High Court Of Allahabad
CIT vs. London Machinery Company
Section 41(1)
Asst. Year 1976-77
R.K. Agrawal & Prakash Krishna, JJ.
IT Appeal Nos. 2317 & 2403 of 1983 and IT Ref. No. 133 of 1987
2nd December, 2004
Counsel Appeared :
R.S. Agarwal, for the Revenue : None, for the Assessee
JUDGMENT
Prakash Krishna, J. :
The Tribunal, Allahabad, has referred the following questions of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to the Act), for opinion of this Court, relevant to the asst. yr. 1976-77 : “1. Whether, in law and on the facts of the case, the Tribunal was justified in holding that the remaining amount of refund of excise duty of Rs. 30,851 which was distributed amongst the partners of the firm was not the income of the assessee-firm?
2. Whether, in law and on the facts of the case, the Tribunal was justified in holding that the amount of Rs. 30,851 was not assessable under s. 41(1) of the IT Act, 1961, in the year under consideration ?” 2. The brief facts of the case are as follows : The assessment for the asst. yr. 1976-77 was initially completed by the assessing authority but was subsequently set aside by the CIT(A) vide his order dt. 14th Nov., 1979. The revised return on 13th Feb., 1979, showing total income of Rs. 1,89,410 as against the assessed income of Rs. 3,22,900 was filed. The CIT(A) while setting aside the original assessment order directed the assessing authority to also take into account the revised return. In the revised return, the assessee credited unclaimed excise duty in the P&L a/c amounting to Rs. 30,851. The ITO found that the assessee had received a sum of Rs. 90,924 in the accounting year 1969-70 from M/s Varuna Sales Limited, Ahmedabad, towards credit note of the excise duty. The assessee out of the said amount did not refund Rs. 30,821.40 to the customers and the same was credited in the asst. yr. 1976-77. This amount was added to the total income of the assessee by the ITO but was set aside by the CIT(A) in the appeal preferred by the assessee. The Tribunal has confirmed the order of CIT(A).
3. Heard learned standing counsel for the Department. None appeared on behalf of the assessee as Sri R.S. Agarwal, advocate, has stated that he has no instruction in the matter.
4. Reiterating the stand which was taken by the Department before the Tribunal, the learned standing counsel submitted that the Tribunal was not correct in deleting the addition of Rs. 30,851, the excise duty to be refunded in the year 1970-71. It was contended that the liability in respect of this amount ceased to exist during the year under consideration and the sum of Rs. 30,851 was accordingly chargeable to tax under s. 41(1) of the Act.
5. We have given careful consideration to the submission of learned standing counsel for the Revenue. A sum of Rs. 30,851 was received by the assessee respondent in the accounting year 1969-70. The said amount was not refunded to the customer and has been credited in the P&L a/c for the asst. yr. 1976-77 and has been distributed amongst the partners. In view of these facts, the application of provision of s. 41(1) of the IT Act arises. Sec. 41(1) of the Act, as it stood at the relevant time reads as under : “41(1) Profits chargeable to tax.—Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.” Sec. 41(1) applies if the following conditions and circumstances are satisfied, in the assessment for the relevant year, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by the assessee. This is the first step. Coming to the next step, the assessee must have subsequently (i) obtained any amount in respect of such loss, or (ii) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming provision enacted in the closing part of sub-s. (1) comes into play. Accordingly, the amount obtained by the assessee or the value of benefit accruing to him is deemed to be profits and gains of business or profession and it becomes chargeable to income-tax as the income of that previous year.
6. Learned standing counsel has placed reliance upon a judgment of this Court in Indian Motor Transport Co. vs. CIT 1978 CTR (All) 301 : (1978) 114 ITR 677 (All). In this case it was held that if unclaimed amount are transferred to P&L a/c, provisions of s. 41(1) of the Act are attracted.
7. We could lay our hand on a recent judgment of Supreme Court in the case of Polyflex (India) (P) Ltd. vs. CIT (2002) 7 SCC 188. In this case it has been held as follows : “The correct way of understanding s. 41(1) would be to read the latter clause—‘Some benefit in respect of such trading liability by way of remission or cessation thereof’ as a distinct and self-contained provision. To read the phrase ‘by way of remission or cessation thereof’ as governing the previous clause as well i.e., ‘obtained any amount in respect of such loss or expenditure’, would be doing violence to the language and structure of the provision. That apart, the operation of the provision which is designed to have the widest amplitude will get constricted and truncated by reason of such interpretation.”
8. In view of the above proposition of law it is clear that the case in hand falls under first clause of s. 41(1) of the Act. The transfer of unpaid excise credited to the P&L a/c of the assessee is chargeable as profit of the year to tax.
9. In view of the foregoing discussion, we answer the above questions referred to us in negative, i.e., in favour of the Department and against the assessee. There shall be no order as to costs.
[Citation : 280 ITR 271]
