Income Tax Appellate Tribunal - Jaipur
Commissioner Of Income-Tax vs Wolkem (P.) Ltd. on 23 November, 1987
Equivalent citations: [1988]24ITR143(JP)
ORDER
A. Kalyanasundharam, Accountant Member
1. The present reference is sought for by the revenue and the following question is said to be question of law :
Whether on the facts and in the circumstances of the case, the refund of excise duty received by the assessee from the Excise Department amounting to Rs. 1,61,316 was the income of the assessee or not ? And if it is an income, then under which provisions of the Act the same will be considered.
2. The issue involved is about the nature of refund of excise duty amounting to Rs. 1,61,316. The Tribunal in para 3 had reproduced the various facts. In para 4 the arguments of both the parties and in para 5, 6, 7, 8 & 9 they have given their findings. In para 9 the Tribunal had observed that the Department has not disputed that it is not income as such of the assessee and it is also not disputed that the amount is payable to several parties. The Tribunal further found that the department had sought to tax this refund Under Section 41(1) on the premise that the liability may not be paid ultimately and may rather be appropriated by the assessee in which case it would escape tax altogether.
3. According to the learned Departmental Representative Mr. B.K. Iyer, this is a mixed question of law and facts. While on the other hand the argument of the learned counsel for the assessee was that the Tribunal has given a finding of fact that it represents liability on the ground that the liability existed on the date for the assessment year and there was no cessation of liability. It was further argued that not all questions are referable questions of law. Referring to Section 256(1) as well as 256(2), it was argued that the Tribunal has to draft a statement of case only if it is satisfied that a question of law does arise. He argued that the words as contained in Section 256(1) only indicates that the Tribunal must be satisfied that a question of law does arise and if the question is already answered by the High Court of that State or by the Supreme Court which would only mean that the answer is either self-evident or already settled by a High Court of land though question of law may arise reference is not to be made. Further academic questions are not to be answered. The words contained in Section 256(2) which is direction from the High Court for sending them statement of the case, the words may require the High Court to examine the finding of fact given by the Tribunal and if that finding of fact is found to be erroneous then the High Court would have no other alternative but to ask the Tribunal to state the case and make the reference. According to the learned counsel, Sections 256(1) and 256(2) are on the same footing and do not require any reference to be made unless and until the questions of law have not been finally settled. Reliance was placed on CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC), CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 (SC), Sukhdeo Charity Estate v. CIT [1984] 149 ITR 470 (Raj.), CIT v. Anand Gum Industries [1985] 154 ITR 680 (Raj.), CIT v. Lt. Gen. Umrao Singh [1983] 142 ITR 253 (Raj.), CIT v. Mahandra & Co. Ltd. and Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 (SC).
4. The MP High Court in CIT v. Deora Pu Canbeon Mfg. Co. (P.) Ltd. [1985] 156 ITR 831 was considering a question of an assessee purchasing material from one party and selling to another party. In that case the purchaser paid Sales-tax and he charged Sales Tax on the sales made by him to the State Electricity Board of M.P. The purchaser was refunded Sales-tax by his seller and the question was whether the amount so received by the purchaser representing refund of Sales-tax paid by him earlier represents his income or not and whether a question of law arises therefrom or not. In page 833 the finding of the Tribunal was reproduced to the effect that the purchaser had no right or claim on the said refund and the amount really belonged to the M.P. Electricity Board. On this particular finding, the High Court came to the conclusion that it is a purely finding of fact and that there was any cessation of liability or not is also a finding of fact and, therefore, no question of law was said to arise from such finding of fact.
4.1 In the present case the finding of the Tribunal was that the assessee was compelled to charge excise duty from its customers as the excise authorities were of the view that excise was leviable on the product manufactured by the assessee. It was the finding that the amount so received which was termed as deposit was in the nature of deposit only and that when ultimately the excise authorities granted the refund to the assessee on the ground that the product manufactured by it are not excisable and the assessee came to receive the amount not as the ultimate owner of the money but only as a intermediary as the ultimate owners were the several customers who had purchased goods from it. It was also observed that certain customers had claimed the refund of excise directly from the authorities and the refunds were so granted. The department could not bring any evidence to substantiate that there was any cessation of liability from the several customers in favour of the assessee. The Tribunal thus gave a finding of fact that the assessee received the amount for purposes of passing the amount to the respective owners and that there was no cessation of liability as already observed earlier. The only basis on which the Department sought to tax the amount was on the apprehension that the assessee may not pay the amounts to the various customers and they never intend to tax it on the ground of any cessation of liability by any of the customers as there was no evidence at all for that purpose.
4.2 The question as has been framed clearly goes to indicate that the Department is not sure as to whether it is an income or not and they are also not very sure under what section of the I.T. Act they can bring this amount to tax. It is an accepted fact that not all receipts are income and for the reasons mentioned in the earlier paras and also for reasons mentioned by their Lordships of the M.P. High Court and also of the Rajasthan High Court in the case of Anand Gum Industries (supra) the answer is self-evident in the instant case that it is not income in the hands of the assessee as the nature is that of a liability. We, therefore, only have to conclude that this is purely a finding of fact and a fruitless exercise, being tried by the Department when they themselves are treating it as income only on the apprehension of the amount not being paid to the respective owners, which also goes to indicate that they accept the amount to be liabilities. The reference is, therefore, rejected. Further, in the case of CIT v. R.B. Seth Moolchand Nemichand (P.) Ltd. [Reference Application No. 628 (Jp.) of 1981 dated 8-9-1982] this bench had held that whether there was a cessation of liability or not is a finding of fact. For all these reasons we reject the reference sought for by the revenue.
5. In the result, the Reference Application is dismissed.
H.S. Ahluwalia, Judicial Member In my opinion, it would be safer to submit rather than withholding the reference. It is not disputed that the assessee actually received the amount of Rs. 1,61,316 from its business of exploiting calcite wollastonite mines and selling the same. This was in respect of excise duty which the assessee charged from the customers. The assessee kept it in a separate Central Excise Duty Deposit A/c, but agitated that it was not payable to the Govt. Ultimately, the Excise authorities held that no duty was leviable. The assessee also credited the amount to the profit and loss account. I do not see how thereafter the assessee could still say that this amount was not its income. The assessee's contention was that the liability had not ceased, but the details of the persons to whom the liability was due were not available. The amount had already been added to the assessee's net assets the Tribunal decided the matter in favour of the assessee by referring to a large number of authorities, namely, CIT v. Alchemic (P.) Ltd. [1981] 130 ITR 168 (Guj.), CIT v. Kalinga Airlines (P.) Ltd. [1987] 168 ITR 238 (Ori.), CIT v. Thirumalaiswamy Naidu & Sons [1984] 147 ITR 657 (Mad.), and J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34 (Bom.). Even at the time of finalising the original order, I was doubtful as to whether the amount could be excluded from the assessee's income altogether, after it had already been credited to the P & L A/c, because thereafter it could never be brought to tax Under Section 41(2) of the IT Act. In my opinion, the following question does arise out of the order of the Tribunal and should be submitted for opinion of the Hon'ble High Court:
Whether on the facts and in the circumstances of the case the Tribunal was correct in law in deleting the amount of Rs. 1,61,316 already received by the assessee from the Excise Deptt. and credited to its profit and loss account ?
A. Kalyanasundharam, Accountant Member I have perused the view of my learned brother. I am afraid I have not been able to agree to his view-point for the sole reason that despite the manner of depiction of an item in the accounts of the assessee, which in the instant case, is a credit of the excise duty refund to its profit and loss account does not establish that there has been cessation of liability by the assessee when the facts go to establish that several of the customers had already been made direct recoveries from the excise duty authorities and several other had already preferred claims on the assessee. The remission of a liability or a cessation of a liability to my mind is purely a finding of fact and there can be no law which can be said to arise from such a finding of fact. The Section 41(1) is so clearly worded as to what would become income and the circumstances when they would become income also. The basic conditions are that there must be remission or cessation of liability after which only it would acquire the character of income. In the absence of the fundamental requirement of remission or cessation of liability in favour of the assessee it could never acquire the character of income and when it does not acquire the character of income the question of taxability does not arise. Under these circumstances whether a reference is called for or not is only to be considered by the learned Third Member.
ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 In view of there being difference in the views of the two Members, a reference has become necessary to be made to the Third Member :
Whether any reference at all is called for treating the amount of Rs. 1,61,316 representing refund of excise duty charged earlier as income of the assessee even when there is total absence of evidence showing that there was cessation of liability in favour of the assessee ?
G. Krishnamurthy, President On the question whether a question of law arises out of the order of the Tribunal in ITA No. 877/JP/83 a difference of opinion arose between my learned Brothers of Jaipur Bench, which they have referred to me for my opinion. The reference was made Under Section 255(4) of the Income-tax Act:
Whether any reference at all is called for treating the amount of Rs. 1,61,316 representing refund of excise duty charged earlier as income of the assessee even when there is total absence of evidence showing that there was cessation of liability in favour of the assessee ?
The question that the Commissioner of Income-tax sought to raise as arising out of the order of the Tribunal in ITA No. 977/JP/83 is :
Whether on the facts and in the circumstances of the case, the refund of excise duty received by the assessee from the Excise Department amounting to Rs. 1,61,316 was the income of the assessee or not ?
And if it is an income, then under which provisions of the Act the same will be considered ?
2. The relevant facts are : The assessee is a private limited company having its previous year as calendar year. The assessment in this case for the assessment year 1980-81 was completed by the Income-tax Officer Under Section 143(3) read with Section 144B on 30-8-1983. In the original return filed by the assessee, it had declared an income of Rs. 2,30,490. It received a sum of Rs. 1,61,836 by way of refund of excise duty, which it claimed as not taxable. This refund of excise duty was credited to the profit and loss account. The Income-tax Officer disallowed the assessee's claim holding that this sum received by the assessee was a revenue receipt and formed part of the total income of the assessee liable to tax. Aggrieved by the order of the Income-tax Officer, the assessee filed an appeal before the learned Commissioner (A), who by his order dated 17-11-1983 decided the issue in favour of the Revenue and against the assessee. He held that the receipt arose from day to day activities of the assessee and is therefore taxable under the normal commercial principles of computing business income Under Section 28 of the Income-tax Act. He also observed that if as contended for by the assessee any or all the amount of excise duty was refunded to the customers, the amount so refunded should be allowed as a deduction in the year in which refund was granted. The matter was then taken up by the assessee before the Tribunal. The Tribunal by its order dated 6-9-1985 allowed the assessee's appeal. The Commissioner of Income-tax then filed the reference application stating that the question of law extracted above arose out of the order of the Tribunal and requiring the Tribunal to draw up a statement of the case and refer the question to the High Court.
3. The learned Accountant Member held that there was no question of law. Following are the observations made by the learned Accountant Member in his order on this issue :
4.1 In the present case the finding of the Tribunal was that the assessee was compelled to charge excise duty from its customers as the excise authorities were of the view that excise was leviable on the product manufactured by the assessee. It was the finding that the amount so received which was termed as deposit was in the nature of deposit only and that when ultimately the excise authorities granted the refund to the assessee on the ground that the product manufactured by it are not excisable and the assessee came to receive the amount not as the ultimate owner of the money but only as a intermediary as the ultimate owners were the several customers who had purchased goods from it. It was also observed that certain customers had claimed the refund of excise directly from the authorities and the refunds were so granted. The department could not bring any evidence to substantiate that there was any cessation of liability from the several customers in favour of the assessee. The Tribunal thus gave a finding: of fact that the assessee received the amount for purposes of passing the amount to the respective owners and that there was no cessation of liability as already observed earlier. The only basis on which the Department sought to tax the amount was on the apprehension that the assessee may not pay the amounts to the various customers and they never intend to tax it on the ground of any cessation of liability by any of the customers as there was no evidence at all for that purpose.
He was also of the opinion that the answer to this is self-evident and therefore need not be referred to the High Court. The learned Judicial Member, however, held that a question of law arose out of the order of the Tribunal.
4. On hearing the learned counsel for the assessee as well as the learned Departmental Representative, I am of the opinion that the issue involved in this case is whether the liability to the assessee to refund the money to the customers had ceased or not. The learned Judicial Member was of the opinion that in the absence of any details as to the persons to whom, it is payable it could not be said that the liability had ceased. He was of the opinion that the amount received could be taxed as income, even though he held it is not taxable while disposing of the appeal, by expressing doubts about his conclusion. In view of that doubtful nature of the taxability of this sum, the matter must be referred to the High Court. The learned Accountant Member held that even though the assessee collected the excise duty from the customers by way of deposits, since the excise department finally agreed that the items manufactured by the assessee were not liable to the levy of excise duty and granted refund of the entire sum, the nature of this sum when received by the assessee, namely, deposit was correct and since it retained its character as deposit the question of taxing did not arise and therefore the decision given by the Tribunal was a decision on a question of fact. Here I find little difficult to agree with the view expressed by the learned Accountant Member. As to what is the nature of the money when collected, whether it is really deposit or not or whether it was collected as excise duty or not and whether the liability to refund the money to the customers had ceased or not are all conclusions to be arrived at by applying the relevant provisions of law and therefore the conclusions arrived at by the Tribunal are mixed questions of law and fact and not necessarily factual. In this premises I am of the view that a question of law does arise out of the order of the Tribunal and the question of law must be referred to the High Court. Some amount of debate has taken place before me as to what should be the form of question. I will leave it to the Bench to decide this matter while drawing up the statement of the case.
5. The matter will now go before the regular Bench for disposal of the Reference Application according to majority opinion.