The Commissioner Of Income-Tax, Patiala v. Surinder Mohan Jalota

ITR No. 106 of 1996 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No. 106 of 1996 Date of Decision: 5.7.2010 The Commissioner of Income-tax, Patiala ....Petitioner. Versus Surinder Mohan Jalota ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the revenue. None for the assessee. AJAY KUMAR MITTAL, J. 1.The Income Tax Appellate Tribunal, Chandigarh Bench(hereinafter referred to as “the Tribunal”) has referred the followingquestion of law on a direction issued by this Court in ITC No. 83 of 1992for opinion of this Court under Section 256 (2) of the Income Tax Act,1961 (for short “the Act”) for the assessment year 1987-88:- “Whether on the facts and in the circumstances, theAppellate Tribunal was right in law in deleting theaddition made on account of receipt of Excise DutyRefund when the provisions of section 41(1) read withsection 43B of the Income-tax Act, 1961 are applicablein the case of the assessee?” 2.The facts as noticed in the statement of case are that theassessee filed its return on 30.7.1987 declaring net loss atRs.3,28,179/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee had credited a sum ofRs.17,73,999/- in the suspense account and the said amount wasrefund of custom duty (wrongly mentioned as excise tariff by ACIT)which was charged to profit and loss account in the earlier years. TheAssessing Officer relying on the judgment of the Hon'ble SupremeCourt in the case of Kidar Nath Jute Manufacturing Co. 82 ITR 363made an addition of Rs.17,73,999/- as per the provisions of Section 41(1) of the Act. Feeling aggrieved, the assessee filed an appeal beforethe CIT(A) who vide order dated 9.8.1990 confirmed the said addition.On further appeal by the assessee to the Tribunal, it was pleaded thatthe refund in pursuance to order of Bombay High Court was conditionalas the assessee was bound to repay the amount in question within sixtydays of the order of Hon'ble Supreme Court in case the decision wasagainst the assessee in the appeal filed by the Government against theorder of the Bombay High Court. Accordingly, relying upon decision ofthe Apex Court in Commissioner of Income-tax, West Bengal v.Hindustan Housing & Land Development Trust Limited [1986] 161ITR 524, it was urged that the right to receive the income had notaccrued to the assessee within the meaning of Section 41(1) of the Actas the cessation of liability in the case will be on the date of final verdictby the Hon'ble Supreme Court. The Tribunal accepting the plea of theassessee, partly allowed the appeal vide order dated 10.12.1990. 3.We have heard the learned counsel for the revenue. 4.Learned counsel for the revenue submitted that in view ofSection 41(1) of the Act, since there was cessation of the liability in theyear under consideration, the same was exigible to tax and placed reliance upon the judgment of the Apex Court in Polyflex (India) Pvt.Ltd. v. Commissioner of Income-tax, 257 ITR 343. Learned counselfurther submitted that the reliance of the Tribunal on the Apex Courtjudgment in Hindustan Housing & Land Development Trust Limited'scase (supra) was misplaced. According to the learned counsel, oncethe liability had ceased during the previous year relating to theassessment year in question, the same was exigible to tax.5.We have considered the submission of the learned counselfor the revenue. We find force in the submission made by the learnedcounsel for the revenue.6.Section 41 (1) of the Act as it stood at the relevant timereads thus:- reliance upon the judgment of the Apex Court in Polyflex (India) Pvt.Ltd. v. Commissioner of Income-tax, 257 ITR 343. Learned counselfurther submitted that the reliance of the Tribunal on the Apex Courtjudgment in Hindustan Housing & Land Development Trust Limited'scase (supra) was misplaced. According to the learned counsel, oncethe liability had ceased during the previous year relating to theassessment year in question, the same was exigible to tax.5.We have considered the submission of the learned counselfor the revenue. We find force in the submission made by the learnedcounsel for the revenue.6.Section 41 (1) of the Act as it stood at the relevant timereads thus:- “41. Profits chargeable to tax- (1) Where anallowance or deduction has been made in theassessment for any year in respect of loss,expenditure or trading liability incurred by theassessee, and subsequently during any previousyear the assessee has obtained, whether in cash orin any other manner whatsoever, any amount inrespect of such loss or expenditure or some benefitin respect of such trading liability by way of remissionor cessation thereof, the amount obtained by him orthe value of benefit accruing to him, shall be deemedto be profits and gains of business or profession andaccordingly chargeable to income-tax as the incomeof that previous year, whether the business or profession in respect of which the allowance ordeduction has been made is in existence in that yearor not.” 7.The Apex Court in Polyflex (India) Pvt. Ltd.'s case (supra)while interpreting the aforesaid provision held that the followingconditions and circumstances are required to be fulfilled for applicationof Section 41(1) of the Act:- “In the assessment for the relevant year anallowance or deduction has been made in respect ofany loss, expenditure or trading liability incurred bythe assessee. This is the first step. Coming to thenext step the assessee must have subsequently (i)obtained any amount in respect of such loss orexpenditure, or (ii) obtained any benefit in respect ofsuch trading liability by way of remission or cessationthereof. In case either of these events happen, thedeeming provision enacted in the closing part of sub-section (1) comes into play. Accordingly, the amountobtained by the assessee or the value of benefitaccruing to him is deemed to be profits and gains ofbusiness or profession and it becomes chargeable toincome-tax as the income of that previous year.” 8.The issue in Polyflex (India) Pvt. Ltd's case (supra) beforethe Hon'ble Supreme Court was similar as in the present case. Theassessee therein had claimed deduction on account of payment ofexcise duty in the year 1986. However, in the assessment year 1989- 90, excise duty amounting to Rs.9,64,206/- was refunded by theDepartment which was brought to tax by invoking provisions of Section41 (1) of the Act. The plea of the assessee was that there was noremission or cessation of trading liability within the meaning of Section41(1) of the Act so long as the issue was pending determination by theSupreme Court. The first appellate authority and the Tribunal hadadjudicated the matter in favour of the assessee but the said decisionwas reversed by the High Court and it was held that the Tribunal wasnot right in holding that the refunded amount was not assessable underSection 41(1) of the Act. On further appeal, the Supreme Court whiledismissing the appeal of the assessee held that the amount obtained bythe assessee shall be deemed to be profits and gains of business orprofession and it becomes chargeable to income-tax under Section 41(1) of the Act as the income of that previous year and had laid down asunder:- “We are of the view, apart from what has been laiddown in Thirumalaiswamy Naidu's case [1998] 230ITR 534 (SC), that the ingredients of section 41(1)are satisfied in the instant case and, therefore, theamount of excise duty refunded becomes taxableduring the year in question. This is a case in whichthe assessee can be said to have obtained theamount by way of refund in respect of the businessexpenditure incurred by it during an earlier year, forwhich the assessee had the benefit of deduction orallowance. Normally, the payment of certain amount to discharge the statutory levy such as sales tax,excise duty in the course of carrying on business isan expenditure. If authority is needed, we may referto Kedarnath Jute Manufacturing Co. Ltd. v. CIT[1971] 82 ITR 363, wherein this court held that theamount of sales tax paid or payable by the assesseeis an expenditure within the meaning of section 10 (2)(xv) of the Act. We are inclined to think that in a case where astatutory levy in respect of goods dealt in by theassessee is discharged and subsequently theamount paid is refunded, it is the first clause thatmore appropriately applies. It will not be a case ofbenefit accruing to him on account of cessation orremission of trading liability. It will be a case whichsquarely falls under the earlier clause, namely,“obtained any amount in respect of suchexpenditure”. In other words, where expenditure isactually incurred by reason of payment of duty ongoods and the deduction or allowance had beengiven in the assessment for earlier period, theassessee is liable to disgorge that benefit as andwhen he obtains refund of the amount so paid. Theconsideration whether there is a possibility of therefund being set at naught on a future date will not bea relevant consideration. Once the assessee gets back the amount which was claimed and allowed asbusiness expenditure during the earlier year, thedeeming provision in section 41(1) of the Act comesinto play and it is not necessary that the Revenueshould await the verdict of higher court or Tribunal. Ifthe court or Tribunal upholds the levy at a later date,the assessee will not be without remedy to get backthe relief. True, expenditure and trading liability may beoverlapping concepts; but the law-makers apparentlyintended to deal with allied concepts separately andspecifically so as to make the provision ascomprehensive as possible in order to effectuate theobjective underlying the provision. The anatomy ofthe section and the collocation of the wordsemployed therein would suggest that the test ofcessation or remission of liability has to be appliedvis-a-vis trading liability and it cannot be projectedinto the previous clause.” 9.We may now advert to the judgment of the Apex Court inHindustan Housing & Land Development Trust Limited's case (supra)on the basis of which the Tribunal had adjudicated the issue in favour ofthe assessee. In that case certain lands of the company werecompulsorily acquired by the Government. Award was announced bythe Land Acquisition Collector granting Rs.24,97,249/- as compensationand thereafter arbitrator had fixed the quantum of compensation at 9.We may now advert to the judgment of the Apex Court inHindustan Housing & Land Development Trust Limited's case (supra)on the basis of which the Tribunal had adjudicated the issue in favour ofthe assessee. In that case certain lands of the company werecompulsorily acquired by the Government. Award was announced bythe Land Acquisition Collector granting Rs.24,97,249/- as compensationand thereafter arbitrator had fixed the quantum of compensation at Rs.30,10,873/-. State Government had challenged the award of thearbitrator by filing an appeal before the High Court and during thependency of the said appeal, an amount of Rs.7,36,691/- deposited bythe Government in that appeal was allowed to be withdrawn by thecompany on furnishing a security bond which was credited by it in itsbooks of accounts. The question then arose in that case was whetherthis amount which was received by the company in pursuance to thearbitrator's award which was in dispute in appeal filed by the StateGovernment, could the same be treated to be assessee's income duringthe previous year when the same was received. The Hon'ble SupremeCourt in those facts held that the amount so received by the assesseewas not exigible to tax as there was no absolute right to receive theamount at that stage. If the appeal was allowed by the High Court, theextra amount of compensation of Rs.7,24,914/- was to be returned.Section 41 (1) of the Act was not under consideration in this case. 10.In view of authoritative pronouncement of the Apex Court inPolyflex (India) Pvt. Ltd.'s case (supra), the judgment in HindustanHousing & Land Development Trust Limited's case (supra) shall notcome to the rescue of the assessee-respondent. 11.Accordingly, the question of law referred to above, isanswered in favour of the revenue and against the assessee. (AJAY KUMAR MITTAL) JUDGE July 5, 2010gbs (ADARSH KUMAR GOEL)JUDGE