indirectly, for supporting the assessee's case. (iv) In the case of J.K. Synthetics Ltd. vs. ITO 1975 CTR (All) 256 : (1976) 105 ITR 864 (All) refund of excise duty was not to be treated as profit under s. 41(1) because the High Court decision in the central excise matter which was in favour of the assessee had not become final and a letters patent appeal had been preferred and was pending and there was a possibility of an appeal to the Supreme Court also. In the case before us in regard to the central excise liability of the assessee the matter had become final on receipt of refund by the assessee. Therefore, that decision does not help him. (v) The assessee's reliance on the Madras High Court decision in the case of CIT vs. P.K. Kaimal (1980) 123 ITR 755 (Mad) is total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on the amounts to them. In the instant case I have already held that on facts the assessee collected the central excise as part of gross amount of sale proceeds. There was no fiduciary capacity involved in this particular case. (viii) In CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 ITR 326 (Bom) the facts again were of a transfer entry being passed in the accounts unilaterally and it was held that mere passing of such an entry does not give rise to profit under s. 41(1). In the case before me it is a question of refund actually received on final cessation of liability to central excise. (ix) In CIT vs. Lal Textile Finishing Mills (P) Ltd. (1990) 81 CTR (P H) 13 : (1989) 180 ITR 45 (P H) there was no finding or material to show that the amount written back to the profit and loss account totalling Rs. 48,610 was allowed as a deduction in any of the earlier assessment years. Before me I have a case in which the central excise paid was allowed as deduction by way of reduction of gross amount of sale price and the said central excise was received as refund in the previous year relevant to this appeal. (x) In CIT vs. Sadul Textiles Ltd. (1987) 59 CTR (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though refund of central excise was received by the assessee. Therefore, on the basis of information brought on record by the assessee the said sum of Rs. 10,99,024 received by the assessee as refund on final settlement as duty with the central excise department cannot be treated as exempt from tax. I may further mention that there is no evidence brought on record by the assessee to show that even the sums of Rs. 72,795 and Rs. 54,478 were paid in Sambat Year 2032 and 2033 respectively under protest. The point is that letter dt. 20th Dec., 1982 of the Asstt. Collector of Central Excise talk of actual payments made under protest from 2nd May, 1979 to 30th Jan., 1982, while Sambat Years 2032 and 2033 ended much earlier on Dewali days of 1976 and 1977 respectively. These two amounts cannot be covered even by the other item of actual refund receipt of Rs. 74,371; obviously, because these items totalled much more—being Rs. 72,795 and Rs. 54,478 totalling Rs. 1,27,273. 10. I may refer also to the Supreme Court decision in Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC) and Murlidhar Himatsinghka vs. CIT (1966) 62 ITR 32 (SC) cited in favour of the assessee's case. Actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T ACT, 1961 25th June, 1990 We, the members of the Bombay Bench 'A' have differed in our orders passed in ITA No. 6554/Bom/1989 for the asst. yr. 1984-85, in the matter of D.R. Desai vs. Thirteenth ITO. The following question on which we have differed is referred to the Hon'ble President for resolution under s. 255(4) of the Act. "Whether, on the facts and circumstances of the case, the amount of excise duty refund of Rs. 10,24,652 or any part thereof received from the central excise department, Bombay is taxable in the hands of the assessee under s. 41(1) of the IT Act, 1961?" CH. G. KRISHNAMURTHY, PRESIDENT (AS THIRD MEMBER) 26th August, 1993 In this appeal, which was heard by Bombay Bench 'A', a point of difference of opinion arose as to whether amount of excise duty refund or any part thereof received by the assessee from the central excise department is taxable in the hands of the assessee under s. 41(1) of the IT Act, 1961. 2. After hearing the parties, going through the facts and perusing the orders of my learned Brothers, I did not encounter difficulty of any kind in arriving at the conclusion that the sum in question was not taxable at all under s. 41( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even today. Thus, this amount was included in the sale bills. For the purpose of accounting in the books of account of the assessee, the amount of excise duty, sales-tax collected and the goods returned, if there were any, were deducted from the sales and the net sales were credited to the trading account, the excise duty, sales-tax and the goods returned being credited to their respective accounts. The amount of excise duty and sales-tax, as and when paid, was debited to their respective accounts and the balance in those accounts was being carried forward in the balance-sheet either as credit balance or as debit balance, as the case may be. From the method of accounting employed by the assessee, the inference drawn by the Department was that since the excise duty collected by the assessee formed a part of turnover, which amount should have been credited to the trading account as goods sale value, and since only that amount was credited to the trading account deducting therefrom the excise duty, sales-tax, etc., the amount so deducted should be deemed to have been allowed as a deduction by the Department. The underlying postulate was that if the full value of the sales was credite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition, implying thereby that the benefit given to one assessee cannot be brought to tax in the hands of another assessee. This supports the view of recoupment of excess benefit given in any earlier assessment years. There is, therefore, no scope for a deemed allowance or a deemed deduction to invoke the provisions of s. 41(1) of the IT Act. If such a thing is permitted, it would amount to bringing to tax any receipt irrespective of whether it falls within the four corners of the definition of 'income' or the concept of 'income'. 4. The second aspect is that there is a direct decision of the jurisdictional High Court in the case of CIT vs. Nathu Bhai Desa Bhai (1981) 130 ITR 238 (MP), where, under almost identical circumstances, the Madhya Pradesh High Court held that such refund would not be taxed under s. 41(1) of the IT Act. While the case before me was a case of refund of excise duty, the case before the Madhya Pradesh High Court was a case of refund of sales-tax. The relevant facts of that case are that the assessee there collected sales-tax from its constituents during the asst. yrs. 1952-53 to 1959-60 and paid the same to the State Government. Later, the amount was refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of such expenditure in a subsequent year. This legal position was not challenged by the Department before the Madhya Pradesh High Court as is made clear from the following observation of the High Court at page 242 of its report: "This clear legal position, indeed, could not be challenged before us". The same is the position in the case before me also except that it is excise duty here and sales-tax there. Otherwise, the facts are identical. When there is a decision of the jurisdictional High Court explaining the legal position in a particular way, it is binding upon the Tribunal and the Tribunal has no option except to follow it and apply it. Not only the Tribunal, even the Revenue is bound by the decision of the High Court functioning within the jurisdiction of the High Court. This is very clear from the provisions of Art. 227 of the Constitution. The judicial opinion on this issue is never to the contrary. Therefore, when there is a decision of the jurisdictional High Court, that should have been followed. The learned Accountant Member, not only noticed the decision of the jurisdictional High Court, but made an attempt to distinguish it with reference to the decisions g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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