High Court Of Rajasthan
Wolkem (P) Ltd. vs. CIT
Sections 41(1), 256
Asst. Year 1986-87
N.N. Mathur & H.R. Panwar, JJ.
IT Ref. No. 33 of 1997
30th October, 2002
Counsel Appeared
N.M. Ranka with Sanjeev Johri, for the Assessee : Sundeep Bhandawat, for the Revenue
JUDGMENT
N.N. Mathur, J. :
The Tribunal, Jaipur, at the instance of the assessee, Wolkem (P) Ltd. has referred the following question of law for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the excise duty collection was a trading receipt in the year of receipt and hence excise duty refund of Rs. 1,45,752 was liable to tax in the hands of the assessee under s. 41(1) of the IT Act, 1961 ?”
The background facts relevant for answering the instant reference, briefly stated are as follows : The assessee- company filed its return for the asst. yr. 1986-87 declaring total income of Rs. 11,34,310 derived from the business of minerals known as calcite and wollastonite. In response to the notice under ss. 143(2)/142(1) the representative of the assessee-company produced the books of accounts which reveal that during the assessment proceedings excise duty refundable to the assessee was worked out to a sum of Rs. 2,91,500. Out of the said amount a sum of Rs. 1,09,381 was directly claimed by various customers from the excise department. Thus, the assessee-company received refund of excise duty amounting to Rs. 1,45,752. The assessee did not credit the said amount in the P&L a/c on the ground that the same was not taxable. It was contended that this amount was to be refunded in turn to its various customers and the assessee was under the obligation to repay the said amount, hence the said receipt did not constitute the income of the assessee. The assessing authority rejected all the contentions and treated the refund amount against the excise duty as income and, accordingly, added to the total income of the assessee. The CIT(A) deleted the addition having held that it was not an income. However, the Tribunal relying on the decision of the Gujarat High Court in Motilal Ambaidas vs. CIT 1977 CTR (Guj) 165 : (1977) 108 ITR 136 (Guj) held that the subject refund constitutes the income of the assessee and as such set aside the order of the CIT(A) and restored the order of the assessing authority. In the opinion of the Tribunal the excise duty collected from the customers was embedded in the sale price and hence it has to be credited in the profit and loss account. The Tribunal found that the assessee instead of crediting the excise collected to the P&L a/c, credited it to the CED deposit account. When this amount was paid to the excise department, it was paid by debiting the same amount. Rejecting the contention of the assessee that it had never claimed it as an expenditure in the past, the Tribunal held that the effect on the profit and loss remained the same irrespective of the accounting entries passed as per the alternative method. Accordingly, the Tribunal concluded that as excise collection is a trading receipt and excise duty payable is a trading liability, the assessee is also deemed to have claimed the excise payable as a trading liability. Consequently, the Tribunal held that the refund received by the assessee as a remission of such liability would attract the provisions of s. 41(1). The Tribunal also envisaged a situation where the customers to whom the duty had to be refunded, may not either come forward for any reason whatsoever or may not be traceable. In such an event, the Tribunal felt the excise duty refund which as a trading receipt would totally escape tax though earned in the usual course of the business, if the plea of the assessee was accepted.
4. It is submitted by Mr. N.M. Ranka, learned senior advocate appearing for the assesseecompany, that the amount collected by the assessee against the excise duty was credited to the suspense account as such it was not pertaining to the assessee and it was payable to the Central excise department and as such it cannot constitute as an income of the assessee under any provisions of the IT Act. It is further submitted that part of the amount was due to the different customers and as such it being a liability the addition was unjust. Learned counsel has heavily placed reliance on the Division Bench judgment in CIT vs. Wolkem (P) Ltd. (1996) 136 CTR (Raj) 125 : (1997) 228 ITR 129 (Raj). It is submitted that in the case of the same assessee, for the asst. yr. 1986-87, the Court held that the refund of excise duty was not in the nature of income under s. 41(1) of the IT Act. It is submitted that the Revenue has accepted the said judgment, as such it is not open for them to take a different stand for the subsequent assessment years. On the other hand, it is submitted by Mr. Sundeep Bhandawat, learned counsel appearing for the Revenue, that the view of the Tribunal is in conformity with the view taken by the Supreme Court in Gursahai Saigal vs. CIT (1963) 48 ITR 1 (SC), Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) and Sinclair Murray & Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC). It is also submitted that the decision of the Tribunal is based on the judgment of the Gujarat High Court in the case of Motilal Ambaidas vs. CIT (supra) which has been approved by the Full Bench of the same High Court in CIT vs. Bharat Iron & Steel Industries (1992) 105 CTR (Guj)(FB) 331 : (1993) 199 ITR 67 (Guj)(FB).
5. In order to better appreciate the controversy involved, it would be convenient to extract s. 41(1) of the IT Act as follows : “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 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.”
6. Sec. 41 enacts adjustment provisions whereby the Revenue takes back what it has already allowed, if certain conditions come to pass and the assessee recoups something for which an allowance had already been made and deducted from his business income. The provision also fixes the year in which the recoupment, etc., is to be taxed. The first part of sub-s. (1) contemplates loss, expenditure or trading liability in some former year for which allowance or deduction had been made in a bygone assessment year. The second part of sub-s. (1) contemplates recoupment of such loss or expenditure or benefit in respect of such trading liability by way of remission or cessation thereof in some subsequent year. The word “such” appearing in the second part of sub-s. (1) signifies that the recoupment or benefit must be in respect of the loss, expenditure or trading liability mentioned in the first part of sub-s. (1). The payment with respect to the sales-tax or excise duty is normally an allowable item of business expenditure.
7. The facts of the instant case are somewhat near to the facts of the case in Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra). In the said case the appellant, a private company, dealing in furniture also acted as an auctioneer. In respect of the sales effected by it as auctioneer, the appellant realised during the relevant period, in addition to the amount of commission Rs. 32,986 as sales tax. This amount collected against the sales-tax was credited separately in its account books under the head “sales-tax collection account”. The assessee did not pay the amount of sales-tax to the actual owner of the goods, nor did it deposit the amount realised by it as sales-tax in the State exchequer, because it took the stand that the statutory provision creating that liability upon it was not valid or refund it to the persons from whom it had been collected. On these facts, the Supreme Court held that the amount collected as sales-tax by the assessee in its character as an auctioneer formed part of its trading or business receipts. It was further held that the fact that assessee credited the amount received as sales-tax under the head “sales-tax collection account” did not make any material difference. The apex Court also observed that “it is the true nature and quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt”. The Court further observed that the assessee concerned would be entitled to claim deduction of the amount as and when it pays the amount to the State Government. The Court observed as follows : “The fact that the appellant credited the amount received as sales-tax under the head ‘sales-tax collection account’ would not, in our opinion, make any material difference. It is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt.”
8. In the case of Sinclair Murray & Co. (P) Ltd. vs. CIT (supra), the sales-tax collected was shown in the bill as “sales-tax buyers’ account” at the rate of one anna per rupee to be paid to the Orissa Government. It was held that the amount collected by the assessee as sales-tax constituted its trading receipt and it had to be included in its total income and if and when the assessee paid the tax and refunded the part thereof, the assessee would be entitled to claim deduction of the sum so paid or refunded.
9. Considering all the three decisions of the Supreme Court, the Division Bench of the Gujarat High Court concluded as follows : “It is thus clear from these different decisions and particularly the decisions in Sinclair Murray & Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC); Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) and George Oakes (P) Ltd’s. case (1961) 12 STC 476 (SC) that according to the Supreme Court whenever any sale takes place, whether the price quoted to the purchaser includes sales-tax or whether sales-tax is separately collected, the sales-tax forms part of the consideration for the sale and it forms part of the turnover of the seller. The amount of the sales-tax payable in respect of the sales effected by a particular assessee forms part of his trading receipts and has to be shown on the credit side. As and when he pays the sales-tax to the authorities, he can claim deduction for the sales-tax paid; in case he has to refund the sales-tax to the original purchaser who purchased the goods from him, then the amount so refunded will also be a deduction which he can claim and it must be granted to him, that being deduction on the expenditure side. Thus, it is obvious that in the instant case the assessee-firm which was maintaining its accounts on mercantile basis was bound to show as trading receipt all the amounts which accrued due to it or which were collected by it as sales-tax and it was bound to show on the debit side of the accounts, the amounts which it paid by way of sales-tax. The fact that no such entries showing credits and debits in respect of sales-tax collected and sales-tax paid were made by the assessee-firm does not alter the real substance of the transaction nor does it alter the real character of what was required to be done by the assessee in this case.”
10. The Full Bench of the Gujarat High Court in CIT vs. Bharat Iron & Steel Industries (supra) analysing s. 41(1) observed that : “In our opinion, for considering the taxability of amount coming within the mischief of s. 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in s. 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefit would become chargeable to income-tax as income of that previous year.”
11. As far as the decision of this Court in the case of CIT vs. Wolkem (P) Ltd. (supra) is concerned, it is essentially an authority on the power of the High Court in the matter of calling for a supplementary statement of the case. The three Supreme Court decisions, referred to above, directly on the point appear to have not been brought to the notice of the learned Judges constituting the Division Bench. Though some cases have been referred to in the judgment, none of them have been discussed. Cases cited have also not been discussed. The total discussion on the subject is as follows : “Last but not least we answer the question by holding, inter alia, that s. 28(iv) is not applicable and we rely in this context on the decision in CIT vs. Alchemic (P) Ltd. (1981) 20 CTR (Guj) 83 : (1981) 130 ITR 168, 173 (Guj). We are further of the opinion that s. 41(1) is also not called into play and in reaching such a conclusion, we have taken into account the following decisions : (a) CIT vs. Nathuabhai Desabhai (1981) 130 ITR 238 (MP); (b) CIT vs. Thirumalaiswamy Naidu & Sons (1984) 147 ITR 657, 665, 667 (Mad); (c) CIT vs. Sita Ram Sri Kishan Das (1982) 30 CTR (All) 291 : (1983) 141 ITR 685 (All); (d) CIT vs. Devatha Chandraiah & Sons (1987) 61 CTR (AP) 187 : (1985) 154 ITR 893 (AP); (e) CIT vs. A. Tosh & Sons (P) Ltd. (1987) 59 CTR (Cal) 272 : (1987) 166 ITR 867 (Cal); (f) CIT vs. Kharaiti Lal & Co. (1989) 80 CTR (P&H) 49 : (1989) 178 ITR 265 (P&H); (g) CIT vs. Lal Textile Finishing Mills (P) Ltd. (1990) 81 CTR (P&H) 13 : (1989) 180 ITR 45 (P&H); (h) CIT vs. Ancherry Pavoo Kakku (1987) 59 CTR (Ker) 240 : (1986) 160 ITR 88 (Ker); (i) CIT vs. East Asiatic Co. (India) (P) Ltd. (1996) 132 CTR (Mad) 126 : (1996) 217 ITR 347 (Mad); and (j) CIT vs. Tara Chand Suraj Mal (1996) 217 ITR 315 (All). Making of entry in the books of account or transferring to P&L a/c for the asst. yr. 1980-81 was an unilateral action, which has no consequences of its own and in this perspective, we rely upon the decisions in Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC), J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom), CIT vs. Sadabhakti Prakashan Printing Press (P) Ltd. (1980) 125 ITR 326 (Bom), CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 286 : (1983) 140 ITR 286 (Cal), CIT vs. A.V.M. Ltd. (1986) 56 CTR (Mad) 171 : (1984) 146 ITR 355 (Mad), CIT vs. B.N. Elias & Co. (P) Ltd. (1987) 59 CTR (Cal) 246 : (1986) 160 ITR 45 (Cal), CIT vs. Sadul Textiles Ltd. (1987) 59 CTR (Raj) 98 : (1987) 167 ITR 634 (Raj) and CIT vs. Combined Transport Co. (P) Ltd. (1988) 74 CTR (MP) 140 : (1988) 174 ITR 528 (MP). Diversion at source on account of overriding title, where the deposit was of the nature of trust fund, does not really amount to revenue receipt. The liability for payment to the Central excise and/or to return to the customer, really take the entire matter to the perspective of a financial transaction and it does not amount to a trading receipt.
We answer the questions thus that in our view the refund of excise duty received by the assessee from the excise department is not the income of the assessee and since it is not an income, it is neither covered by s. 28(iv) nor s. 41(1) of the IT Act and it will be considered to be not a revenue receipt. On account of it, there is no liability for payment of income-tax. It amounts to only a financial transaction and nothing beyond. Both the references stand answered accordingly.”
The question, whether in a case where a similar question has been answered in an earlier case in a particular way and identical question of law arising in a later year would be a referable one, has been answered by the apex Court in D.B. Madan vs. CIT (1992) 102 CTR (SC) 169 : (1991) 192 ITR 344 (SC). In the said case the assessee submitted an application before the High Court for calling for reference on the question whether expenditure on air travel of the assessee’s wife who accompanied him for reasons of health was allowable as businessexpenditure. The reference application was rejected by the High Court on the ground that it had decided the same question earlier on the merits to the effect that expenditure on the wife of a senior partner of a firm accompanying him on a foreign tour was not allowable as business expenditure of the firm. The matter was carried to the Supreme Court by way of special leave. The Supreme Court held that it cannot always be said that as a rule, an application for reference has to be rejected only on the ground that the question raised has been answered on an earlier occasion. In the said case, the apex Court directed the Tribunal to make a reference on the question formulated to the High Court under s. 256(2) of the IT Act. Thus, in a case where there are special features and the matter requires reconsideration, it is open for the High Court to call for the question. Thus, it cannot always be said that in all cases where a similar question of law had been answered in an earlier case in a particular way an identical question of law cannot be answered in a different way.
In the instant case the view taken by the Division Bench of this Court in the case of CIT vs. Wolkem (P) Ltd. (supra), is per incuriam as it is contrary to the three decisions of the apex Court and an earlier decision of this Court. In this view, we are unable to accept the contention of Mr. N.M. Ranka, the senior advocate, that the Department having accepted the judgment in CIT vs. Wolkem (P) Ltd. (supra), is estopped from taking a different stand.
14. The controversy has now been concluded by a recent decision of the apex Court in CIT vs. Thirumalaiswamy Naidu & Sons (1998) 146 CTR (SC) 529 : (1998) 230 ITR 534 (SC). The apex Court relying on its earlier judgment in Chowringhee Sales Bureau (P) Ltd. vs. CIT (supra) has held that in case of refund and the tax collected, the income shall be liable to tax. The Division Bench of this Court in CIT vs. Wolkem (P) Ltd. (supra) has placed reliance on one of the decisions of the Madras High Court in CIT vs. Thirumalaiswamy Naidu & Sons (supra). The said decision has been reversed as follows : “The question referred in this case is as under :
‘Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 1,37,379 from the taxable trading receipt of the assessee for 1974-75 ?’
The assessee in the course of sale of its products, collected sales-tax from the purchasers. The assessee, in its turn, was assessed under the CST Act and paid the tax. The sales-tax collected by the assessee has to be treated as its income, according to the ruling of this Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC). Any payment of sales-tax made by the assessee was equally liable to be deducted from the profits made by the assessee. In this case, the assessee had actually made the payment of sales- tax under the provisions of the CST Act. Those provisions were under challenge and ultimately were struck down by the Madras High Court. The assessee got back an amount of Rs. 1,37,379 as refund. The entire amount of sales turnover of the assessee inclusive of the amount of tax collected was clearly includible in the assessee’s taxable income. If any deduction was given from that income and later the same was refunded back to the assessee, the refund will have the character of revenue receipt. It has to be treated as a receipt on the revenue account and has to be assessed as such. The position has been placed beyond doubt by the express provisions of s. 41(1) of the IT Act.
The next question is if the assessee returns any portion of the amount to its customers, will it still be liable to pay tax on the entire amount. Admittedly, the assessee had not refunded any part of this amount of Rs. 1,37,379 to any one of its customers in the year of account. As and when such refund is made, the assessee will be entitled to claim deduction.
We are of the view that the Tribunal was in error in deleting the amount from the trading receipt of the assessee from the asst. yr. 1974-75. The question is, therefore, answered in the negative and in favour of the Revenue. The appeal is allowed. There will be no order as to costs.” Thus, we are of the view that the amount which was collected by the assessee against the excise duty or the sales-tax was on account of business and as such is a trading or the business receipt. Thus, it will fall in the income of the assessee. We are not impressed with the contention of Mr. Ranka that the amount has been credited in a separate account. Simply a separate account would not change the character of the initial collection. The amount after collection has neither been refunded to the customers nor paid to the Government. Thus, it is a case of unlawful enrichment. If such refund is not considered as income, the assessee will be benefited twice. Thus, the Tribunal was justified in setting aside the order of the CIT(A) and restoring the order of the assessing authority upholding the addition of Rs. 1,45,752.
The reference is accordingly answered in favour of the Revenue and against the assessee.
[Citation : 259 ITR 430]
