High Court Of Kerala
CIT vs. Travancore Chemical & Mfg. Co. Ltd.
Section 41(1)
Asst. Year 1987-88
K.S. Radhakrishnan & V. Ramkumar, JJ.
IT Appeal No. 66 of 2001
7th July, 2006
Counsel Appeared
P.K.R. Menon & George K. George, for the Appellant : C. Kochunny Nair, Dale P. Kurien & Arun Raj, for the Respondent
JUDGMENT
K.S. Radhakrishnan, J. :
This appeal is preferred by the CIT, Cochin under s. 260A of the IT Act against the order of the Tribunal, Cochin Bench in ITA No. 935/Coch/1991 dt. 16th Oct., 2000. The following questions of law are raised for consideration :
1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 55,28,862 being the refund of countervailing duty received by the assessee during the year of account relevant to the asst. yr. 1987-88 could be brought to tax in the asst. yr. 1987-88 under the provisions of s. 41 (1) of the IT Act ? Whether, on the facts and in the circumstances of the case and also in the light of the decision of the Supreme Court in (2000) 160 CTR (SC) 248 : (2000) 244 ITR 764 (SC), can the amount of Rs. 55,28,862 be brought to tax in the asst. yr. 1987-88 under the provisions of s. 41(2) of the IT Act ? Whether, on the facts and in the circumstances of the case, can the amount of Rs. 55,28,862 be brought to tax as a business receipt in the asst. yr. 1987-88?
Assessee-company had originally filed a return of income claiming a net loss of Rs. 2,04,81,264 for the asst. yr. 1987-88. During the previous year relevant for asst. yr. 1987-88 assessee had received Rs. 55,28,862 being refund of countervailing duty pursuant to the Collector of Excise allowing assessee’s appeal. AO therefore brought to tax the said amount under s. 41(1) on the ground that the refund had accrued to the assessee and the assessee has actually received the amount. Aggrieved by the said order assessee took up the matter in appeal before the CIT(A). CIT (A) however, placing reliance on the decision of this Court in K.V. Moosa Koya & Co. vs. ITO & Anr. (1988) 74 CTR (Ker) 14 : (1989) 175 ITR 120 (Ker) and the decision of the apex Court in CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC) held that the actual cessation or remission of liability under s. 41(1) took place in assessee’s case only when the appeal by the Excise Department was withdrawn as per Supreme Court’s order dt. 26th July, 1998 and therefore, countervailing duty refund cannot be included as income of the year. Revenue aggrieved by the said order took up the matter in appeal before the Tribunal. Tribunal dismissed the appeal concurring with the view of the CIT(A), against which this appeal has been preferred.
The assessee had during the year 1986-87 received from the Central Excise Department a refund of Rs. 55,28,862 as countervailing duty. Assessee’s contention was that there was dispute about the assessee’s eligibility to refund of countervailing duty and until that dispute is finally resolved, the amount would not become due to the assessee and cannot be taken as having accrued to the assessee. We are not prepared to accept the contention of the assessee that the refund had not actually accrued to the assessee. In our view the decision of the apex Court in (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC) (supra) would not apply to the facts of this case. Apex Court held that the right to enhanced compensation is an inchoate right and additional compensation does not accrue when amount awarded is disputed by Government by filing appeal. That was a case where the amount was deposited before the Court. Court permitted to withdraw the amount furnishing a security bond. The Court held that there was no absolute right to receive the amount at that stage. A Division Bench of this Court in (1988) 74 CTR (Ker) 14 : (1989) 175 ITR 120 (Ker) (supra) following the abovementioned decision of the Supreme Court held that the refund cannot be included in assessment for asst. yr. 1974-75 but only in asst. yr. 1975-76.
We are of the view the principle laid down in the abovementioned decisions as such would not apply to the facts of this case in view of the decision of the apex Court in Polyflex (India) (P) Ltd. vs. CIT (2002) 177 CTR (SC) 93 : (2002) 257 ITR 343 (SC). A Bench of the Supreme Court specifically considered the scope of s. 41(1) of the IT Act, 1961 and held that where a statutory levy is discharged by the assessee and subsequently the amount paid is refunded, it will be a case where the assessee “has obtained any amount in respect of such expenditure” within the meaning of s. 41(1) of the IT Act, 1961; it will not be a case of “benefit by way of remission or cessation” of a trading liability. The Court held that where expenditure is actually incurred by reason of payment of duty on goods and the deduction or allowance is given in the assessment of an earlier period, the assessee is liable to disgorge that benefit as and when he obtains refund of the amount so paid. Whether there is a possibility of the refund being set at naught on a future date, is not a relevant consideration. Once the assessee gets back the amount which was claimed and allowed as business expenditure during an earlier year, the deeming provision in s. 41(1) comes into play and it is not necessary that the Revenue should await the verdict of a higher Court or Tribunal. If the higher Court or Tribunal upholds the levy at a later date the assessee is not without a remedy to get back the relief.
We are of the view the abovementioned judgment is squarely applicable to the facts of this case. If that be so, the finding of the CIT as well as the Tribunal cannot be sustained. Sec. 41(1) seeks to tax the following as income in respect of loss, expenditure or trading liability allowed/deducted in previous year : (a) An amount obtained in cash or in any other manner in respect of such loss or expenditure, or (b) some benefit in respect of such trading liability by way of remission/ cessation thereof. Sec. 41(1) seeks to tax any amount obtained in cash or in any other manner in respect of such loss or expenditure or to tax some benefit in respect of such trading liability by way of remission/cessation thereof. Refund was received by the assessee as per the order of CCE and so as there is a cessation of liability, which had been allowed earlier in the computation of income, the refund of the amount is taxable as a revenue receipt under the provisions of s. 41(1) of the IT Act. Facts would show that the assessee had actually received the refund and had accounted the same. Merely because the Revenue had filed an appeal before the apex Court, which was later withdrawn, did not mean that the refund had not actually accrued to the assessee.
In fact, it accrued to the assessee and had actually received it, and hence the amount is assessable under s. 41(1) of the IT Act.
The Tribunal in our view had erred in not treating the refund as cash obtained of an expenditure allowed in prior years. The Tribunal’s finding that the refund relates to an amount paid by the assessee out of profit for the year 1980 or so cannot be sustained.
We, therefore, answer the question in favour of the Revenue and against the assessee. Appeal is therefore allowed and the orders of the CIT(A) and that of the Tribunal are set aside and the order of the assessing authority would stand restored.
[Citation : 287 ITR 228 ]
