Income Tax Appellate Tribunal - Ahmedabad
Jayant Silk Mills (P) Ltd. vs Income Tax Officer on 29 May, 1997
ORDER
B.L. Chhibber, A.M.
1. A short but important issue raised in this appeal by the assessee is whether refund amount of excise duty is taxable as revenue receipt in the hands of the assessee.
2. The assessee, a private limited company, carries on business in processing of dyeing and printing of art silk cloth on job work basis. It maintains accounts on mercantile basis and its previous year, relevant to the assessment year in appeal was S.Y. 2040, corresponding to the period from 5th November, 1983 to 24th October, 1984.
3. A dispute arose with the Central Excise Department in regard to payment of the excise duty. The assessee's case was that no duty was payable on the processed cloth. As the Central Excise Department did not accept the assessee's contention, it moved a writ petition in Gujarat High Court which was registered as Special C.A. No. 417 of 1979. There were similar petitions from several other processors and the Hon'ble Gujarat High Court, by its common order dt. 13th March, 1979, directed that the Central Excise Department shall calculate the ad valorem excise duty during the period of three years immediately preceding the institution of the petition and refund to the petitioners, the amount paid in excess of such ad valorem calculations, as directed in a similar batch of cases earlier by the Court's order dt. 24th January, 1979. The calculations were directed to be made within stipulated time and the payments were to be made thereafter within specified time. The assessee preferred a claim for an aggregate sum of Rs. 14,20,414. The Central Excise Department did not accept the decision of the Gujarat High Court and appealed to the Hon'ble Supreme Court, which directed that the operation of the order dt. 24th January, 1979, shall be stayed in regard to the payments made after that date, but the refunds be made on the basis of the decision of the Hon'ble Gujarat High Court in regard to the payments made upto 24th January, 1979. The Hon'ble Supreme Court directed that the excess payments be deposited with the Court and the petitioners be allowed to draw 75 per cent of the amount against bank guarantee. Pursuant to the these directions of the Hon'ble Supreme Court, the assessee became entitled to a refund of Rs. 11,04,765 being 75 per cent of Rs. 14,20,414 on the basis of the bank guarantee furnished by it. The assessee received accordingly, the payments of Rs. 10,00,000 on 3rd April, 1984 and Rs. 1,04,746.82 on 20th June, 1984, which were credited to a separate account titled "Excise Duty Refund Account". Before the AO the assessee submitted that pending a decision of the Supreme Court, there was no finality of the matter, without prejudice to the fact that even after the matter was finalised, there would be no tax liability on the ground that the provisions of s. 41(1) would not be attracted on the facts of the case. In its return filed on 28th November, 1985, therefore, the assessee did not offer the said amount of Rs. 11,04,765 for taxation. The AO held that the impugned amounts aggregating to Rs. 11,04,765 were liable to be taxed under s. 41(1) of the IT Act, 1961.
4. On appeal, the learned CIT(A) confirmed the action of the AO observing as under :
"I have considered the facts and the appellant's submissions. It is relevant to note that the excise duty collected by the appellant from its customers is a part of its receipts. The contention that the excise duty is not reflected in the appellant's books of accounts as a trading receipt cannot change the character of the receipt. It may be mentioned that as per the principles laid down by the Supreme Court in the judgments reported in Chowringhee Sales Bureau (P) Ltd. vs. CIT (1973) 87 ITR 542 (SC) and Sinclair Murray & Co. (P) Ltd. vs. CIT (1974) 97 ITR 615 (SC), the excise duty collected by the appellant is a part of the appellant's business receipts. Since the excise duty collected by the appellant from its customers forms a part of its business receipts, any refund of the amount of excise duty received by the appellant has to be taxed under s. 41(1) in the appellant's case. It is also relevant to note that the appellant has not forwarded the amount of the said refund of excise duty to its customers. The appellant's contention that the excise duty collected from the customers is kept in a separate account cannot absolve the appellant from the provisions of s. 41(1). It is an established principle that the taxing statutes are to be strictly construed. It is relevant to note that vide its judgment in CIT vs. T. V. Sundaram Iyengar & Sons (P) Ltd. (1975) 101 ITR 764 (SC) the Supreme Court has laid down that if the language of the Statute is clear and unambiguous, it would be wrong to discard the plain meaning of the words. Similar principle has been laid down by the Supreme Court in the judgments in CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC) and CIT vs. Sodra Devi (1957) 32 ITR 615 (SC). Considering the unequivocal and unambiguous wording of s. 41(1) of the IT Act, 1961, the addition of Rs. 11,04,765 made by the AO under s. 41(1) stands confirmed. Considering the totality of the facts and circumstances of the case, the addition of Rs. 11,04,765 stands confirmed."
5. Shri R. N. Vepari, the learned counsel for the assessee submitted that the CIT(A) erred in not appreciating the fact that the assessee had, at no point of time, claimed any deduction for payment of excise duty, and consequently, the question of invoking the provisions of s. 41(1) would never arise. The learned counsel for the assessee further submitted that the CIT(A) erred in not appreciating the fact that the interim order of the Hon'ble High Court of Gujarat, directing issue of refund, was the subject-matter of appeal before the Hon'ble Supreme Court and in the absence of the finality of the matter, the refund received by the assessee on ad hoc basis could not be its income liable to tax. In support of his contentions the learned counsel for the assessee relied upon the judgment of the Supreme Court in Union of India vs. J.K. Synthetics Ltd. (1993) 199 ITR 14 (SC) and the judgment of the Gujarat High Court in the case of CIT vs. Bharat Iron & Steel Industries (1993) 199 ITR 67 (Guj).
6. Shri V. K. Mathur, the learned Departmental Representative strongly supported the orders of the authorities below. He submitted that the provisions of s. 43B were very clear on the subject and have to be r/w s. 41(1). As per the provisions of s. 43B any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called under any law was not allowable if not actually paid and the excise duty was a trading receipt as held by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT (1973) 87 ITR 542 (SC) and in the case of Sinclair Murray & Co. (P) Ltd. vs. CIT (1974) 97 ITR 615 (SC) and as such was taxable in the hands of the assessee. He further submitted that the assessee did get the refund of the excise duty and merely because it had credited it to a separate account titled "Excise Duty Refund Account" will not absolve the assessee of its liability under s. 41(1) in view of the judgment of the Karnataka High Court in the case of Mysore Thermo Electric (P) Ltd. vs. CIT (1996) 221 ITR 504 (Kar). The learned Departmental Representative also relied upon the decision of the Tribunal Ahmedabad Bench 'A' in the case of Visnagar Taluka Audyogik Sahakari Mandli Ltd. vs. Dy. CIT in ITA No. 2805 and 2804/Ahd/1995 decided on 30th July, 1996, where the Tribunal had confirmed the addition of Rs. 1,18,05,966 made by the AO on account of excise duty refund invoking the provisions of s. 41(1) of the Act.
7. We have considered the rival submissions and perused the facts on record. In the Scheme of Taxation by the Government, excise duty falls under the category of "Indirect taxes". So is the case with sales-tax which is also an "Indirect tax". The Hon'ble Supreme Court had examined the nature of sales-tax collected by a seller from the customers in the cases of Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) and Sinclair Murray & Co. (P) Ltd. vs. CIT (supra), and held that the sales-tax constituted a trading receipt in the hands of the seller who collects it from the customers and pays to the Government. However, the trader shall be entitled to claim deduction in respect of such realisation or any part thereof as and when he pays it to the Govt. or to the purchaser. The principles discerned in relation to sales-tax collections have been identical application also in case of other imposts such as the excise duty, etc. in view of the case laws CIT vs. Partabmull Rameshwar (1977) 107 ITR 526 (Cal) and CIT vs. Bijli Cotton Mills (P) Ltd. (1970) 76 ITR 625 (All). In the case of Mc Dowell & Co. Ltd. vs. CTO 154 ITR 148 (SC) the Hon'ble Supreme Court has held that excise duty collections made by the assessee are part of trading receipts. Excise Duty in Mc Dowell & Co. Ltd.'s (supra) was directly paid by the customers. The question for consideration in that case was whether such payment of excise duty directly made by the customers can be regarded as a part of turnover in the hands of the seller for the purpose of levy of sales-tax. The Supreme Court held that it will be regarded as part of turnover. This thinking of the apex Court goes to prove that recovery of excise duty constituted a trading receipt in the hands of the assessee. It is in this context that we have to examine the applicability of s. 41(1) in the case before us i.e.s. 41(1) has to be r/w s. 43B, which was brought on the statute book w.e.f. 1st April, 1984, by the Finance Act, 1983. The liability on account of excise duty was an ascertained liability and during the year under appeal a sum of Rs. 11,04,765 was actually refunded to the assessee pursuant to the directions of the High Court and the assessee did credit this refund amount in its books of account though under a separate head titled as "Excise Duty Refund Account". Thus it cannot be disputed that the assessee had accounted excise duty refund on cash basis. The assessee got a solid benefit to the tune of Rs. 11,04,765 during the year under appeal and this benefit is clearly assessable under s. 41(1) even when the excise duty amount was not claimed as expenditure in the P&L a/c of the earlier years and the assessee had kept a separate account in respect of collections and payment of excise duty.
7.1. A similar case came up before the Hon'ble Karnataka High Court i.e. Mysore Thermo Electric (P) Ltd. vs. CIT (supra). In the accounting years relevant to asst. yrs. 1976-77 to 1978-79, the assessee-company was engaged in the manufacturing of battery separators. The excise authorities had levied certain dues on the assessees under the head of central excise, holding that they were liable to payment of this levy. According to the assessees, they had paid these amounts under dispute and since it was the contention of the authorities that central excise was payable on the goods, they had maintained a separate account for purposes of tendering these payments which in turn they recovered from the dealers to whom they supplied goods. According to the accounting procedure maintained by them, they desired that these amounts should not be mixed with their receipts or costs. This separate account, therefore, did not form part of the balance sheet or P&L a/c and was maintained as a separate and individual head. The assessee having contested their liability as far as the levy of central excise duty was concerned in the Court, and having been successful in their challenge, the authorities were directed to refund to them the aggregate amount paid under this head which the authorities did, by way of one lump sum repayment totalling Rs. 9,11,618 and the refund in question was made during the asst. yr. 1983-84. The assessee contended that this amount related to a separate account altogether, that they had at no point of time earlier claimed any deductions or allowances in respect of this amount, and hence, the amount was not assessable in their hands. The assessing authority accepted this position whereas, the CIT took the view that the provisions of s. 41(1) of the Act would clearly apply and that, consequently, the amount was liable to be included in their taxable income. This was confirmed by the Tribunal. On a reference, the Hon'ble Karnataka High Court held that the Tribunal was justified in holding that the provisions of s. 41(1) could be invoked to tax the refunds received during the accounting year relevant to the asst. yr. 1983-84 even when the part of excise duty was not claimed as expenditure in the P&L a/c of earlier years and the applicant had kept a separate account in respect of collection and payment of excise duty. Interpreting s. 41(1), the Hon'ble Karnataka High Court held as under :
"Under these circumstances, irrespective of the manner in which the Gujarat High Court virtually rewrote the section [Motilal Ambaidas vs. CIT (1977) 108 ITR 136 (Guj)], the position that obtains and which has been emphasised by the Courts over the years is that where a certain amount of payment is made, against taxes and which undoubtedly qualifies for a reduction or deduction, when the assessment is completed, it is on the basis that a benefit has accrued. It is this aspect of the matter that the law takes cognizance of. It is in this spirit that s. 41(1) will have to be interpreted. This is very essential insofar as it s. 41(1) is sought to be given the narrow technical interpretation which the assessee's learned counsel Advocate has insisted upon, the consequences of the same would be not only against the legislative intent but would in fact defeat it. For this purpose, we need to emphasise that a reading of s. 41 very clearly indicates that an assessee in certain circumstances cannot get a double benefit. In other words, what the section effectively seeks to check or control is a situation whereby deductions under the head of payment of tax dues, allowances, etc. which are permissible under the provisions of the IT Act and which consequently, therefore, deplete the overall income for purpose of remission if subsequently reversed by order of a Court by virtue of refund confer a benefit on the assessee which is not permissible insofar as but for the deduction in the earlier assessment years that amount would have been added on to tax. It is, therefore, virtually a postponement of that event or in other words, the amount that has in fact been reduced or the benefit gained in the previous year that will have to be necessarily offset. This is the clear and unambiguous intendment of s. 41 and if it is sought to be argued that in cases where because of convenience that head is neither added nor deducted physically at the time when the assessment is finalised, the refund would, therefore, not qualify for addition under s. 41(1) it would be directly in conflict with the intention embodied by the legislature in this section. We need to add here that when the legislature referred to deductions in respect of assessments it did not only take into account what happened at the time when the officer finalised the assessment order but it took into account the fact that if the assessment order is finalised on the basis of a situation whereby the amount so depleted or deducted is accepted, it would still come within the ambit and scope of the section. In our considered view, this is the only correct way that s. 41(1) can be interpreted if the legislative intent is required to be enforced. We have also taken note of the fact that such a view has by and large found favour by various Courts including the two earlier Division Bench decisions of this Court."
Applying the above interpretation to the facts of the case before us, we hold that the excise duty refund of Rs. 11,04,765 was taxable under s. 41(1) during the year under appeal. We are also fortified by the decision of the Tribunal in the case of The Visnagar Taluks Audyogik Sahakari Mandli Ltd. vs. Dy. CIT (ITA Nos. 2805 and 2804/Ahd/1995) (supra) to which one of us (A.M.) was a party.
7.2. Now we would like to discuss the two judgments relied upon by the learned counsel for the assessee. In Union of India & Anr. vs. J.K. Synthetics Ltd. (supra) the Hon'ble Supreme Court confirmed the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. vs. ITO (1976) 105 ITR 864 (All). In that case the Excise Department had been claiming excise duty from the petitioner on one of its products "Polymer chips" and the company had been making provision for the payment of such duty every year since 1964-65. The claim for deduction of this amount by the assessee was consistently disallowed by the ITO but was allowed on appeal by the AAC and, as a result, a total sum of Rs. 2,87,60,109 had been allowed to the company as deduction on account of excise duty for the asst. yrs. 1964-65 to 1971-72. On a similar basis the company made a provision of Rs. 2,08,29,436 in respect of its liability for excise duty (current liability) for the previous year in question. The company filed a writ petition in the Delhi High Court challenging the claim for excise duty on polymer chips and this petition was allowed by a single Judge on 28th August, 1970. On the basis of this judgment, the ITO disallowed the deduction claimed in respect of the current liability and also treated the sum of Rs. 2,87,60,109 on account of the past liability as income under s. 41 of the Act. On these facts the Hon'ble High Court held that the ITO had no jurisdiction to invoke s. 41(1) and levy tax on Rs. 2,87,60,109 because a Letters Patent Appeal against the decision of the single Judge of the Delhi High Court had been preferred and was pending and there was the possibility of an appeal to the Supreme Court later. This view of the High Court was upheld by the Hon'ble Supreme Court in Union of India & Anr. vs. CIT (supra).
7.3. From the above facts it is evident that it was not a case where a refund in the form of cash had been received by the assessee and further the year under appeal was asst. yr. 1972-73 when s. 43B was not on the statute book as it was inserted by the Finance Act, 1973 w.e.f. 1st April, 1984. Hence the ratio laid down by the Supreme Court in the aforesaid judgment relied upon by the learned counsel is of no assistance to the assessee.
7.4. In CIT vs. Bharat Iron & Steel Industries (supra) the Hon'ble High Court was dealing with a case where the amount was not actually refunded and the dispute centered round the year of taxability. The Appellate Collector of Central Excise allowed the assessee's appeal against the decision of the Asstt. Collector and the Superintendent of Central Excise, and, as a result thereof, the assessee became entitled to claim refund of excise duty of Rs. 1,81,427. It claimed refund of the said amount by numerous applications made to the Asstt. Collector but the amount was not refunded. It ultimately filed a petition in the Court seeking a direction against the Central Government and the Central Excise authorities to refund to it Rs. 1,81,427. The order of the Appellate Collector of Central Excise, was however, sought to be revised and reviewed under s. 36(2) of the Excise Act and a show-cause notice was issued to the assessee in December, 1974. It was during the pendency of the review or revisional proceedings that the amount of Rs. 1,81,427 was refunded to the assessee on 8th August, 1975. The review or revisional proceedings under s. 36(2) of the Excise Act were dropped on 30th April, 1976. The ITO, in the course of assessment for the asst. yr. 1974-75, invoked the provisions of s. 41(1) of the IT Act and included the aforesaid amount of Rs. 1,81,427 in the total income of the assessee though it had not been actually refunded to the assessee in the asst. yr. 1974-75. Under these circumstances the Hon'ble High Court held that "the assessee's claim for refund of the excise duty was in jeopardy". It is evident from the facts of the case before us that the assessee did get a refund amounting to Rs. 11,04,765 in cash during the year under appeal and its claim for refund of excise duty was never in jeopardy. Hence the provisions of s. 41(1) were clearly applicable. Accordingly, the ratio laid down by the judgment of the Gujarat High Court in the aforesaid case is of no assistance to the assessee.
8. In the light of above discussion, we confirm the findings of the authorities below and decline to interfere.
9. In the result, the appeal is dismissed.