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Income Tax Appellate Tribunal - Delhi

Income-Tax Officer vs Dalmia Dairy Industrses Ltd. on 27 April, 1989

Equivalent citations: [1989]31ITD549(DELHI)

ORDER

M.C. Agarwal, Judicial Member

1. These are cross appeals by the Revenue and the assessee respectively arising out of the assessee's assessment for asst. yr. 1982- 83. We have heard the learned Departmental Representative and the learned counsel for the assessee and have perused the material placed before us.

2. The first ground raised in the departmental appeal is as below:

1. The CIT(A) was not correct in law and on facts in directing the ITO to recompute the interest income and assess the same only on the basis of accrual, leaving out accrued income of earlier year(s) received this year; when the assessee has not accepted the accrual basis decision of preceding years and itself offered for taxation accrual income of earlier year(s) received this year. Moreover, the assessee has not prayed for such a relief in its grounds of appeal as preferred before the CIT (A).

In the assessee's appeal also, ground No. 1 is on the same point and is as under:

1. For that the learned CIT(A) has erred in law in rejecting the contention of the appellant company that interest on some of its fixed deposits with banks, which under the terms of the said deposits was due and payable to the company only on the date of their maturity falling after the expiry of the relevant previous year, i.e., in the company's accounting year 1st Oct., 1981 to 30th Sept., 1982 (which interest amounted to Rs. 33,221) did not accrue or arise to the company in, and not taxable as its income of, the relevant previous year.

3. The assessee invested its funds in fixed deposits with banks and the question in the aforesaid ground is about the time when the income from interest on such fixed deposits should be deemed to have been earned by the assessee so as to be included in its income for tax purposes. The Revenue's contention has been that the interest from day to day and the ITO has, therefore, been calculating the assessee's income from interest on what is called de diem en diem basis. The assessee's case on the other hand has been that interest accrues to it only on maturity and is, therefore, taxable in the year in which the fixed deposit matures.

4. The assessee's accounting year for the assessment year under consideration ended on 30th Sept., 1981. It held certain fixed deposits which were to mature in the following accounting year but on which interest on de diem en diem basis calculated up to 30th Sept., 1981 amounted to Rs. 32,221. This amount was credited by the assessee in its accounts and taken to the profit and loss account. However, while filing the return of its income the assessee excluded this amount from its income on the basis of the contention as stated above.

5. As regards the amount of Rs. 1,73,022, the same represents interest calculated up to 30th Sept., 1980 on de diem en diem basis on fixed deposits that matured during the accounting year under consideration. This amount, according to the assessee's contention was taxable in the year under consideration. The ITO, however, included this amount, in the assessee's income for asst. yr. 1981-82 and since the assessee was contesting the inclusion of this amount in the income for asst. yr. 1981-82, the ITO did not exclude it from the income for asst. yr. 1982-83 but stated that this is included on protective basis.

6. This controversy is arising from some years past and when the matter went to the CIT(A), for the year under consideration, he following his order for asst. yr. 1980-81 confirmed the inclusion of Rs. 33,221 and deleted the protective addition of Rs. l,73,022.Thus he upheld the ITO's assertion of the taxability of interest on de diem en diem basis. This issue had come before this Tribunal in cross appeals Nos,3226/Del/85 and 34160361/85 for asst. yr.1981-82 and vide order dt.13th Oct., 1987 a Bench of this Tribunal, following the Tribunal's order for asst. yr. 1980-81 held that interest was not taxable on de diem en diem accrual basis but was earned by the assessee when the fixed deposits matured. Therefore, according to the view taken by the Tribunal for asst. yrs.1980-81 and 1981-82, the amount of Rs. 32,221 has to be excluded and the amount of Rs. 1,73,022 has to be assessed on substantive basis since in pursuance of the Tribunal's order, this amount of Rs. 1,73,022 stands excluded from the income for asst. yr. 1981-82.

7. The learned Departmental Representative asserted that interest on fixed deposits should be taxable on de diem en diem basis. No fresh material has been placed before us in support of this contention and the facts and circumstances being identical to those in the earlier years, we find no reason to take a contrary view. Therefore, holding that interest will be deemed to have been earned by the assessee on the dates when the relevant fixed deposits matured, we order that the sum of Rs. 32,221 shall be excluded from the interest income of she assessee. The CIT(A)'s order on this point is set aside. The CIT(A) order about the sum of Rs. 1,73,022 is also set aside and this amount shall stand included in the assessee's income for the year under consideration on substantive basis.

8. The next ground raised in the Revenue's appeal is as under:

2. The CIT(A) was not correct in law and on facts in deleting the addition of Rs. 8,66,636 made on account of sales-tax liability.

The facts are that the assessee sells skimmed milk powder produced by it, inter alia, in the State of West Bengal. The assessee paid sales-tax up to asst. yr. 1973-74 but for asst. yrs. 1974-75 onwards, it did not pay the sales-tax and challenged the leviability thereof in a writ petition filed before the Hon'ble Calcutta High Court and the said writ petition is pending even now though about 15 years have elapsed. By an interim order passed in the said writ petition, the Hon'ble High Court directed the assessee to continue filing its sales-tax returns and also permitted the sales-tax authorities to continue the proceedings for the assessment of sales-tax but the sales-tax orders were not to be given effect to or communicated to the assessee pending the disposal of the rule. The assessee was also required to furnish security. The said interim order is reported to be continuing till date and the assessee has year after year been providing for sales-tax liability in its accounts and claiming the same as expenditure. The Revenue has throughout been disallowing the same and the Tribunal has been allowing the assessee's appeals. It was conceded before us that the Revenue's applications under Sections 256(1) and 256(2) have also been rejected. This issue was decided against the Revenue for asst. yr. 1981-82 as well for which this Tribunal's order is dt. 13th Oct., 1987. The Tribunal has been accepting the assessee's contention on the basis of law as laid down by Hon'ble the Supreme Court of India in Kedar Nath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The learned Departmental Representative Shri O.S. Bajpai contended that because of the stay granted by the Hon'ble Calcutta High Court, no assessments have been communicated to the assessee and, therefore, there is no debt in praesenti. He also contended that in view of the stay granted by the High Court, the operation of the West Bengal Sales-tax Act itself has been impaired and hence no liability for payment of sales-tax arises. Reliance was placed on CIT v. Gemini Cashew Sales Corpoartion [1967] 65 ITR 643 (SC), Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) at page 6, Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC) and ITO v. Garware Plastics & Polyesters (P.) Ltd. [1987] 22 ITD 30 (Bom.) at page 37 (para 10). We have carefully gone through these rulings and we find nothing which may show that in the circumstances referred to above, there is no present liability or that the law as laid down by Hon'ble the Supreme Court in Kedar Nath Jute Mfg. Co. Ltd. '.v case (supra) is not applicable to the facts of the present case.

9. In deleting the addition of Rs. 8,66,636, made by the ITO, the learned CIT(A) has followed the Tribunal's order for earlier years and for the reasons discussed above, we find no reason to lake a different view than the view taken by this Tribunal earlier from year to year. We, therefore, uphold the order of the CIT(A) and reject this ground of the Revenue.

10. The third ground raised in the Revenue's appeal is as under:

3. The CIT(A) was not correct in law and on facts in deleting the addition of Rs. 24,06,528 being the amount of refund of excise duty received by the assessee during the relevant accounting year.

The relevant facts are that the assessee was manufacturing skimmed milk powder and was paying excise duly @ 10% ad valorem. Subsequently, a Notification No. 45/77-CE, dt. 9lh April, 1977 was issued by the Government of India by which the relevant clause was amended which indicated that prior thereto skimmed milk powder was not liable to excise duty. The amended clause was as under:

Entry XII: Milk powder including SMP but excluding milk powder specially prepared for feeding infants.

Thereupon the assessee made a claim for the refund of excise duty paid by it for the period 25th Sept., 1971 to 8lh April, 1977. This claim was lodged on 9-5-1977 and the Collector of Excise allowed a refund only for the period 9-4-1976 to 8-4-1977 and a refund of Rs. 24,06,528 for this period was actually allowed to the assessee in January 1981. The rest of the assessee's claim was held by the Collector to be barred by lime. Litigation between the assessee and the Government of India for the refund of the balance of the amount is said to be going on.

11. Although the aforesaid sum of Rs. 24,06,528 was received by the assessee in January 1981 i.e. in the accounting period relevant for asst. yr. 1982-83, the assessee took this amount in its accounts for the year ending on 30th Sept., 1980 (asst. yr. 1981-82) on the ground that the accounts for that year had not been finalised till then. However, when the assessee filed its return of income for asst. yr. 1981-82, I the a foresail) amount was excluded by it from its income. The assessee in a detailed note quoted by the ITO in the assessment order for asst. yr. 1981-82 gave the reason for exclusion as under:

However, we are not liable to tax on the Said amount even under the provisions of Section 41(1) of the laconic-tax Act inasmuch as the said order authorising the refund was passed and received after the close of the accounting year, on 24th Dec. 1980. 'I his is without prejudice to any submissions by us hereafter in regard to the issue as to whether the authorisation of the said refund is at all liable to tax.

The ITO did not accept the assessee's contention and on the other hand proposed to include in the assessee's income, a sum of Rs. 66,11,701 which represented the total claim of the assessee for the refund of the excise duty paid by it. The matter was referred to the I AC under Section 144B who authorised the inclusion of Rs. 66,11,701 in the assessee's income observing as below:

It was brought to my notice that the SLP preferred by the assessee company in the Supreme Court against the decision of the Delhi High Court, about the admission of the suit before the Delhi High Court, has been decided in assessee's favour. Hence the claim of the assessee for the entire amount of Rs. 66,11,701.56 has not come to an end as stated by the assessee. Considering the fact that the order of the Appellate Collector was passed only on 24th Dec., 1980, which falls beyond the accounting period relevant to the year under consideration and also the matter regarding the balance of claim of excise refund is still alive. I direct the ITO to assess the whole of the claim on a protective basis without prejudice to the right of taxing it by the Department, in some other year when considered proper. This is done on a protective basis as the assessee had included the said receipt in its profit in the year under consideration and also that the assessee for the first time has come out by way of notes-appended to the return of having made such claim, before the authorities.

Thus the ITO included the aforesaid amount in the assessee's income on a protective basis reserving to himself the option to bring the same to tax in some other year when considered proper. The assessee appealed to the CIT(A) for asst. yr. 1981-82 raising, inter alia, the following grounds:

(7a) For that on the facts and in the circumstances of the case, the learned ITO has erred in law in bringing to tax on protective basis under the provisions of Section 28/41(1) of the IT Act, 1961, a sum of Rs. 66,11,701 claimed by the assessee company as a refund of excise duty levied on its production of SMP up to 8th April, 1977. 7(b). For that without prejudice to the foregoing ground, the learned ITO has erred in rejecting the contention of the assessee company that out of the aforesaid claim for refund of Rs. 66,11,701. The Central Excise Appellate Authorities had held that the company was barred by time limitation from claiming refund to the extent of Rs. 42,05,173 and that the order for refund of the balance amount of Rs. 24,06,528 was passed after the expiry of the relevant accounting year and, therefore, neither the aforesaid sum of Rs. 66,11,701 nor any part thereof was assessable as the income of the assessee company of the relevant previous year.

These grounds were given up at the hearing of the appeal and the following amended grounds were set up:

7(a) For that on the facts and in the circumstances of the case, the learned ITO has erred in law in bringing to tax on protective basis or otherwise under the provisions of Section 41(1) of the IT Act, 1961 a sum of Rs. 42,05,173 claimed by the assessee company as a refund of Central Excise Duty on its production of skimmed milk powder from 1st March, 1972 to 8th April, 1976, in spite of the fact that such claim was rejected by the Central Excise authorities concerned, including the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi as being barred by limitation.

(b) For that in view of the provision of Section 64A of the Sale of Goods Act, 1930, it ought to be held that the amount of Rs. 24,06,528 received by the company as a refund of Central Excise duty does not at all constitute its income liable to tax." The original and the amended grounds would show that ultimately with regard to the sum of Rs. 24,06,528, the assessee gave up its objection against the inclusion thereof in the assessee's income on protective basis and restricted its claim to its non-taxability in terms of Section 64-A of the Sales of Goods Act. The learned CIT(A) deleted the addition of Rs. 42,05,173 but he upheld the inclusion of the sum of Rs. 24,06,528. the question whether this amount was taxable in asst. yr. 1981-82 or in some other year was not dwelt upon by the learned CIT(A).

12. The assessee then came to this Tribunal for asst. yr.1981-82 in ITA No. 3226/Del/85 and a Bench of this Tribunal, following a judgment of Hon'ble the Madras High Court in CIT v. Thirumalaiswamy Naidu & Sons [1984]147 ITR 657 held that the amount was received by the assessee in a fiduciary capacity on behalf of its customers from whom it had charged excise duty and, therefore, the same did not amount to assessee's income taxable either under Section 41(1) or Section 28(4). Since the aforesaid finding was very stoutly challenged on behalf of the Revenue in the present appeal and was equally stoutly defended by the learned counsel for the assessee, we reproduce the relevant portion of the Tribunal's order for asst. yr. 1981-82 in extenso:

29. The 6th ground in assessee's appeal reads as under:

For that the learned CIT (A) has erred in rejecting the contention of the assessee-company that the amount of Rs. 24,06,528 received by the company as a refund of Central Excise Duty was not its -income liable to tax under the IT Act, 1961 in view of the provisions of Section 64A of the Sale of Goods Act, 1930.

Before addressing us on this ground, the learned counsel for the assessee narrated the facts in the background of the issue which may be briefly stated as under:

30. As abovesaid, the assessee company had been manufacturing skimmed milk powder, which was subjected to levy of excise duty. After obtaining a clarification from the Excise Department, the assessee company paid excise duty @ 10% ad valorem. Subsequently, the assessee came to know of a notification as per which no duty was leviable on skimmed milk powder from 25th Sept., 1971 to 8th April, 1977. The assessee moved the Collector of Central Excise asking for refund of excise duty till 8th April, 1977, which was rejected by him. When the assessee approached Appellate Collector of Central Excise, a refund of Rs. 24,06,528 was made. The request for balance of claim was rejected on the ground that it was barred by limitation. This order was made on 24th Dec., 1980 apparently after the accounting year was over which was on 30th Sept., 1980. Since the accounts were open the assessee included the said refund in the income for accounting year ending 30th Sept., 1980 but contended that it was not taxable as it was received in consequence of an order passed after the close of previous year. The ITO examined the issue at length and finding that the assessee was claiming refund of Rs. 66,11,702 together with interest therein and dispute was before the High Court, he wanted to add total sum of Rs. 66,11,702 on protective basis. But the IAC (Asst.) observing that assessee has neither obtained the refund nor has the company derived the benefit from the litigation, ordered inclusion only of Rs. 24,06,528 ordering deletion of Rs. 42,05,173.

31. The assessee came before the CIT(A) disputing the addition of Rs. 24,06,528. The assessee contended that the said amount could not be subjected to tax in view of provisions of Section 64A of the Sale of Goods Act. The CIT(A) after narrating the said contention and reproducing Section 64A, rejected the assessee's contention as per para 7.2 of his order.

32. The learned authorised representative for the assessee submitted that Section 41(1) is not applicable in this case because the assessee has neither paid the excise duty nor received the refund in its own capacity, but the same is done in a fiduciary capacity. He relied on 147ITR 657 and further argued that even Section 28(4) could not be fatal to assessee's claim and in that support he relied on 130 ITR 168.* The learned Departmental Representative, on the other hand, relied on the order of CIT(A), 144 ITR 54,61 ITR 395 and 97 ITR 152.

33. After taking into consideration the rival submissions and looking to the facts available on record, we are unable to confirm the finding of the CIT(A). There is no controversy about the fact that the assessee company had been charging excise duty from its customers and it was in the fiduciary capacity that the same was deposited. The dispute before us is not regarding point of time at which the said refund of Rs. 24,06,528 be subjected to tax, and therefore, the case law relied upon by the learned D.R. does not further Revenue's case. Even if the refund is received after the year but it cannot be subjected to tax once it has been incorporated in the books, but since it is a refund of excise duty, it cannot be subjected to tax in the hands of the assessee under Section 41(1). The Madras High Court decision in case of Thirumalaiswany Naidu & Sons, reported in 147 ITR 657 is a case applicable on all fours. Their Lordships in the said case observed that there are two important requisites for invoking Section 41(1) (i) that the assessee must have incurred a trading liability with respect to which he should have obtained a deduction or allowance in an assessment in former year, and (ii) subsequently in the assessment year under consideration, a diminution, remission or cessation of that liability should occur resulting in some benefit to the assessee. In other words, in Section 41(1) there must be a deterrent undergone by person incurring the liability. In the instant case excise duty was collected by the assessee from the customers which was paid to the Department. Therefore, as in the case of Thirumalaiswamy Naidu & Sons the assessee does not incur any trading liability, as in that case and in this case as well, consequently Section 41(1) cannot be invoked when the amount is refunded by the Department subsequently. In that case, their Lordships had held as under:

That the refund received by the assessee from the sales tax department was not a payment receivable by the assessee in its trading transaction but was received purely in a fiscal transaction. There was no business relationship of any kind between the assessee and the sales tax department in the refund granted. Section 41(1) could not, therefore, be invoked to assess the sales-tax refund. Nor could it be brought to tax de hors this section under any other valid principles of taxation of income.

34. In the instant case, since the assessee got the cash refund, Gujarat High Court decision in case of Alchemic Pvt. Ltd. reported in 130 ITR 168 goes to help the assessee that provision of Section 28(iv) would not apply in the instant case, as in that case what was held by their Lordships reads as under:

That the provisions of Section 28(iv) would not apply to the instant case, where the amount had been received in cash and the amount of Rs. 15,964 was not taxable under Section 28(iv).

The reliance of the learned Departmental Representative on 61 ITR 395 and 97 ITR 152 is misplaced because that deals only with the method of accounting, with which we are not concerned here at this point of time. On citation of 144ITR 542 there is a running case of Calcutta High Court in case of Karanpura Development Co. Ltd., which is a lien to the issue. The action of the CIT(A) is, therefore, reversed and the ITO is directed to delete sum of Rs. 24,06,528 added by him under Section 41(1).

13. So far as asst. yr. 1982-83 is concerned, the assessee did not show the same in the return and in the note appended to the return, the assessee's claim for exemption was set out as under:

During the previous year relevant to the asst. yr. 1982-83, we had received an amount of Rs. 24,06,528 on account of refund of excise duty. Relevant facts in the matter have already been set out in Note 3 attached to our return of income for the asst. yr. 1981-82, to which we invite a reference.

The said amount was realised by us from time to time from our various customers on account of central excise duty and was paid by us to the Central Excise Department. The said amount, therefore, belongs to our various customers from whom we had, from time to time, realised the same. Under the law we are bound and liable to refund the said amount to our various customers. In this connection, we draw your kind attention to Section 64A of the Sales of Goods Act, 1930. In the circumstances, the said amount of Rs. 24,06,528 has not been and cannot be included in our assessable income.

The assessee's contention was negatived and the sum of Rs. 24,06,528 was added to the assessee's income. The assessee preferred an appeal before the CIT(A), who deleted the same on the ground that it has already been included in the assessee's income for asst. yr. 1981-82 and the Revenue is, therefore, in appeal before us.

14. The learned counsel for the assessee raised a preliminary objection that the question whether the aforesaid amount is a taxable receipt or not has already been decided between the parties in proceedings for asst. yr. 1981-82 and now there is no dispute between the parties as to the year in which the same is taxable and, therefore, the Revenue's ground No. 3 should be rejected outright. It was also contended that the Tribunal having held that the amount is not a taxable receipt, the same finding should be followed for the year in question and then, it was contended that for asst yr. 1981-82, a reference is already pending before the Hon'ble High Court and in case the Tribunal holds this amount to be taxable in the year under consideration and the Hon'ble High Court holds it to be taxable for asst. yr. 1981-82, then it would result in double taxation. Then on merits both sides pressed their points with reference to the particular facts of the present case and the various authorities cited on either side.

15. Let us first see whether we should decide upon the nature and taxability of the amount in question over again for asst. yr. 1982-83. The learned counsel for the assessee placed reliance on a judgment of Hon'ble the Madras High Court in CIT v. L.G. Ramamurthi [1977] 110 ITR 453 in which it was observed that no Tribunal of fact has any right or jurisdiction to come to conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same fact. It was further observed that in the absence of any fresh material, the Tribunal was not justified in coming to an entirely different and contrary conclusion on the same facts. This ruling would show that it applies only to questions of fact and also in situations where no fresh material has been brought on record in the subsequent year. The learned Departmental Representative on the other hand placed reliance on Dwarka Das Kesardeo Morarka v. CIT [1962)44 ITR 529 in which the Hon'ble Supreme Court held that in the matters of assessment of Income-tax each year's assessment is independent and the decision arrived at in a previous year on the material then before the Taxing Officer cannot be regarded as binding in the assessment for subsequent years. Therefore, the mere fact that certain shares owned by the assessee were found during the assessment for a particular year or years to have been held by the assessee as part of the stock in trade of his business and the profits and losses thereof were included in the taxable income of the assessee would not preclude the assessing officer from finding in the assessment for subsequent year that those shares formed part of the capital investment of the assessee if there arc sufficient materials before the Officer to come to such a finding. To the same effect is the ratio in CIT v. Brij Lal Lohia and Mahabir Prasad Kliemka [1972] 84 ITR 273 (SC). Reliance was also placed by the learned Departmental Representative on a Full Bench decision of the Hon'ble Patna High Court in CIT v. H.D. Agarwal & Sons [1988] 169 ITR 617 in which an earlier Full Bench decision of the same Court in CIT v. Syed Saddique Imam [1978] 111 ITR 475, was referred to and it was reaffirmed that every year's assessment being based on a separate cause of action, an earlier finding by the Tribunal about the true import of certain transaction did not operate as res judicata.

16. In the case before us the question about the taxability of the amount is basically a question of law and as we would show later at the hearing of the appeal by the Tribunal for asst. yr. 1981-82, almost no material was placed before the Tribunal while at the hearing of the present appeal, the learned Departmental Representative placed a plethora of case law on the subject and there is thus cogent and relevant material before us which the parties did not place before the Bench that heard the appeal for asst. yr. 1981-82. We have reproduced above the Tribunal's order for asst. yr. 1981-82 which would show that the Hon'ble Bench observed that there was no controversy about the fact that the assessee company had been charging excise duty from its customers and it was in a fiduciary capacity that the same was deposited. These observations are incorporated in a sentence which does not indicate whether the absence of controversy was in respect of the fiduciary aspect of the matter as well. The learned Departmental Representative contended that on the facts and in the circumstances of the case, it could not have been conceded that the assessee while paying excise duty to the Government of India was acting in a fiduciary capacity on behalf of its customers. We asked Shri Hariharlal, the learned counsel for the assessee as to how the words 'fiduciary capacity' have been used by the Bench in its order for asst. yr. 1981-82. Shri Hariharlal stated before us that this phrase had been picked up by the Bench from the judgment of Hon'ble the Madras High Court in CIT v. Thimmalaiswamy Naidu & Sons' case (supra). He also stated before us that it is not that the assessee stated before that Bench that it was acting as a trustee on behalf of the purchasers. He also told us at the hearing that when the customers paid the excise duty component to the assessee, there was no agreement or contemplation for the refund of the excise duty to the customers in case the same was refunded by the Government to the assessee. He further stated that the assessee's case of fiduciary relationship is based on the provisions of Section 64A of the Sale of Goods Act and that it is not the assessee's case that the amounts of excise duty were paid by the assessee to the Government in a fiduciary capacity on behalf of the purchaser. These are facts which were not brought to the notice of the Bench that decided the appeal for asst. yr. 1981-82.

17. There is another aspect of the matter as well. In asst. yr. 1981-82, the assessee had raised the plea that the amount in question was received after the close of the accounting period for asst. yr. 1981-82 and was received in the accounting period relevant to asst. yr. 1982-83 and, therefore, this amount was not taxable in asst. yr. 1981-82. It was for this reason that the ITO was obliged to assess this amount in asst. yr.1981-82 on protective basis. On the other hand for asst. yr. 1982-83, the assessee never raised a plea that this amount according to the relevant principles could not be treated as the assessee's income for asst. yr. 1982-83 and was the income of asst. yr. 1981-82. The assessee had challenged the assessability of this amount in asst. yr. 1981-82 before the CIT(A) but later on gave up this contention. The result was that the CIT(A) also had no occasion to determine in which year this amount was legally taxable. When the matter came before this Tribunal, the question of the year in which the amount was taxable was not agitated by the parties. The assessee had given up its contention and the Revenue could not raise such a point. It is for this reason that the Bench observed that "the dispute before us is not regarding point of time at which the said refund of Rs. 24,06,528 be subjected to tax." Thus the Bench's observation is merely that the parties did not agitate this point. There is no finding whatsoever by the Bench that this amount was taxable for asst. yr. 1981-82 and was not taxable in asst. yr. 1982-83. We may also mention that when the aforesaid appeal for asst. yr. 1981-82 was heard and decided by the Bench, the department's appeal for asst. yr. 1982-83 was also pending and in both the appeals, the question was about taxability of the aforesaid amount. It would, therefore, have been proper if the two appeals had been heard together and decided by a common order setting at rest the controversy about the year of. taxability. This has not been done and this must be because the parties did not bring this point to the notice of the Bench and the earlier appeal was allowed to be decided without a finding in which year the amount should be taxable.

18. Regarding the year in which the amount is taxable, the learned counsel for the assessee pointed out that it was on 9th April, 1977 that the Government issued the Notification amending the relevant clause and the assessee put in its claim for refund on 9th May, 1977. The claim was rejected by the Asst. Collector on 20th Feb., 1978. The assessee then preferred an appeal to the Collector which was allowed vide order dt. 24th Dec., 1980 and the refund was actually granted in January,1981. Thus the amount was actually received by the assessee in January 1981 and the order that entitled the assessee to the refund was passed in December 1980. Both these dates fall in the accounting year ending 30th Sept., 1981 which is relevant for asst. yr. 1982-83. The learned counsel for the assessee contended that the claim having been made earlier in the year 1977, the amounts could be taxed in some earlier year as well and it was doubtful in which year the same was taxable and, therefore, it cannot definitely be said that the amount was taxable in asst. yr. 1982-83 only. This contention, in our view, is not correct. An assessee cannot be said to be in receipt of an income merely because it makes a claim for certain amount on a third party. The learned counsel for the assessee has not cited any authority to show that an income can be said to arise as soon as the assessee makes a claim. On the other hand, it is settled law that the income arises either on the basis of actual receipt or on the basis of accrual. In this case, the amount accrued to the assessee on 24th Dec., 1980 when the Collector of Customs allowed the assessee's appeal and there was no further proceeding by the department challenging the order of the Collector. Then the amount was actually received in January 1981. Both these dates fall in the accounting period relevant to asst. yr. 1982-83 and, therefore, the amount was taxable only in asst. yr. 1982-83 and we hold accordingly.

19. As a result of the above finding, it would be seen that the Tribunal's order for asst. yr. 1981-82 is in respect of an amount that was not taxable in that year and, therefore, any finding recorded in the proceedings for asst. yr. 1981-82 cannot preempt a decision for asst. yr. 1982-83.

20. As regards the assessee's contention that a decision by this Tribunal may result in double taxation, we are of the view that this apprehension is not justified. Firstly as the facts narrated above would indicate presently the amount stands excluded from the assessee's income for asst. yr. 1981-82 on the ground that it was not the assessee's income. The assessee's apprehension arises merely from the fact that since a reference is pending before the Hon'ble High Court, it is possible that the High Court may hold that the amount was taxable. The question that has been referred to the Hob'ble High Court is simply about the taxability of the sum of Rs. 24,06,528 and is not about the year in which it is taxable. Therefore, the Hon'ble High Court will decide only whether the receipt is taxable or not. If the parties inform the Hon'ble High Court that this amount stands taxed for asst. yr. 1982-83 the Hon'ble High Court is bound to take notice of the fact that may decline to answer the reference as the same may be considered to have become infructuous or make other suitable observations. After the reference is answered by the Hon'ble High Court, the matter will again come to the Tribunal for passing an order under Section 260 and this Tribunal too can pass suitable orders to avoid double taxation. In our view, therefore, there is no possibility of the same amount being taxed in two years as that is not legally permissible. However, that does not mean that where a doubt is raised as to the year in which the amount is taxable, the ITO cannot as a precautionary measure add the amount in both the years. In Lalji Haridas v, ITO [1961] 43 ITR 387, the Hon'ble Supreme Court held that in case of doubt whether a certain income belong to 'A' or 'B', it was permissible to the ITO to take assessment proceedings both against 'A' and 'B'. The same principle can by analogy be applied where it becomes doubtful in which year the amount is taxable. This doubt was created by the assessee himself by treating it as income for asst. yr. 1981-82 and then excluding the same from the income of that year contending that it was not taxable in asst. yr. 1981-82 and pertained to asst. yr. 1982-83. In case any tax had been paid by the assessee in asst. yr. 1981-82, in respect of this income, the same will also have to be given adjustment for asst. yr. 1982-83 in pursuance of the law as laid down by Hon'ble the Supreme Court in ITO v. Bachulal Kapoor [1966] 60 ITR 74. In that case, a certain income was taxed in the hands of certain individuals. Later proceedings were taken against the HUF of those individuals to tax the same income as belonging to the HUF. It was held that the taxation of income in the hands of the individuals did not prevent its taxation in the hands of the HUF if the income actually belonged to the HUF. It was further held that appropriate adjustments have to be made by the ITO in respect of tax realised by the Revenue on that part of the income of the family assessed in the hands of the individuals. Therefore, the apprehension of the assessee that the same income might be taxed twice resulting in double taxation is thoroughly unfounded.

21. For the reasons discussed above, we hold that the sum of Rs. 24,06,528 was not the assessee's receipt/income for asst. yr. 1981-82 and it was the receipt relevant to asst. yr. 1982-83 and we will now proceed to examine whether this was taxable as income or not.

22. 1 he aforesaid sum was paid by the assessee to the Government of India in respect of excise duty considered at the relevant time to be payable on the manufacture of skimmed milk powder. This was, therefore, an expenditure incurred by the assessee in connection with its business and was claimed as such and was allowed as a deduction in determining its income for the period in which the amount was paid. It was the assessee's own expenditure and it was staled before us by the learned counsel for the assessee that it was not the assessee's case that the amount of excise duty was paid to the Government in a fiduciary capacity as an agent or a trustee for the purchasers. Under Section 41(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 the previous year the assessee has obtained whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure. . . , the amount obtained by 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. In the case before us, it is admitted that the amount in question was earlier claimed by the assessee as an expenditure and was allowed as a deduction and also that in the relevant previous year, the assessee obtained a cash refund of the said amount. Therefore, Section 41(1) is applicable on all its fours to the receipt in question. The assessee's defence, however, is that the amount in question was received by it in a fiduciary capacity. When asked by the Bench, the learned counsel for the assessee told us that there was no agreement between the assessee and its customers that any refund will be allowed to the customers in case the amount is refunded by the Government nor has any of the assessee's customers ever made a claim on the assessee for the amount. The assessee on its own part also has not informed any of its customers about the alleged refundability of the amount. The assessee's act in taking the amount to its profit and loss account treating the same as its income unequivocally indicates that it treats it as its own income and the refundability of the amount to the customers was not even in contemplation.

23. The argument of the learned counsel for the assessee is based on Section 64A of the Sale of Goods Act and Section 72 of the Contract Act. Section 64A of the Sale of Goods Act reads as under:

64-A. In contracts of sale, amount of increased or decreased taxes to be added or deducted - (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in Sub-section (2) being imposad, increased, decreased, or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax-paid where tax was chargeable at that time -

(a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition; and

(b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction.

(2) The provisions of Sub-section (1) apply to the following taxes, namely-

(a) any duty of customs or excise on goods;

(b) any tax on the sale or purchase of goods.

Section 72 of the Indian Contract Act, on the other hand reads as under:

72. Liability of person to whom money is paid, or thing delivered by mistake or under Coercion - A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.

Reliance was also placed by the learned counsel for the assessee on Thirmmalaiswamy Naidu & Sons ' case (supra) in which it was held that a refund of sales-tax was not taxable under Section 41(1). As we would mention hereafter several High Courts have taken a different view and the judgment of the Madras High Court does not refer to them or to some relevant judgments of the Supreme Court. The reason is not far to seek. It is clear that the judgment in Thirmmalaiswamy Naidu & Sons' case (supra) is based on the particular facts of that case and does not lay down a general rule of law. In that case, the assessee was a dealer in jaggery and was agitating the levy of central sales-tax on the sale of jaggery. The Act was being challenged in the High Court and hence the assessee firm dealing in jaggery collected from its customers amounts towards contingent liability account in order to protect itself from any possible liability to sales-lax at a future date and paid the same to the sales-tax department. The amounts collected on contingent liability account were not brought into the trading and profit and loss account on the credit side and the remittances of tax from those collections to the Sales tax Department were also not brought into the debit side. The High Court held that the jaggery was exempt from Central Sales-tax. Consequently, the amount paid by the assessee to the Sales-tax Department as Central Sales-tax on interstate sales of jaggery came to be refunded to the assessee resulting in the assessee being obliged to refund the amount to its customers. It was on these peculiar facts that the Hon'ble High Court held that the refund of sales-tax was received by the assessee in a fiduciary capacity and was, therefore, not taxable under Section 41(1). In the case before us, the facts are entirely different. When the amount was paid by the assessee to the Government, there was a thinking on all sides that skimmed milk powder was liable to excise duty @ 10%. It was under that impression that the excise duty was paid by assessee and was recovered from the customers. It was debited to the trading account and the sale price realised which included the excise duty component as well was credited to the profit and loss account. In other words, the assessee had no intention to place himself in any fiduciary capacity qua the customers or qua the Government and did not treat itself merely as a banker to pass on money realised from the customer to the Government. As a matter of fact, while in sales tax a dealer first realises sales-tax from the customer and then pays to the government, in the case of excise duty, the situation is just the reverse. The manufacturer pays the excise duty at the time of manufacture as its own liability and then passes on, the burden to the customer by including in the price the excise duty paid. This may be done by showing in the bill the excise duty separately or by otherwise including the same in the price itself. Therefore, the decision in the case of Thirumalaiswamy Naidu & Sons (supra) is not an authority for the argument that on the facts of the present case, the assessee while receiving the amount from the Government was in the position of an agent or trustee on behalf of the customers.

24. We have reproduced above Section 64A of the Sale of Goods Act. Sub-cl.(a) thereof is in respect of taxes which are imposed or increased after the contract of sale and entitles the seller to add the tax to the contract price and gives him the right to sue for recovery of such addition. Sub-cl. (b) on the other hand is for the benefit of the purchaser and applies to cases where the tax is decreased or remitted. This clause gives the buyer a right to deduct from the contract price an amount as will be equivalent to the decrease of tax or remitted tax. What is important to note is that Sub-clause (b) does not give the buyer any right to recover the decreased or remitted tax from the seller if the buyer had already paid the price. In the case before us, the assessee's buyers have already paid the price and, therefore, according to Section 64A they get no right to claim a refund from the assessee. Further Section 64A would apply only to cases where the tax is decreased or remitted. In the case before us, there is no decrease in tax nor is there any remission. A decrease or remission can take place only where the tax was leviable. In the case before us, according to the assessee's own case, no tax was leviable and it was paid to the excise department because everyone had the impression that excise duty was payable. It is, therefore, a case of realisation of a mistake of law to which Section 64A of the Sale of Goods Act cannot be applied.

25. The learned counsel for the assessee placed reliance on a judgment of Hon'ble the Gujarat High Court in Union of India v. Ahmedabad Mfg. & Calico Printing Co. Ltd. 1984 (17)ELT 246. That was a case in which certain excise duty was paid by the Mills. The levy was challenged in the High Court and was held to be ultra vires. Thereafter the Mills filed suits for the recovery of the excise duty illegally collected and the appeals by the Government of India came for disposal before the Hon'ble Gujarat High Court. The Hon'ble High Court held that the burden of excise duty that was paid by the Mills to the Government had been passed over to the customers and it was for this reason that they were not entitled to the refund. Regarding Section 72 of the Contract Act, the Hon'ble High Court observed that the object thereof is restoration of money or thing to the real or proper owner and the person making claim under Section 72 must establish that justice requires such a payment or return of money or thing and, therefore, if any body was entitled to restitution it is the buyer of the fabric and not the Mills. Regarding Section 64A of the Sale of Goods Act, it was observed that the word "remission" used in Section 64A must the understood in a wider sense so as to include refund or repayment of tax or duty not legally recoverable or due. This case, therefore, relates to an entirely different situation and deals with the question whether a manufacturer who has passed on the burden of excise duty to its customers should be paid back the amount of excise duty by the Government. It was held on the particular facts of that case that the Mills were not so entitled. The same view was taken subsequently in Dhrangadhra Municipality v. Dharangdhra Chemical Works Ltd. [1988] 174 ITR 77 (Guj). It was held that under Section 72 a plaintiff has to plead and prove: (i) that the amount was paid under a mistake; (ii) that if the restitution is not granted to the plaintiff the plaintiff would suffer legal injury or prejudice. In the case before us, we have an assessee to whom the Government has actually refunded the money and the considerations of Sections 64A and 72 would arise when any person claim refund from the assessee. No such person has so far come forward to claim a refund and if anyone comes forward, he will have to establish that the money was paid under a mistake and that if restitution is not granted to him, he would suffer a legal injury. The assessee is a manufacturer and, therefore, his customers would not be the actual consumers who suffered the ultimate burden of excise duty. The assessee's customers would be merely dealers or sub-dealers who in their own turn must have passed on the burden to the ultimate consumer and who actually have not suffered any injury by the so-called realisation of excise duty under a mistake of law. No privity of contract between the assessee and the ultimate consumer has been pointed out and we do not know how the assessee can claim that the receipt of the refund by the assessee has any fiduciary relation with respect to its customers.

26. Even if any liability may arise against the assessee by virtue of Section 64A of the Sale of Goods Act or Section 72 of the Indian Contract Act, that would not be a statutory liability. Such a liability would be merely contractual liability and, as shown above, a person who comes forward to make a claim on the assessee would have to prove several things before he can claim any amount from the assessee. In the case of a contractual liability which is contingent and dependent on various factors as in the present case, the liability becomes allowable only when either the assessee admits the liability to the person concerned or the liability is fastened in any binding adjudication. In CIT v. Swadeshi Cotton & Flour Mills (P.) Ltd. [1964J53 ITR 134, the Hon'ble Supreme Court dealing with an alleged liability towards profit bonus held that the liability arises only when the claim to profit bonus, if made is settled amicably or by industrial adjudication. In Swadeshi Cotton Mill Co. Ltd. v. CIT [1980]125 ITR 33 Hon'ble the Allahabad High Court also took a similar view. It held that when there is a dispute about a contractual amount, the amount paid can be claimed only in the assessment year in which the dispute is settled. Similarly in CIT v. Soorajmull Nagarmull [1981) 129 ITR 169, Hon'ble the Calcutta High Court held that when there was a dispute regarding liability for loss in forward transaction the loss was allowable in the year in which the dispute was settled.

27. Section 72 of the Indian Contract Act and Section 64A of the Sale of Goods Act do not automatically raise an enforceable demand against the assessee. At the most, they give a right to a purchaser to make a claim for refund which claim may either be amicably settled or may be decided through a Court of law. As already observed, an assessee's customers can be entitled to refund only if he establishes that he has not passed over the burden to others. Therefore, there are many imponderables. No one has so far come forward to make a claim against the assessee who patently has no intention to voluntarily refund anything to any of the customers. It is, therefore, clear that the receipt of Rs. 24,06,52S is a receipt by the assessee of his own money and there is no question of the assessee receiving the same in any fiduciary capacity relatable to its customers.

28. The nature of excise duty came for consideration before the Hon'ble Supreme Court in McDowell & Co. Ltd. v. CTO [1985]154 ITR 1.48/22 Taxman 11. In that case, the assessee was a manufacturer of liquor which was subject to excise duty. The assessee had to pay excise duty before removing the liquor produced from the distillery. According to the practice adopted by the assessee in that case, its buyers obtained distillery passes for the release of liquor from the assessee and they (buyers) removed the liquor purchased by them after payment of excise duty. Thereafter the buyers presented the goods to the assessee whereupon the bill of sale or invoice was prepared by the distillery showing the price of liquor but excluding the excise duty. Thus, according to the assessee, the excise duty paid by the buyer was not a part of the sale price and it contended that its turnover was the price realised by it excluding excise duty and sales tax was payable on such reduced turnover alone. This contention was not accepted by the authorities below which held that excise duty was a part of the price charged by the assessee and the matter ultimately reached the Hon'ble Supreme Court; which upheld the Revenue's contention. The Hon'ble Supreme Court held that excise duty even if paid by the purchaser is a part of the turnover for purposes of sales-tax. The Hon'ble Supreme Court observed as under:

In Hindustan Sugar Mills v. State of Rajasthan AIR 1978 SC 1496,1499: (1979) 1 SCR 276-286 this court observed:

The test is, what is the consideration passing from the purchaser to the dealer for the sale of the goods. It is immaterial to enquire as to how the amount of consideration is made up, whether it includes excise duty or sales tax or freight. The only relevant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale...

The court proceeded to say (at p. 1500 of AIR 1978 SC):

Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily it is not shown as a separate item in the bill, but it is included in the price charged by him. The "sale price" in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by (he purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the coffers of the dealer as it would go to reimburse him in respect of the excise duty already paid by him on the manufacture of the goods. But even so, it would be part of the 'sale price' because it forms a component of the consideration payable by the purchaser to the dealer. It is only as part of the consideration for the sale of the goods that the amount representing excise duty would be payable by the purchaser. There is no other manner of liability, stalutoryor otherwise, under which the purchaser would be liable to pay the amount of excise duty to the dealer.. . And, on this reasoning, it would make no difference whether the amount of excise duty is included in the price charged by the dealer or is shown as a separate item in the bill.

(Emphasis supplied) We would like to add, that the position is not different when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the excise authorities or to the State exchequer.

The above observations will show that when a manufacturer pays excise duty on the goods manufactured by it, it does not act as an agent or trustee of anybody and it discharges its own liability. Consequently when the amount is refunded to it, the money would belong to the assessee exclusively without any prior right of anyone else thereon.

29. In ACCE v. Andhra Fertilisers Ltd. [1989] 175 ITR 549 the Hon'ble Andhra Pradesh High Court held that the excise duty was leviable only on manufacturer and not on marketability. In that case, the assessee had filed a writ petition for the refund of excise duty which was illegally collected and the above observations were made to repel an argument of the Revenue that the refund could not be allowed as the assessee had passed on the burden of excise duty to the customers. Repelling the aforesaid argument, the Hon'ble High Court further held that the fact that the respondent made good its loss due to injust collections from its customers afforded no answer to the petitioner's legal claim. These rulings show that the excise duty is the burden of the manufacturer himself and he discharges his own burden when he pays the amount to the Government and it is immaterial how he provides for the money for the payment of excise duty.

30. In the case before us, the assessee relied on certain invoices in which the excise duty was shown as a separate component of the amount charged from the customers. In view of what has been stated above, this circumstance is totally of no help to the assessee. Further the charging sales tax the assessee has itself treated the excise component as a part of the price.

31. Our above discussion would show that while paying the excise duty to the Government on the goods manufactured by it the assessee does not act as a representative of its customers and conversely while realising the said excise duty as a part of the price from the customers, the assessee does not act as an agent or representative of the Government. The burden of payment of excise duty is assessee's own. Therefore, when it pays excise duty to the Government, it is the assessee's expenditure which it can and has actually claimed as such in the earlier years and when the amount is refunded, it is the assessee's own income. We have already referred to Section 41(1) of the IT Act under which any amount obtained in respect of an earlier expenditure is taxable as income of the previous year in which the amount was obtained.

32. We may now refer to the cases which the learned Departmental Representative relied upon to counter the judgment of the Madras High Court in Thirumalaiswany Naidu & Sons' case (supra).

33. In Ikrahnandi Coal Co. v. CIT [1968J69 ITR 488, Hon'ble the Calcutta High Court held that the amount of sales-tax even though shown separately in the transaction of sale as sales tax is a part of the consideration which the seller charges for transfer of the property. The fact that the statute provides that the seller may collect sales tax did not rob the transaction of its trading character. Therefore, a refund of the sales-tax was held to be the taxable income of the assessee. Dealing with the argument raised on behalf of the assessee that identical money became refundable by the assessee to its customers, the Hon'ble High Court held that any amount refunded by the assessee to its buyers will be entitled to be claimed as an expenditure in the revenue account but the mere potentiality of a claim did not rob the receipt of its character as income. Similarly in Jagat Narain Durga Prasad v. CIT [1970]76 ITR 214, Hon'ble the Allahabad High Court held an amount received by way of refund of sales-tax to be the business income of the assessee. This was held to be so under Section 10(2A) of the 1922 Act which was in many respects akin to the present Section 41(1). In Motilal Ambaidas v. CIT [1977] 108 ITR 136, Hon'ble the Gujarat High Court also took the same view. In that case, the assessee was not showing sales-tax either as a receipt or as a payment in its account. The Hon'ble High Court held that the assessee was bound to show the amount of sales-tax collections on the credit side when received and was entitled to claim as deduction when sales-tax was paid and, therefore, for purposes of Section 41(1), the assessee has to be treated to have obtained a deduction and, therefore, the refund of sales-tax was taxable under Section 41(1). In CIT v. Kabbur Bros. [1981] 128 ITR 43, Hon'ble the Karnataka High Court also held a refund of sales-tax to be taxable under Section 41(1). In that case also the assessee had raised a plea that the amount was refundable to the customers. The Hon'ble High Court held that the liability to make payments to its constituents was not a statutory liability and the amount was not refunded to the assessee on the condition that it should be returned to the customer. The Hon'ble High Court also observed that there was no contract between the assessee and its customers for the return of such amount and the assessee had not treated it as a present liability to be met in future. In the case before us also when the Collector of Customs ordered the refund of excise duty, it was not even in the contemplation of the assessee that it has to pay back any amount to its customers. Therefore, there was no condition that the amount refunded by the Government shall not be retained by the assessee and would be refunded to its customers. The assessee also did not contemplate that there is any corresponding liability towards its customers. Had it been so, the assessee would have made a provision of that liability in its accounts and only the amount of that liability should have been claimed as a deduction. But the assessee has not proceeded on those lines as neither in fact nor in law the assessee owes any liability to its customers.

34. In CIT v. Chandajee Khubajee & Co. [1983] 143 ITR 365, the Hon'ble Andhra Pradesh High Court held that a refund of sales-tax was assessable as income under Section 41(1) of the Act and it was immaterial what it does with that income later. The same view was taken in a subsequent case in CIT v. Sahney Steel & Press Works Ltd. [1985] 152 ITR 39 (AP) in which the refund of sales-tax was ordered by the Government under a G.O. in respect of sales-tax paid on purchase of machinery and raw materials and sale of finished goods and there was a condition that the amount so refunded was to be used for development of industry in spite of these changed circumstances. The refund was held to be taxable as income within the meaning of Section 41(1).

35. In Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615, Hon'ble the Supreme Court held that the amount collected by an assessee from purchasers towards sales-tax was a trading receipt and had to be included in its total income and that if and when the appellant paid the amount collected to the State Government or refunded any part thereof to the purchaser, the appellant would be entitled to claim deduction of the sum so paid or refunded. This also shows that a person who collects excise duty, does not act as an agent of anybody.

36. A somewhat similar controversy had arisen before the Allahabad Bench 'A' of this Tribunal in M.P. Udyog Ltd. v. ITO [1989]28 ITD 85 (TM) wherein on a difference of opinion, it was held by the majority that a refund of sales-tax is taxable under Section 41(1) of the IT Act.

37. From the above discussion, it would be seen that several High Courts have taken the view that refund of sales-tax is a taxable receipt in terms of Section 41(1) of the IT Act, 1961. The Madras High Court's judgment is the only contrary, if it can be so called, view and is conspicuously based on different facts indicating the assessee's intention to refund the amount to the buyers in case the tax was not levied, for a student of public finance, there is a vast difference in the nature of the two levies i.e. excise duty and sales-tax. But so far as the applicability of Section 41(1) to a refund of either of them is concerned, there is no distinction whatsoever. This is evident from the fact that the learned counsel for the assessee also relied upon a ruling relating to a sales-tax matter. Therefore, whatever has been held about the taxability of sales-tax refund equally applies to excise duty refund. We, therefore, hold that the sum of Rs. 24,06,528 received by the assessee as a refund of excise duty was taxable under Section 41(1) of the Act for asst. yr. 1982-83. We, therefore, set aside the learned CIT(A)'s order on this point and restore the addition as made by the ITO.

38. Ground No. 4 in the Revenue's appeal is as below:

4. The CIT(A) was not correct in law and on facts in allowing the liability of Rs. 1,98,988 being central excise duty levied on packing material used for skimmed milk powder and pasteurised butter; when the CIT(A) has recorded a finding that accrual of the said liability took place on 2nd April, 1982 that is after the close of previous year.

On the same point there is ground No. 5 in the assessee's appeal as well which is as below:

5. For that the learned CIT(A) has erred grossly on the facts of the case and under the law in rejecting the claim of the assessee company for deduction of Rs. 1,56,077 (forming part of Rs. 1,66,577 which also includes Central Excise Duty of Rs. 10,500 on packing charges paid under protest in Dec. 1980 for the period 1st July, 1980 to 31st Aug., 1980), being the liability of the company to pay Central Excise Duty on packing charges for skimmed milk powder and pasteurised butter relating to the period from 1st June, 1981 to 30th Sept., 1981, for which payments were made by the company under protest during 1st June, 1981 to 30th Sept., 1981 at the time of affecting clearances of the aforesaid goods. He has clearly erred on the facts of the case in holding that the assessee company has made a double claim in respect of the aforesaid amount of Central Excise Duty, once on demand basis, and again on payment basis.

39. As discussed above, the assessee is a manufacturer of skimmed milk powder. It also produced pasteurised butter. Both these items were being charged to excise duty. Up to 2nd July, 1980 the assessee included the cost of packing material used in the packing of the aforesaid goods for arriving at the cost of production on which excise duty was payable. However, w.e.f. 3rd July, 1980, the assessee started excluding the cost of packing material from the dutiable cost of its products and disputed its liability to pay excise duty in respect of the cost of packing material. This contention of the assessee was not accepted by the excise authorities. For the period 1st June, 1981 to 30th Sept., 1981, the assessee actually paid a sum of Rs. 1,56,077 on this account and for the period 1st Dec..1980 to 31st May, 1981 the assessee claimed a liability of Rs. 1,98,988. The Excise Department issued a demand notice in respect of the sum of Rs. 1,98,988 on 2nd April, 1988 i.e. after the close of the accounting year. As would be seen the entire expenditure claimed relates to the period 1st Dec., 1980 to 30th Sept., 1981 which entirely falls within the relevant accounting period. The aforesaid amounts were made up of a larger claim of Rs. 6,01,798 and it is not necessary for us to give the break up thereof. It may be mentioned that the question whether the cost of packing has to be included in the cost of the goods for purposes of excise duty had been raised by various manufacturers and was ultimately decided by the Hon'ble Supreme Court in the case of Union of India v. Bombay Tyres International Ltd. [1983] 14 ELT 18% in the year 1983. The ITO allowed the assessee's claim to the extent of Rs. 73,506 about which a demand notice had been received during the relevant accounting period but he rejected the balance of the claim on the ground that the same was not quantified. On appeal,' the learned CIT(A) allowed the assessee's claim in respect of the amount of Rs. 1,98,988 relating to the period 1st Dec., 1980 to 31st May, 1981 for which demand notice was received on 2nd April, 1982. In respect of this amount the grievance of the revenue is that this liability accrued after the close of the accounting period and hence the same could not have been allowed for asst. yr. 1982-83. Regarding the sum of Rs. 1,56,077 which form part of a larger sum of Rs. 1,66,577, the learned CIT(A) observed that as a sum of Rs. 52,543 had been allowed for asst. yr. 1981-82, and a sum of Rs. 73,507 had been allowed by the ITO in this year, there was no justification for allowing a further sum of Rs. 1,66,577.

40. With regard to the sum' of Rs. 1,98,988, the learned Departmental Representative contended that since a demand for this amount was made on 2nd April, 1982, the amount could not have been claimed in respect of the accounting year ending 30th Sept. 1981. This contention, in our view has no force. The amount is admittedly payable in respect of the excise duty for the period 1st Dec., 1980 to 31st May, 1981. The demand is therefore, for a period falling within the accounting year. The demand is in respect of excise duty which becomes due as soon as the goods are manufactured. The demand is created by the statute levying the excise duty and not by the notice of demand. A notice of demand is issued to ask for payment of a pre-existing liability. The demand notice does not by itself create the demand. We are, therefore, of the view that the CIT(A) was right in allowing deduction for the sum of Rs. 1,98,988. The Revenue's ground of appeal is accordingly, rejected.

41. As regards the sum of Rs. 1,56,077, this amount had actually been paid during the accounting year under consideration and it relates to the period 1st June, 1981 to 30th Sept., 1981 falling within the accounting period. The learned CIT(A) was in our view confused when he declined to allow this amount for the reason that the sum of Rs. 52,343 had been allowed in 1981-82 and Rs. 73,507 had been allowed in the year under consideration. No part of the sum of Rs. 1,56,077 could have been allowed in asst. yr. 1981-82 if as contended by the learned counsel for the assessee, this relates to excise duty for the period 1st June, 1981 to 30th Sept., 1981. The learned counsel for the assessee has placed in the paper book a chart at page 44 showing that this amount was paid in June, July, August and September, 1981. This chart does not show whether it was in respect of any earlier period or for the period 1st June, 1981 to 30th Sept., 1981, itself. The assessee has also placed another chart at page 43 which is confusing. In this chart, the sum of Rs. 52,543 is mentioned in respect of, the period 3rd July, 1980 to 30th Sept., 1981 (asst. yr. 1981-82) the date 30th Sept., 1981 appears to be wrong as 30th Sept., 1981 would not fall in asst. yr. 1981-82. Probably this date is wrongly mentioned and the correct date may be 30th Sept., 1980. Therefore, some confusion does exist about the allowability of the sum of Rs. 1,56,072 and we therefore, restore this point to the assessing officer for determining the liability of Rs. 1,56,077. In case this amount relates to the accounting period relevant to asst. yr. 1982-83, the same shall be allowed as a deduction, if this expenditure has not earlier been allowed.

42. The last ground in the Revenue's appeal is as under:

5. The CIT(A) was not correct in law and on facts in directing the ITO to give his findings under r. 40 before charging interest under Section 215 as a consequence of the appellate order.

The CIT(A)'s order would show that the assessee has moved application for waiver of interest under Section 40 of the Income-tax Rules. That application was pending before the ITO when the CIT (A) passed the appellate order. What the CIT (A) has directed is that before the ITO passes a consequential order giving effect to the order of the CIT(A) he should dispose of the assessee's application under Rule 40 for waiver of interest. Although proceedings for waiver of interest are separate proceedings, yet we see no wrong in the direction of the CIT(A) that the ITO should dispose of the assessee's application before raising any demand of interest in pursuance of the CIT (A)'s order. An ITO cannot be permitted to keep the assessee's application for waiver of interest pending till infinity and at the same time pursue the demand in respect thereof against the assessee. This ground of appeal of the Revenue is also rejected.

43. The assessee's ground No. 2, is regarding disallowance of Rs. 90,953 under Section 80VV. The CIT(A) has confirmed the disallowance. The total expenditure as detailed by the assessment pages 3land 32 of the paper book was of Rs. 90,953 and a similar issue had come to this Tribunal for asst. yr.1981-82 wherein it was held that consultation fee paid to retainers and others was not disallowable under Section 80VV. At pages 31 and 32 of the paper book, the assessee has mentioned all the items of expenditure and has in the remarks column mentioned which items are covered by Section 80VV in terms of Tribunal's order and which are not. We are in agreement that Section 80VV is not applicable to retainership fee of Rs. 12,000 paid to Shri Harihar Lal, to the-sum of Rs. 22,090 paid in connection with proceedings in the Calcutta High Court against apprehended attachment, to the sums of Rs. 22,355 and Rs. 379 in respect of a writ petition in the Delhi High Court and a sum of Rs. 715 paid to Sh. N.Khaitan for consultation. The balance of the expenditure of Rs. 38,414 is, therefore, covered by Section 80VV and alter allowing the permissible deduction of Rs. 5000, the excess of Rs. 33,414 is disallowed. Therefore this contention of the assessee is partly accepted and the disallowances made by the ITO is reduced from Rs. 90,953 to Rs. 33,414.

44. The next ground raised in the assessee's appeal is about a sum of Rs. 63,773 being the amount of unclaimed interest on 6-1/2% bearer debentures. The debentures were redeemable in the year 1970 and since nobody turned up to claim the amount in respect of certain lebentures and the interest thereon, the aforesaid amount was written back in the profit and loss account for the year ending 30th Sept., 1979. The ITO treated this amount as income for the year asst yr. 1980-81 but the CIT (A) deleted the addition observing that the last acknowledgement took place in the balance sheet for the year ended 30th Sept., 1978 and, therefore, the legal remedy for the enforcement of the liability would cease three years thereafter that is on30th Sept., 1981. The addition was therefore deleted from assessment year 1980-81 and the ITO was directed to consider the taxability of the amount for asst. yr. 1982-83. A show-cause notice was issued to the assessee by the ITO during the proceedings for asst.yr.1982-83 and it was stated by the assessee that it has been paying the amount of debentures and interest thereon as and when someone turns up and in January, 1983 it paid Rs. 7,155 which included Rs. 2,155 in respect of interest of five debentures. It was also contended that expiry of the period of limitation does not bring about cessation of liability. The ITO, however, did not accept the assessee's contentions and held that this amount is taxed in accordance with the directions of the CIT(A) for asst. yr. 1980-81. On appeal, the learned CIT(A) has confirmed this addition. He held that the legal remedy for the enforcement of the liability ceased on 30th Sept., 1981 and, therefore, the amount was taxable under Section 41(1). He also referred to the assessee's own conduct in treating the liability to have extinguished by writing off the same and taking the amount to the profit and loss account as income.

45. The matter for asst.yr.1980-81 had come to this Tribunal and the Tribunal held that in that year the assessee had not obtained any benefit in respect of its liability by way of remission or cessation meaning thereby that in the accounting period relevant to asst. yr. 1980-81, the liability had not ceased.

46. We are now in asst. yr. 1982-83. The learned counsel for the assessee did not dispute that the aforesaid amount of Rs. 63,773 was in respect of interest due on certain debentures and had in the earlier years claimed and allowed as expenditure in determining the assessee's income. He also did not dispute that the limitation for the recovery of the principal as well as of interest has expired on 30th Sept., 1981. He, however, contended that in spite of the expiry of limitation, the liability cannot be legally said to have ceased because limitation merely bars the remedy but does not extinguish the right. For this proposition, reliance was placed on CIT v. Sugauli Sugar Works (P.) Ltd. [1983]140 ITR 286 (Cal), Bhagwat Prasad & Co. v. CIT [1975] 99 ITR 111 (All.) and J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34. In the Bombay case, it was also held that a mere credit entry by the assessee does not bring about remission or cessation of liability. It is true that mere expiry of limitation does not cause the liability to cease but we have to look to all the other relevant circumstances. In this case, the debentures were bearer ones so that the assessee does not even know who are the persons who if at all are presently in possession of the debentures, whether such persons know of the existence of debentures with them or not. The debentures had matured in the year 1970 and after waiting for a sufficient long time, the assessee itself considered that nobody is likely to come forward to claim the amount and that was why in the year ending 30th Sept., 1979, it had written back the amount and taken it to the profit and loss account. In Pioneer Consolidated Co. of India v. CIT [1972]85 ITR 410 (All), it was held that where money due by the assessee company to its constituents was not claimed by the constituents and was transferred to the profit and loss account of the assessee company, it was the income of the assessee in the accounting year in which it was so transferred. In Indian Motor Transport Co. v. CIT [1978] 114 ITR 677 the Hon'ble Allahabad High Court after considering its own judgment in the case of Bhagwat Prasad & Co.'s case (supra), held that when the assessee itself treated certain amounts as its income because it felt that the claimants were not likely to come forward to make demands it implied that the assessee had treated its liability to have ceased to exist and the amount was, therefore, the assessee's income under Section 41(1).

47. The circumstances that in January 1983, a sum of Rs. 2,155 was paid as interest in respect of some of debentures does not prove the existence of a legal liability The learned counsel for the assessee conceded before us that such payment has been allowed as a deduction in the year in which it has been paid. An honest businessman would always pay an amount even if the claim for it is not legally enforceable. Looking to the entirety of the facts and circumstances and the assessee's own thinking about the situation, we are of the view that the sum of Rs. 63,773 was an amount taxable under Section 41(1) of the IT Act, 1961 as the liability in respect thereof ceased with the close of the relevant accounting year. We, therefore, uphold the orders of the authorities below on this point.

48. Ground No. 4 in the assessee's appeal relates to the calculation of disallowance under Section 40A(5) in respect of its Managing Director Shri Sanjay Dalmia to whom the assessee had provided a car for use in the assessee's business as well as for personal purposes of the said managing Director. The 1TO treated 1/3rd of the total expenditure on the said car as being related to the personal use of the car by the Managing Director and included the said 1/3rd portion amounting to Rs. 11,461 in the value of the perquisite provided to the Managing Director. In the grounds of appeal, it has been contended that the perquisite value of the car should have been taken in accordance with Rule 3 of the Income-tax Rules. This contention is not tenable because Rule 3 provides for calculation of the perquisite value of the conveyance in the case of the employee and is not relevant for purposes of disallowance under Section 40A(5), in the case of the employer. The learned counsel for the assessee pointed out that for the immediately preceding year i.e. asst. yr. 1981-82, this Tribunal held that 1/4th of the expenditure on the car should be treated as relating to the personal use of the Managing-Director. Following that order of the Tribunal, we direct that 1/4th of the expenditure on the car be treated to be related to the provision of a perquisite to the Managing Director and the disallowable portion be recalculated accordingly.

49. Ground Nos. 6 & 7 set up in the memorandum of appeal were not pressed at the hearing and are accordingly rejected.

50. In the result, both the appeals stand partly allowed in accordance with the orders contained above.