Calcutta High Court
Deputy Commissioner Of Income Tax vs Tribeni Tissues Ltd. on 8 March, 2000
Equivalent citations: [2000]77ITD67(CAL)
ORDER
Shri B.R. Mittal, J.M. The department has filed this appeal against the order of Commissioner (Appeals) for the assessment year 1989-90 dated 6-8-1992 on the following ground:-
"That on the facts and in the circumstances of the case, the learned Commissioner (Appeals)-VI, Calcutta erred in holding that the assessing officer wrongly in taxing the sum of Rs. 61,75,888 under section 41(1) of the Income Tax Act, 1961 as there was no finality in respect of the liability of the purchase tax."
2. Briefly stated, the relevant facts giving rise to this appeal are that under the U.P. Sales Tax Act, purchase tax was levied on the assessee. The assessee did not accept the levy but paid the amount under protest. The Deputy Commissioner (Appeals) confirmed the order of the Commercial Tax Officer. The assessee filed second appeal before the Sales Tax Tribunal and the Tribunal held by its order dated 20-9-1988 that no purchase tax was payable by the assessee. However, the Sales Tax Department did not accept the said order of the Sales Tax Tribunal and filed the revision before the Honble Allahabad High Court. In respect of the purchase tax paid by the assessee during the assessment years 1978-79 to 1987-88, aggregating sum of Rs. 61,75,888 the assessee had deducted the said sum in the computation of income from the book profits and the same was allowed deduction with respect to the said sum in computing the income for the said earlier years in which the payments were made. On deciding the second appeal by the Sales Tax Tribunal in favour of the assessee, the assessee during the relevant assessment year under appeal, credited the said sum of Rs. 61,75,888 in the Profit & Loss Account of the relevant previous year as a deduction from the cost of purchase of the raw materials. However, for the purpose of computing the income chargeable under the head "Profits & Gains of business" for the assessment year under appeal, the assessee claimed that the said sum was not chargeable to tax under section 41(1) of the Act, since as at the end of the relevant previous year there was no cessation of the liability for purchase tax as the Sales Tax Department had challenged the order of the Sales Tax Tribunal before the High Court. However, the assessing officer did not agree with the contention of the assessee and held that the assessee had claimed the expenditure in the previous years which was allowed and the amount of remission obtained by the assessee pursuant to an order passed by the Sales Tax Tribunal during the assessment year under appeal, the said amount of Rs. 61,75,888 was assessable under section 41(1) of the Act. Being aggrieved, the assessee filed appeal before the learned Commissioner (Appeals).
3. On behalf of the assessee it was contended before the learned Commissioner (Appeals) that the question of treating the aforesaid amount of Rs. 61,75,888 as income of the assessee under section 41(1) of the Act would arise only if the assessee obtained any amount in cash or in any other manner during the relevant previous year. It was not enough that the Sales Tax Tribunal did pass a favourable order in the relevant previous year but it was also necessary that either an order of refund or actual refund should have been granted by the Commercial Tax Department before the above amount of Rs. 61,75,888 could be brought to tax as income of the relevant assessment year. The assessee contended that the mere fact that the assessee had credited that amount to the Profit & Loss Account for the year ended 31-3-1989 did not by itself give rise to any inference that amount could be treated as income in the hand of the assessee. It was argued before the learned Commissioner (Appeals) that the Sales Tax Department did not accept the decision of the Tribunal and went in appeal to High Court and as such it could not be said that there was cessation of the liability for the purpose of section 41(1) of the Act. The assessee took the plea before the learned Commissioner (Appeals) relying on the decision given in the case of J.K. Synthetics Ltd. v. O.S. Bajpai, Income Tax Officer (1976) 105 ITR 864 (All-HC) that in view of the pendency of the appeal before the Allahabad High Court, the appeal destroys the finality of the decision given by the Sales Tax Tribunal and as such until the said decision is finalised by the disposal of the said appeal and the matter is brought to a state of finality, there could not be any cessation of liability for the purpose of attracting section 41(1) of the Act. It is observed that the assessee also stated before the learned Commissioner (Appeals) that the Allahabad High Court had given the judgment on 3-1-1991 against the assessee company by holding that the assessee was liable to pay the purchase tax and the assessee had filed S.L.P. to the Supreme court and at that time the matter was subjudice. The learned Commissioner (Appeals) on the basis of the submission of the assessee and the cases cited before him on behalf of the assessee held that there was no finality in respect of the liability of the purchase tax and unless the decision is pronounced by the court, it cannot be held that there has been cessation of liability on the part of the assessee. The learned Commissioner (Appeals) held that the assessing officer was wrong in taxing the said sum of Rs. 61,75,888 under section 41(1) of the Act. Hence, the department has filed appeal against the said order of learned Commissioner (Appeals) before the Tribunal.
4. During the course of hearing of the appeal, the learned Departmental Representative Sri T.M. Das justified the addition made by the assessing officer under section 41(1) of the Act on the basis of the order passed by the Sales Tax Tribunal in favour of the assessee.
Sri Das, learned Departmental Representative justified the action of the assessing officer. On the other hand, the learned A.R. of the assessee Sri R.K. Mitra supported the order of the learned Commissioner (Appeals). At the outset, he submitted that the Honble Supreme Court has since decided the issue in the S.L.P. filed by the assessee against the order of the Allahabad High Court and the issue has been decided against the assessee on 22-10-1992 along with a bunch of other appeals and the said decision is at Hotel Balaji v. State of Andhra Pradesh AIR 1993 SC 1048 to 1082 and the relevant portion of the judgment of the Honble Supreme Court relating to the case of the assessee is at pages 1063 to 1066 i.e. paragraphs 37 to 45.
5. While supporting the order of the learned Commissioner (Appeals), Sri Mitra learned A.R. of the assessee submitted that an amount which had been earlier allowed as a deduction while computing the income chargeable under the head "Profits and Gains of Business or Profession" can only be subjected to income-tax in a subsequent assessment year by invoking the provisions of section 41(1) of the Act and in this regard placed reliance on the decision of the Supreme Court in the case of CAIT v. Kerala Estate Mooriad Chalapuram (1986) 161 ITR 1551 (SC). He further argued that the action of the assessee in crediting an income in the Profit & Loss Account could not attract the provision of section 41(1) of the Act where the liability in question had not admittedly ceased to exist during the previous year in question in view of filing of the appeal against the order of the Sales Tax Tribunal before the High Court and placed reliance on the decision of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P.) Ltd. (1999) 236 ITR 518 (SC). Sri Mitra also justified the order of the learned Commissioner (Appeals) stating that until a matter reached finality, the liability could not be said to have ceased to exist and accordingly, no addition can be made under section 41(1) of the Act with respect to the said liability and placed reliance, in support of his contention on the decision of the Supreme Court in the case of Union of India v. J.K. Synthetics Ltd. (1993) 199 ITR 14 (SC). Mr. Mitra argued that even during the pendency of proceedings if the amount of refund is received, the provisions contained in section 41(1) of the Act could not be invoked, and the amount could not be included in the total income of the assessee if an appeal is pending before the higher forum and there is no final decision thereon. In this regard Sri Mitra also placed reliance on the decision of the High Court of Gujarat in the case of Visnagar Taluka Audyogik Sahakari Mandli Ltd. v. CIT (2000) 242 ITR 627 (Guj) and the decision of the Calcutta Bench in the case of Sreepati Hosiery Mills (P.) Ltd. v. Deputy CIT (1998) 64 ITD 170 (Cal).
6. Sri Mitra submitted that in view of the decision of the Honble Supreme Court which has been delivered after the end of the relevant previous year and the liability of the assessee with respect to the purchase tax which it had earlier paid had actually been confirmed and as such the assessee would never be subjected to tax under the said section with respect to the impugned sum of purchase tax amounting to Rs. 61,75,888. The order of the Commissioner (Appeals) is justified in law.
7. We have considered the rival submissions, relevant facts and the materials on record. We have also gone through the case laws on which reliance was placed by the assessees representative. In so far as the facts are concerned, there is no dispute that the assessee had made payments of purchase tax under the relevant Sales Tax Laws of U.P. for the assessment years 1978-79 to 1987-88 aggregating Rs. 61,75,888 pursuant to specific demands raised by the Sales Tax Department of U.P. It is not in dispute that the assessee had also been allowed deduction with respect to the said sum in computing the income for the said earlier years in which the payments were made. Since the assessee did not accept the levy, it filed appeal but the First Appellate Authority confirmed the order and against which the assessee filed second appeal before the Sales Tax Tribunal. The Sales Tax Tribunal decided the issue in favour of the assessee during the relevant assessment year under appeal. Pursuant thereto the assessee had written back the said sum in the Profit & Loss Account by crediting purchase of raw materials but for the purpose of computing the income-tax chargeable under the head "Profit & Gains of Business", the assessee claimed that the said sum was not chargeable to tax as there was no certainty that the said sum would be ultimately refunded to the assessee, as the Sales Tax Department had disputed the order of the Sales Tax Tribunal before the High Court. As is observed from the order of the learned Commissioner (Appeals) that the Honble Allahabad High Court reversed the order of the Sales Tax Tribunal and held that the company was liable to pay the purchase tax by its order dated 3-1-1991. The assessee has also filed a copy of the said order before us at pages 1 to 8 of the paper book and the case is reported as Commissioner of Sales Tax v. Tribeni Tissues Ltd. 1991 UPTC 988. The Honble Allahabad High Court by its said order decided the issue against the assessee.
Further, the assessee filed appeal before the Apex Court and it is observed that the Apex Court by its judgment dated 22-10-1992 along with other appeals including the appeal of the assessee, inter alia, confirmed the order of the Allahabad High Court and as such the issue has been decided against the assessee. As these facts have not been controverted by the learned Departmental Representative, there is no dispute that the assessee would never be able to get back the said sum of Rs. 61,75,888 which was paid towards purchase tax and as such it could not be brought to tax under the provisions of section 41(1) of the Act for the relevant assessment year or in subsequent assessment year.
8. Be that as it may, we also hold that the order of the learned Commissioner (Appeals) is in conformity with the law laid down by the Apex Court and as such the direction given by the learned Commissioner (Appeals) to hold that the assessing officer was wrong in taxing the sum of Rs. 61,75,888 under section 41(1) of the Act in the facts and circumstances of the case is to be upheld.
9. The sole question in the present case is whether the assessees liability with respect to the said sum had actually ceased during the relevant assessment year and the amount could not be held to be taxable under section 41(1) of the Act in view of the fact that the Sales Tax Department had not accepted the order of the Sales Tax Tribunal and filed the appeal against it before the High Court. In our opinion, in, such a situation, the liability cannot be said to have ceased because until a matter reached its finality, the liability cannot be said to have ceased to exist and accordingly, the amount cannot be made as taxable under section 41(1) of the Act. In this regard, we consider it relevant to state section 41(1) of the Act as it stood at the relevant time. Section 41(1) reads as follows :
"(1) 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."
9.1/2 It will be seen from the above section that unless there is actual cessation of the liability with respect to a sum, which had previously been allowed as a deduction, there cannot be any addition made under section 41(1) of the Act. The Apex Court in the case of Sugauli Sugar Works (P) Ltd. (supra) held that an unilateral act on the part of an assessee in crediting an income in the Profit & Loss Account shall not by itself attract provisions of section 41(1) of the Act where the liability in question had admittedly not ceased to exist during the relevant assessment year. The Apex Court further held that the mere fact that the assessee had made an entry of transfer in his accounts unilaterally would not enable the department to say that section 41(1) of the Act would apply and the amount should be included in the total income of the assessee.
9.3 The Apex Court also considered the provisions of section 41(1) of the Act in the case of J.K. Synthetics Ltd (supra) and while approving the judgment of the Honble Allahabad High Court, as J.K. Synthetics Ltd.s case (supra) held that until a matter reached finality the liability cannot be said to have ceased to exist and accordingly no addition can be made under section 41 (1) of the Act with respect to the said liability. The relevant facts in the case was that the Central Excise Department had raised demand for excise duty. The assessee was allowed deduction in income-tax assessment with respect to the liability pertaining to the demand of excise duty raised by the Central Excise Department. However, the assessee challenged the levy of excise duty before the High Court. Subsequently, the High Court decided the issue in favour of the assessee and quashed the order of the Central Excise Department levying the excise duty on the assessee. The Central Excise Department did not accept the verdict of the High Court and preferred an appeal against the said order before the Honble Supreme Court. During the pendency of the appeal filed by the Central Excise Department before the Honble Supreme Court, the assessing officer held that in view of the favourable order of the High Court in favour of the assessee, the liabilities towards excise duty had ceased to exist during the relevant previous year and accordingly, proceeded to subject to tax the said sum of excise duty as income of the assessee under section41(1) of the Act. It was held in the above case that the matter could not be held to have attained finality as at the end of the relevant assessment year, the appeal filed by the Central Excise Department before the Honble Supreme Court was pending. Therefore, the decision of the High Court had lost its finality as a result of the appeal filed against it. It was further held that a decision liable to appeal may be final until the appeal is not preferred but once an appeal is filed against it, the said decision loses its character of finality. Accordingly, the addition made by the assessing officer under section 41(1) of the Act was not confirmed.
9.4 The Gujarat High Court had also considered a similar issue in the case of Visnagar Taluka Audyogik Sahakari Mandli Ltd. (supra) and held (as per head note) that even during the pendency of proceeding if the amount of refund was received, the provisions contained in section 41(1) could not be invoked as there was no final decision on the question whether or not the assessee was entitled to claim the refund of excise duty. It was further held that after the Apex Court disposed of the matter, raising real and substantial question it could be said that the adjudication attained finality. In the said case the Honble Gujarat High Court also referred the decision in the case of CIT v. Bharat Iron & Steel Industries (1993) 199 ITR 67 (Guj) wherein the Full Bench of the Gujarat High Court has held that the ultimate cessation of the liability is on the final decision which culminates the disputes between the revenue and the assessee and at the intermediary stage even if the amount of refund or part of refund is received in consequence of the courts order, the provision of section 41(1) of the Act cannot be invoked.
9.5 A similar issue was also considered by the Calcutta Bench of the Tribunal in the case of Sreepati Hosiery Mills (P.) Ltd (supra). In the said case the assessee-company got refund of excise duty paid in earlier years during the assessment year 1991-92 and reflected the same as liability in its Balance Sheet as the Excise Department had gone in appeal against the refund. The assessing officer brought the refund to tax as the same was allowed in earlier years as deduction. On appeal, learned Commissioner (Appeals) upheld the addition. On further appeal, the Tribunal held that the Excise Department had filed an appeal against the order of the Assistant Collector and the same was pending before the Collector, Central Excise and was yet to be finalised. The Tribunal held that in such a situation, the liability could not be said to have ceased as cessation of liability for the purpose of section 41(1) of the Act meant irrevocable cessation so that there is no possibility of the liability being revived in future. If there is such a possibility of reviving the same, the issue is not complete and provision of section 41(1) are not attracted. Therefore, the assessing officer had no jurisdiction to invoke the provision of section 41(1) and to levy tax on the aforesaid refund amount. The Tribunal, accordingly, deleted the addition made by the assessing officer.
10. In view of the above facts and the reasons mentioned in the foregoing paragraphs, we hold that the order of the learned Commissioner (Appeals) is legal and the same is upheld.
11. In the result, the appeal of the department is dismissed.