1995 (11) TMI 89 - HC - Income Tax

High Court directs Tribunal to refer questions on section 41(1) Income-tax Act & refund taxation limitation.

The High Court directed the Tribunal to refer questions on the applicability of section 41(1) of the Income-tax Act and the issue of limitation regarding ... Business Income, Question Of Law, Sales Tax Refund Issues:1. Whether the Tribunal was justified in holding that no remission or cessation of liability occurred to tax the amount under section 41(1) of the Income-tax ActRs.2. Whether the expiration of the period of limitation constitutes remission or cessation of liabilityRs.Detailed Analysis:The case involved a dispute regarding the taxation of a refund amount received by the assessee from Hindustan Aluminium Corporation. The assessee purchased aluminum from the Corporation, which later refunded an amount of Rs. 2,53,185 due to a challenge on the Central sales tax rate. The Income-tax Officer included this amount in the assessee's income under section 41(1) of the Income-tax Act, claiming it as remission of liabilities. However, the Tribunal in a previous case held that the amount did not belong to the assessee and, therefore, deleted the addition. The Commissioner of Income-tax sought to tax the amount again in a subsequent assessment year, arguing that the expiration of the limitation period for the MPEB to claim the money made it the income of the assessee for that year.The Commissioner of Income-tax (Appeals) disagreed with the assessing authority and held that the amount should be taxed in the year of receipt, i.e., for the assessment year 1980-81, and deleted the addition in the income of the assessment year 1983-84. The Department's subsequent appeal against this decision was dismissed, leading to the filing of a reference application under section 256(2) of the Act. The High Court, after hearing arguments from both sides, found that the questions raised by the Department regarding the applicability of section 41(1) of the Act and the issue of limitation were indeed questions of law that needed to be referred.The High Court concluded that the refusal to refer the questions was not justified and directed the Tribunal to state the case and refer the questions for the court's opinion in accordance with section 256(2) of the Act. The reference application was allowed without any orders as to costs, with a provision for counsel fees on each side. The court instructed the transmission of the order to the Tribunal for compliance within six months from the receipt of the copy.