1992 (1) TMI 40 - HC - Income Tax

Refunded excise duty during review under Section 36(2) taxed under Section 41(1) when review discontinued

Commissioner Of Income-Tax Versus Bharat Iron And Steel Industries

HC held that a refunded excise duty received during pendency of review under section 36(2) became includible in income under section 41(1) only in the ... Accrual of Income u/s 41(1) - exercise of its powers under section 36(2) - Taxability of Refunded Excise Duty in the Relevant Assessment Year - HELD THAT:- Section 41 is in a group of sections, namely, sections 30 to 43A, which group, according to section 29, provides for the manner in which income under the head 'Profits and gains of business or profession' referred to in section 28 of the Act has to be computed. Section 41(1) provides 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 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. It may be pointed out that, under the Indian Income-tax Act, 1922, the provision corresponding to section 4 l(1) was section 10(2A). However, there is a difference between the provisions of section 10(2A) of the Act of 1922 and section 41(1) of the Act. The words occurring at the end of section 41(1) 'whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not' were not to be found in section 10(2A) of the Act of 1922. In the instant case, the Appellate Collector of Central Excise allowed the assessee's appeal against the decision of the Assistant Collector and the Superintendent of Central Excise and, as a result thereof, the assessee became entitled to claim refund of excise duty of Rs. 1,81,427. It claimed refund of the said amount by numerous applications made to the Assistant Collector. As the amount was not refunded, it ultimately filed petition being Special Civil Application in this court seeking direction against the Central Government and the Central Excise authorities to refund to it Rs. 1,81,427. The order of the Appellate Collector of Central Excise was, however, sought to be revised or reviewed under section 36(2) of the Excise Act and a show-cause notice was issued to the assessee on December 23, 1974, as stated above. It was during the pendency of the review or revisional proceedings that the amount of Rs. 1,81,427 was refunded to the assessee on August 8, 1975. The facts stated above clearly show that, in view of the pendency of the review or revisional proceedings, the assessee's claim for refund of the excise duty was in jeopardy. In other words, there was no final decision on the question whether or not the assessee was entitled to claim refund of excise duty of Rs. 1,81,427. It was only when the review or revisional proceedings were dropped on April 30, 1976, that the assessee became finally entitled to claim refund of Rs. 1,81,427. The payment of Rs. 1,81,427, which the assessee had received on August 8, 1975, was subject to the decision in the review or revisional proceedings. Having regard to the facts and circumstances stated above, in our opinion, the assessee obtained the refund of the excise duty amount only on April 30, 1976-the date on which the review or revisional proceedings were dropped. The year of account of the assessee is the financial year and, therefore, the refund of excise duty of Rs. 1,81,427 became includible in the assessee's total income for the assessment year 1976-77 under section 41(1) of the Act. In our opinion, the Tribunal was right in holding that the said amount of Rs. 1,81,427 was not chargeable to income-tax in the assessment year 1974-75. Both the questions referred to us are answered in the affirmative and against the Revenue. Issues Involved:1. Accrual of Income u/s 41(1) of the Income-tax Act, 1961.2. Taxability of refunded excise duty in the relevant assessment year.Summary:Issue 1: Accrual of Income u/s 41(1) of the Income-tax Act, 1961:The primary issue was whether the amount of Rs. 1,81,427, refunded as excise duty to the assessee, had accrued in the year of account relevant to the assessment year 1974-75. The Income-tax Officer included the amount in the assessee's total income for the assessment year 1974-75, invoking section 41(1) of the Income-tax Act, 1961. The Appellate Assistant Commissioner and the Tribunal held that the amount had not accrued to the assessee in the year of account relevant to the assessment year 1974-75 since the refund claim was under review/revision by the Central Government, putting the refund claim in jeopardy. The Tribunal's view was upheld, stating that the amount was not taxable in the assessment year 1974-75.Issue 2: Taxability of Refunded Excise Duty in the Relevant Assessment Year:The court examined the provisions of section 41(1), emphasizing that the key words are '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 court referred to CIT v. Rashmi Trading [1976] 103 ITR 312, which clarified that 'obtained' means the actual receipt of cash or its equivalent. The court agreed with this interpretation, rejecting the view that the right to receive the amount on an earlier date could be deemed as actual receipt. The court also cited CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524, which held that an amount under dispute does not accrue as income until the dispute is resolved.Conclusion:The court concluded that the refund of Rs. 1,81,427 became includible in the assessee's total income for the assessment year 1976-77, as the review/revisional proceedings were dropped only on April 30, 1976. Thus, the Tribunal was correct in holding that the amount was not chargeable to income-tax in the assessment year 1974-75. Both questions referred were answered in the affirmative, against the Revenue.