Rc/53/1994 Of Hyderabad Bottling Co. P. Ltd v. Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD(Special Original Jurisdiction) PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU REFERRED CASE NO.53 OF 1994 DATED:21.8.2013 Between: Hyderabad Bottling Co.(P) Ltd.,Hyderabad … Petitioner And Commissioner of Income TaxAndhra PradeshHyderabad … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU REFERRED CASE NO.53 OF 1994 ORDER:(per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This matter has been referred to this Court for its opinion on thefollowing questions. 1.“Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal is right in lawin holding that the refund of Central Excise duty ofRs.14,30,244/- is chargeable to tax under Section41(1) of the Income Tax Act, 1961 even when thematter is pending in appeal before the Hon’bleSupreme Court for final disposal?case, the Income Tax Appellate Tribunal is right in lawin holding that the refund of Central Excise duty ofRs.14,30,244/- is chargeable to tax under Section41(1) of the Income Tax Act, 1961 even when thematter is pending in appeal before the Hon’bleSupreme Court for final disposal? 2.Whether on the facts and in the circumstances of thecase, the ITAT is correct in law in holding that the sumof Rs.7,34,000/- paid by the assessee company onaccount of Central Excise duty during the assessmentyear 1984-85 as per the directions of the Hon’bleSupreme Court is not allowable as deduction underSection 43B of the Income Tax Act, 1961?”case, the ITAT is correct in law in holding that the sumof Rs.7,34,000/- paid by the assessee company onaccount of Central Excise duty during the assessmentyear 1984-85 as per the directions of the Hon’bleSupreme Court is not allowable as deduction underSection 43B of the Income Tax Act, 1961?” 2. First, we shall deal with question No.1. We set out short factrelevant thereto. The assessee is a private limited company engaged in thebusiness of manufacturing soft drinks like Goldspot, Limca, Thums Upetc. For the assessment year 1984-85, the assessee has filed itsreturn of income declaring loss of Rs.72,42,823/- as against which theAssessing Officer completed the assessment on a total income ofRs.31,33,610/- after setting off the carry forward losses anddepreciation of Rs.73,81,063/-. In the course of assessment, theIncome Tax Officer brought to tax an amount of Rs.14,30,244/- under Section 41(1) of the Income Tax Act, 1961 (for short, ‘the Act’), beingthe Central Excise Duty received by the assessee. 2. First, we shall deal with question No.1. We set out short factrelevant thereto. The assessee is a private limited company engaged in thebusiness of manufacturing soft drinks like Goldspot, Limca, Thums Upetc. For the assessment year 1984-85, the assessee has filed itsreturn of income declaring loss of Rs.72,42,823/- as against which theAssessing Officer completed the assessment on a total income ofRs.31,33,610/- after setting off the carry forward losses anddepreciation of Rs.73,81,063/-. In the course of assessment, theIncome Tax Officer brought to tax an amount of Rs.14,30,244/- under Section 41(1) of the Income Tax Act, 1961 (for short, ‘the Act’), beingthe Central Excise Duty received by the assessee. 3. The assessee paid Central Excise Duty at the rate of 20% onaerated waters manufactured by it during the period from 17.3.1972 to3.5.1977, acting under a mistaken impression that excise duty at 20%is in fact payable on aerated waters, including soft drinks. After theaforesaid payment, the Bombay High Court by its judgment renderedin the case of Duke and Sons (P) Ltd. and another, in W.P. No.944 of1973, dt.11.10.1976, held that soft drinks such as Goldspot, Limca etc.,manufactured by the assessee do not contain blended flavouringconcentrates but contain only synthetic flavouring essence and assuch the said soft drinks like Limca, Goldspot, etc., are not liable toCentral Excise Duty at the higher rate of 20% but they were liable toduty at a lesser rate of 10% only as per the Central Excise Rules andnotifications. On the basis of the aforesaid judgment of the BombayHigh Court, the assessee has filed an application before the CentralExcise authorities, claiming refund of the excise duty paid in excess byit, as aforesaid, for the period from 17.3.1972 to 3.5.1977. The CentralExcise authorities rejected the said applications filed by the assesseeon the ground that the said claims were barred by limitation. Aggrieved by it, the assessee filed writ petitions (W.P. Nos.3649 of1979 and 3665 of 1980) in this Court seeking directions to the CentralExcise authorities to work out the excess excise duty paid by theassessee and refund the same to the assessee. The High Court byorders dt.25.10.1982 and 12.4.1983 directed the Central Exciseauthorities to work out the excess excise duty paid by the assesseeand refund the same. Thereafter, in terms of the judgment of the HighCourt, the Assistant Collector of Central Excise, by his ordersdt.19.7.1983 and 15.12.1983 refunded the amount of Rs.14,30,244/- tothe assessee. However, the Central Excise authorities did not acceptthe decision of this Court and carried the matter in appeal to theSupreme Court. 4. Hence, the matter is still sub judice and the appeal is yet to bedecided as per the information supplied by learned counsel for theparties. In view of the fact of pendency of the matter before theSupreme Court, the assessee has shown an amount of Rs.14,30,244/-in its Balance Sheet under the head ‘Liability for other finances’ for theassessment year 1984-85. The Assessing Officer held that pendencyof the appeal before the Supreme Court is no bar to tax this refundamount and, as aforesaid, brought it to tax under Section 41(1) of theIncome Tax Act, for the assessment year 1984-85. This decision wasalso upheld by the Commissioner of Income Tax (Appeals), on appeal,following the decision of this Court in the case of C.I.T. v. Sahney Steel & Press Works Ltd.[[1]]. The Tribunal also, on a further appealpreferred by the assessee, upheld the decision of the Commissioner ofIncome Tax (Appeals). 5. Learned counsel for the assessee contends that the aforesaidrefund amount of Central Excise duty cannot be said to be income asthe matter is still sub judice and pending before the Hon’ble SupremeCourt and it cannot be said that the income at the hands of theassessee has been crystalized. According to him, if the SupremeCourt decides against the assessee, the amount has to be refunded toRevenue. As such, it was shown as liability. & Press Works Ltd.[[1]]. The Tribunal also, on a further appealpreferred by the assessee, upheld the decision of the Commissioner ofIncome Tax (Appeals). 5. Learned counsel for the assessee contends that the aforesaidrefund amount of Central Excise duty cannot be said to be income asthe matter is still sub judice and pending before the Hon’ble SupremeCourt and it cannot be said that the income at the hands of theassessee has been crystalized. According to him, if the SupremeCourt decides against the assessee, the amount has to be refunded toRevenue. As such, it was shown as liability. 6. Mr. S.R. Ashok, learned Counsel for Revenue, submits thatadmittedly refund has been received and benefit of the amount hasbeen derived by the assessee. Under the provisions of the IncomeTax Act, the moment the money is actually received and is treated tobe income, what would happen in future about this money because ofdecision of a Court, does not operate as deferment of computation ofincome. Therefore, he submits that this question has to be answeredin favour of the Revenue and against the assessee. 7. We have considered the rival contentions of learned counsel forthe parties. Admittedly, the factual position is that the assessee, interms of the orders of the High Court, has received the amount and has been availing the benefit thereof. Section 5 of the Income Tax Act,which provides as to the ‘total income’, to the extent relevant to thiscase, reads as follows: “Scope of total income 5. (1) Subject to the provisions of this Act, the total income ofany previous year of a person who is a resident includes allincome from whatever source derived which – (a)is received or is deemed to be receivedin India in such year by or on behalf of suchperson; or (b)accrues or arises or is deemed toaccrue or arise to him in India during suchyear; or(c)accrues or arises to him outside Indiaduring such year: … … …” 8. Thus, it is clear that going by the provision of Section 5 of theAct, the assessee has received the amount and hence it is taxableautomatically. What would happen in future after judgment deliveredby the Supreme Court cannot be taken into consideration now andfurther, making a provision for liability in the books of account does notchange the situation to render the provision of law inapplicable. Under these circumstances, we are of the view that theaforesaid amount is chargeable to tax under Section 41(1) of the Act. However, in the event the Supreme Court decides in favour of theRevenue, then the assessee will have to pay back the money toRevenue and later on, the assessee will get deduction automaticallyand in that case, the said refunded amount should not be taken asincome automatically. Therefore, we answer question No.1 inaffirmative. 9. Now, we shall deal with the second question. We narrate shortfact in relation thereto. In the course of assessment, the Income TaxOfficer, rejected the claim of the assessee for deduction of a sum ofRs.7,34,000/- under Section 43B of the Income Tax Act. During theperiod 1979 to 1983, there was a dispute between manufacturers of excisable goods and the Central Excise Department, as to whether allexpenses incurred by manufacturers subsequent to manufacture of thegoods, can be included in the assessable value of the product for thepurpose of levy of Central Excise Duty, in terms of Sections 3 and 4 ofthe Central Excise and Salt Act, 1944. There was a difference ofopinion amongst various High Courts, on this issue. The jurisdictionalHigh Court took the view that excise duty is not payable on post-manufacturing expenses and therefore, they need not be includedwhile determining the assessable value of goods under Section 4 ofthe Central Excise and Salt Act. Thereafter, in the year 1983, theSupreme Court in its judgment rendered in the case of Union of India excisable goods and the Central Excise Department, as to whether allexpenses incurred by manufacturers subsequent to manufacture of thegoods, can be included in the assessable value of the product for thepurpose of levy of Central Excise Duty, in terms of Sections 3 and 4 ofthe Central Excise and Salt Act, 1944. There was a difference ofopinion amongst various High Courts, on this issue. The jurisdictionalHigh Court took the view that excise duty is not payable on post-manufacturing expenses and therefore, they need not be includedwhile determining the assessable value of goods under Section 4 ofthe Central Excise and Salt Act. Thereafter, in the year 1983, theSupreme Court in its judgment rendered in the case of Union of India v. Bombay Tyre International Ltd.[[2]] held that such of those post-manufacturing expenses which would go to enhance the value of theproduct should be included while computing the assessable value andthe other product should not be included in arriving at the assessablevalue. In the light of that decision, manufacturers were directed by theGovernment to determine what portion of the post-manufacturingexpenses already claimed by them during the period 1979-1983 wouldfall within the ambit of the Supreme Court Judgment, for the purpose oflevy of excise duty. The total amount of duty involved on account ofpost-manufacturing expenses claimed by the assessee during theperiod 1978-79 to 1982-83 was Rs.31,81,150/-. The assesseeadmitted that Rs.21,46,000/- was covered by the Supreme Courtjudgment and therefore it is liable to pay the same. Accordingly, theassessee paid Rs.7,34,000/- during the assessment year 1984-85 andclaimed deduction of the said amount under Section 43B of the IncomeTax Act. The said deduction was disallowed by the Income TaxOfficer, followed by all the authorities below. 10. Learned counsel for the assessee contends that factually theamount was paid on account of central excuse duty. Once the amountis paid, according to him, the deduction under Section 43B of the Act isan automatic choice. He drew our attention to language of Section 43B of the Act and submits that this Section starts with a non obstanteclause. Therefore, it has got a mandatory character. Accordingly,deduction should be allowed irrespective of the previous year in whichthe liability to pay such sum was incurred by the assessee accordingto the method of accounting regularly employed by him. He also reliedon a decision of Gujarat High Court in the case of Lakhanpal National Limited v. Income Tax officer[[3]]. 11. Mr. S.R. Ashok, learned counsel for the Revenue, submits thatthe assessee might have paid the amount on excise duty factually, butin the books of account it has been shown otherwise. No provision formaking of payment was made. Since the assessee is maintainingmercantile system of accounting and the authority concerned going bythis system accepted irrespective of factual position. 12. After hearing the learned counsel and examining the admittedfacts, we find that there is no dispute that the assessee has paid exciseduty after the same was worked out in terms of the Supreme Courtjudgment. It is also an admitted position, this amount was paid onaccount of central excise. Once this fact is established, in our view,the provision of Section 43B of the Act will come into playautomatically. We find substance in the contention of learned counselfor the assessee that Section 43B of the Act has a mandatorycharacter, as it starts with a non obstante clause. We set out Section 43B of the Act, insofar as it is relevant to this case. “Certain deduction to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable underthis Act in respect of - (a) any sum payable by the assessee by way of tax,duty, cess or fee, by whatever name called, under any law forthe time being in force, or (b) ... … … (c) … … … (d) … … … shall be allowed (irrespective of the previous year in which the 43B of the Act, insofar as it is relevant to this case. “Certain deduction to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable underthis Act in respect of - (a) any sum payable by the assessee by way of tax,duty, cess or fee, by whatever name called, under any law forthe time being in force, or (b) ... … … (c) … … … (d) … … … shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assesseeaccording to the method of accounting regularly employed byhim) only in computing the income referred to in section 28 ofthat previous year in which such sum is actually paid by him: … … …” 13. Thus, it is clear that the actual payment is the criteria in givingdeduction irrespective of a provision being made in accountingsystem. We are of the view that the moment the payment is made,deduction has to be granted automatically. The scope of Section 43Bof the Act was examined by the Gujarat High Court in the aforesaidcase of Lakhanpal National Limited (supra), wherein it was observedas follows: “On a perusal of the language of section 43B, it is clearthat it opens with a non-obstante clause which means that itcontrols the operation of other provisions of the Act andirrespective of the other provisions, section 43B will haveoverriding effect. Keeping in mind, if we examine the languageof the section, it clearly brings out the intention of theLegislature that the deduction in respect of any tax or dutyunder any law would be an allowable deduction in computingthe income under section 28 of that previous year in whichsuch sum is actually paid by the assessee. The intention ismade more specific by providing that it would be soirrespective of the previous year in which the liability to paysuch sum was incurred by the assessee according to themethod of accounting regularly employed by the assessee.This clearly makes out that even if the mercantile method ofaccounting is employed and the liability to pay might haveaccrued which would give the assessee a right to obtaindeduction, in view of the specific language of the section, theassessee would not be entitled to get deduction merely onaccrual of the liability to pay the tax or duty, but would be soentitled to get deduction only on actual payment of tax or duty.The Legislature has also taken care by providing anExplanation that the assessee shall not be entitled to anydeduction under section 43B of the Act in respect of suchsum in computing the income of the previous year in whichsuch sum is clearly paid by him in case a deduction inrespect of any such sum was allowed in the previous year. Itis, therefore, clear that the assessee shall not be entitled toget the benefit twice, i.e., at the time when the liability arisesand also at the time when the actual payment is made. 14. In view of the aforesaid exposition of law, and while acceptingthe aforesaid view, we also hold that not making any provision in thebooks of account does not debar the assessee from getting deduction. Under these circumstances, the assessee is entitled to deduction. However, it has to be examined whether on earlier point of time,deduction has been given on this account, because the assessee ismaintaining mercantile system of accounting. Therefore, it isnecessary for the Assessing Officer to scrutinize this aspect. Afterscrutiny, if it is found that deduction was given earlier, on making ofactual payment, then a further deduction shall not be given. 15. In view of the aforesaid discussion, we answer this question innegative and in favour of the assessee, however, with a rider that theAssessing Officer has to examine whether any deduction was given onearlier point of time on the same account, and if it is found thatdeduction was given earlier, then a further deduction shall not begiven. 16. The reference is answered accordingly. ________________________ K.J. SENGUPTA, CJ ______________________ K.C. BHANU, J 21.8.2013 bnr 15. In view of the aforesaid discussion, we answer this question innegative and in favour of the assessee, however, with a rider that theAssessing Officer has to examine whether any deduction was given onearlier point of time on the same account, and if it is found thatdeduction was given earlier, then a further deduction shall not begiven. 16. The reference is answered accordingly. ________________________ K.J. SENGUPTA, CJ ______________________ K.C. BHANU, J 21.8.2013 bnr [1]152 ITR 39 (AP)152 ITR 39 (AP) [2]AIR 1984 SC 420AIR 1984 SC 420 [3]162 ITR 240 (Guj.)162 ITR 240 (Guj.)