Commissioner Of Income Tax,Kolkata – 1, Kolkata v. M/S. Bramhaputra Carbon Limited

ITA/120/2012 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction [Income Tax]ORIGINAL SIDE COMMISSIONER OF INCOME TAX,KOLKATA – 1, KOLKATA -Versus- M/S. BRAMHAPUTRA CARBON LIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 27[th] February, 2023 Appearance :Mr. Smrajit Roy Chowdhury Adv.…for the appellant.Mr. Subash Agarwal, Adv.Mr. Brijesh Kumar Singh, Adv.…for the respondent.. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 18[th] April, 2012passed by the Income Tax Appellate Tribunal, “A” Bench, Kolkata(the Tribunal) in ITA No.282/Kol/2010 for the assessment year2005-06. The appeal was admitted on 3[rd] October, 2012 on thefollowing substantial questions of law: “(a)Whether on a correct and proper interpretationof section 80IC of the Income Tax Act and the legalprinciples laid down by Hon’ble Supreme Court in thecases of Pandian Chemicals Ltd. – Vs. – CIT (2003) 262ITR 278 (SC) and Sterling Goods 237 ITR 579 (SC),refund of excise duty amounting to Rs.4,43,16,884/- iseligible for deduction under section 80IC of theIncome Tax Act? (b)Whether the Learned Tribunal erred in law inallowing deduction of Rs.3,39,68,495/- under section40(a)(ia) of the Income Tax Act without consideringthat these payments had been made in March, 2005without deduction of tax at source and withoutappreciating that the Supreme Court judgment in AlliedMotors Pvt. Ltd. (1997) 3 SCC 472 no where speaksabout retrospective effect of amendment made insection 40(a)(ia)?” We have heard Mr. Smarajit Roy Chowdhury, learnedstanding counsel appearing for the appellant/revenue and Mr.Subash Agarwal, learned counsel assisted by Mr. Brijesh KumarSingh, learned advocate appearing for the respondent/assessee.The question of law (a) is identical to the questionof law raised in the assessee’s own case for the assessmentyear 2011-12 in ITA 140/2019 which was decided against therevenue by judgment dated 26[th] September, 2022. The operativeportion of the decision reads as follows : “The short issue involved in this issue is whetherthe refund of excise duty obtained by the respondent/assessee could have been treated as profitfrom business and the assessee could have been grantedthe benefit of deduction under section 80IC of the Act.We find that identical issue was decided by the HighCourt of Gauhati in the case of Commissioner of Income-tax vs. Meghalaya Steels Ltd., 332 ITR 91 (Gauhati). Theoperative portion of the decision reads as follows :-“18. Insofar as the second question is concerned,the Central excise duty refund claimed by theassessee is on the basis of an exemptionnotification issued by the Ministry of Finance(Department of revenue) being Notification No. 32of 1999 and Notification No. 33 of 1999 both dated8-7-1999. In terms of these notifications, amanufacturer is required to first pay the Centralexcise duty and thereafter claimed a refund onfulfilment of certain conditions. In the nextmonth, after verification of the claim, the Centralexcise duty so deposited is refunded to theassessee if the conditions laid down in thenotifications are fulfilled. In the present case,there is no dispute that the assessee was entitledto the Central excise duty refund. 19. The Central Board of Excise and Customs in itscircular dated 19-12-2002 clarified that the refundis not on account of excess payment of excise dutybut is basically designed to give effect to theexemption and to operationalise the exemption givenby the notifications. In that sense, the Centralexcise duty refund does not appear to bear thecharacter of income since what is refunded to the assessee is the amount paid under the modalitiesprovided by the Department of revenue for givingeffect to the exemption notifications. There isalso nothing to suggest that the assessee hasrecovered or passed on the excise duty element toits customers. 19. The Central Board of Excise and Customs in itscircular dated 19-12-2002 clarified that the refundis not on account of excess payment of excise dutybut is basically designed to give effect to theexemption and to operationalise the exemption givenby the notifications. In that sense, the Centralexcise duty refund does not appear to bear thecharacter of income since what is refunded to the assessee is the amount paid under the modalitiesprovided by the Department of revenue for givingeffect to the exemption notifications. There isalso nothing to suggest that the assessee hasrecovered or passed on the excise duty element toits customers. 20. Even assuming the refund does amount to incomein the hands of the assessee, it is a profit orgain directly derived by the assessee from itsindustrial activity. The payment of Central exciseduty has a direct nexus with the manufacturingactivity and similarly, the refund of the Centralexcise duty also has a direct nexus with themanufacturing activity. The issue of payment ofCentral excise duty would not arise in the absenceof any industrial activity. There is, therefore, aninextricable link between the manufacturingactivity, the payment of Central excise duty andits refund. In the circumstances, we are of theopinion that question No. 2 must be answered in theaffirmative in favour of the assessee and againstthe revenue.” Identical view was taken by the High Court of Jammu& Kashmir in ITA No.2 of 2010, dated January 31, 2010 inthe case of Shree Balaji Alloys & Ors. vs. Commissionerof Income Tax & Anr., wherein it was held as follows :-“24) A close reading the Office Memorandum and theamendment introduced thereto with para No. 3appearing in the Central Excise Notification Nos.56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development ofindustries in the State was contemplated with theobject of generation of employment in the State ofJammu and Kashmir and the generation of employment,so contemplated, was not only casual or temporary;but was on the other hand, of permanent nature. 25) Considered thus, the paramount consideration ofthe Central Government in providing the incentivesto the New Industrial Units and SubstantialExpansion of the existing units, was the generationof employment through acceleration of industrialdevelopment, to deal with the social problem ofunemployment in the State, additionally creatingopportunities for self employment, hence a purposein Public Interest. 30) For all what has been said above, the findingof the Tribunal on the first issue that the ExciseDuty Refund, Interest Subsidy and Insurance Subsidywere Production Incentives, hence Revenue Receipt,cannot be sustained, being against the law laiddown by Hon’ble Supreme Court of India in SahneySteel and Ponni Sugars cases (supra).” The appeal filed by the revenue against thedecision in the case of Shree Balaji Alloys in CivilAppeal No. 10061 of 2011 was dismissed by the Hon’bleSupreme Court by order dated April 19, 2016. The orderreads as follows :- “Heard Mr. K. Radhakrishnan, learned senior counselappearing for the Revenue as well as Mr. Ajay Vohra, learned senior counsel appearing for therespondents. The issue raised in these appeals is coveredagainst the Revenue by the decision of this Courtin “Commissioner of Income Tax, Madras Vs. PonniSugars and Chemicals Ltd.”, reported in (2008) 9SCC 337, or in the alternate, in “Commissioner ofIncome Tax Vs. M/s Meghalaya Steels Ltd.”, reportedin (2016) 3 SCALE 192. The appeals are, therefore, dismissed.No costs.” As against the order passed in the case ofMeghalaya Steels Ltd., the revenue had preferred appealbefore the Hon’ble Supreme Court in Commissioner ofIncome-tax vs. Meghalaya Steels Ltd., 383 ITR 217 (SC)and the appeal filed by the revenue was dismissed. Thus, the issue having been settled in favour ofthe assessee in the aforementioned decisions, we areinclined to apply the same to the case on hand. The issue raised in these appeals is coveredagainst the Revenue by the decision of this Courtin “Commissioner of Income Tax, Madras Vs. PonniSugars and Chemicals Ltd.”, reported in (2008) 9SCC 337, or in the alternate, in “Commissioner ofIncome Tax Vs. M/s Meghalaya Steels Ltd.”, reportedin (2016) 3 SCALE 192. The appeals are, therefore, dismissed.No costs.” As against the order passed in the case ofMeghalaya Steels Ltd., the revenue had preferred appealbefore the Hon’ble Supreme Court in Commissioner ofIncome-tax vs. Meghalaya Steels Ltd., 383 ITR 217 (SC)and the appeal filed by the revenue was dismissed. Thus, the issue having been settled in favour ofthe assessee in the aforementioned decisions, we areinclined to apply the same to the case on hand. In light of the above, the appeal filed by therevenue is dismissed and the substantial question of lawis answered against the revenue.” In the light of the above, the substantial question oflaw (a) is answered against the revenue. So far as thesubstantial question of law (b) is concerned, this issue isalso covered by the decision of this Court in the case ofCommissioner of Income Tax, Kolkata – XI, Kolkata Vs. Virgin Creations in ITAT/302/2011 dated 23[rd] November, 2011 whereinthe Hon’ble Division Bench held as follows : “It is argued by Mr. Nizamuddin that this courtneeds to take decision as to whether section 40(A)(ia) ishaving retrospective operation or not. The learned Trinunal on fact found that theassessee had deducted tax at source from the paid chargesbetween the period April 1, 2005 and April 28, 2006 andthe same were paid by the assessee in July and August2006, i.e. well before the due date of filing of thereturn of income for the year under consideration. Thefactual position was undisputed. Moreover, the Supreme Court, as has been recordedby the learned Tribunal, in the case of Allied MotorsPvt. Ltd. and also in the case of Alom Extrusions Ltd.,has already decided that the aforesaid provision hasretrospective application. Again, in the case reported in82 ITR 570, the Supreme Court held that the provision,which has inserted the remedy to make the provisionworkable, requires to be treated with retrospectiveoperation so that reasonable deduction can be given tothe section as well. In view of the authoritative pronouncement of theSupreme Court, this court cannot decide otherwise. Hencewe dismiss the appeal without any order as to costs.” Following the above decision, the substantial questionof law (b) is also answered against the revenue. In the result, the appeal filed by therevenue stands dismissed and the substantial questions of laware answered against the revenue. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.Das/K. Banerjee