TaxTMI 
TaxTMI 
2002 (9) TMI 4
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....ty within the meaning of section 41(1) so long as the issue was pending determination by the Supreme Court. That contention was accepted and the appeal was allowed. The appeal filed by the Income-tax Department against the said order was also dismissed. On a reference application filed by the Commissioner of Income-tax, the Tribunal referred the following question of law for the opinion of the High Court of Karnataka: "Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that excise duty refund is not assessable under section 41(1) of the Income-tax Act?" The High Court held that the Tribunal was not right in holding that the refunded amount was not assessable under section 41(1) of the Act. However, the High Court observed that the Tribunal may consider the question whether the excise duty was actually refunded to the assessee or not and pass appropriate orders in the light of its finding. This observation was made after refer ring to the argument of the assessee's counsel that the amount has not been received by the assessee. In coming to the conclusion that the excise duty refunded was liable to be taxed under section 41(1) of the ....
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....iability 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." Section 41(1) applies if the following conditions and circumstances are satisfied: In the assessment for the relevant year an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by the assessee. This is the first step. Coming to the next step the assessee must have subsequently (i) obtained any amount in respect of such loss or expenditure, or (ii) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming....
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.... court or Tribunal upholds the levy at a later date, the assessee will not be without remedy to get back the relief. True, expenditure and trading liability may be overlapping concepts; but the law-makers apparently intended to deal with allied concepts separately and specifically so as to make the provision as comprehensive as possible in order to effectuate the objective underlying the provision. The anatomy of the section and the collocation of the words employed therein would suggest that the test of cessation or remission of liability has to be applied vis-a-vis trading liability and it cannot be projected into the previous clause. The typical example of remission or cessation of trading liability is to be found in the recent decision rendered by us in Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434 (SC). In that case the assessee made a provision in the books of account towards purchase tax liability which was in dispute. Under the impression that the dispute was finally settled with the dismissal of the S.L.P. in some other case, the assessee thought it fit to reverse the provision made earlier and accordingly "wrote back" in its accounts the sums for which the provis....
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....deposited the excise duty in the court. That payment was not by way of discharge of the liability but was only by way of security and when the writ petition was allowed by the court the amount was refunded to the petitioner. It was not, therefore, a case where an allowance had been made in respect of any expenditure incurred by it or reimbursement of the expenditure subsequently. It was an allowance in respect of a trading liability and in view of the fact that the decision of this court has not become final and is the subject matter of appeals before the Supreme Court, there has been no remission or cessation of the liability so as to attract section 41(1) of the Act." The High Court correctly appreciated the scope of section 41(1) and applied the second limb of the sub-section to the fact situation. It may be noted that the assessee did neither pay the excise duty to the Government nor did it get refund of duty from the concerned authority. Notwithstanding the High Court's judgment in favour of the petitioner, the stage had not yet reached when it can be said that the liability for which allowance was given earlier ceased. The view taken by the High Court in substance is that th....
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....s case [1983] 141 ITR 763 (All). The following observations in the judgment may be noted as they clearly reveal the fact situation in that case: "The company, no doubt, is still resisting the claim of the excise authorities, but this fact does not debar the company from claiming deduction on account of the excise duty being demanded from it and for which the company had made provision in its books of accounts. The company is following the mercantile system of accounting and it can legitimately claim deduction in respect of a business liability even if such liability has not been quantified or paid." The High Court then held that the liability of the assessee as regards the payment of excise duty cannot be said to have ceased because the judgment of the single judge of the High Court did not attain finality. Though the conclusion of the High Court which was affirmed by this court cannot be legally faulted, we cannot, however, approve of the following analysis of the section occurring in the judgment: "In short, what this provision means is that if an assessee has been allowed a deduction in the computation of its total income of any liability on account of loss or expenditure and....
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....oked so long as there is no final decision on the question of legality of levy. To reach such a conclusion, the decision in J.K. Synthetics Ltd.'s case [1976] 105 ITR 864 (All) and Rameshwar Prasad's case [1983] 141 ITR 763 (All) were relied upon. We have already explained the ratio of those decisions. Another case on which strong reliance was placed by the learned judges is the judgment of the Full Bench in CIT v. Bharat Iron and Steel Industries [1993] 199 ITR 67 (Guj). In the said Full Bench decision, though the discussion by and large proceeded on the right lines, we find that the actual decision reached in the concluding para is based on a wrong interpretation of the provision. The Full Bench was of the view that the assessee's claim for refund of excise duty was in jeopardy in view of the pending revisional proceeding although the assessee obtained refund. The assessee received the refund of excise duty on August 8, 1975. The High Court took the view that the assessee obtained the refund only on April 30, 1976, when the proposed revision was withdrawn. It was therefore, held that the refunded amount became includible in the assessee's total income for the assessment year 1976....