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1992 Supreme(Guj) 394
IN THE HIGH COURT OF GUJARAT
R.C. Mankad, S.B. Majmudar, R.K. Abichandani, JJ.
Commissioner of Income-Tax - Petitioner
Versus
Bharat Iron and Steel Industries - Respondent
Income-tax Reference No. 292 of 1978
Decided On : 28-01-1992
Important Points
Subject
Direct Tax - INCOME TAX
Act Referred
EXCISE ACT : S.36(2)
INCOME TAX ACT : S.10(2)(vii), S.28, S.41(1)
Headnote
INCOME TAX - SECTION 41(1) - REFUND OF EXCISE DUTY - ACCRUAL OF RIGHT TO REFUND - SYSTEM OF ACCOUNTING FOLLOWED BY ASSESSEE - IRRELEVANT - REFUND RECEIVED DURING PENDENCY OF REVIEW OR REVISIONAL PROCEEDINGS - NOT TAXABLE IN YEAR OF RECEIPT.
Fact of the Case:
The assessee, a registered partnership firm, manufactured iron rolling mill products. The Assistant Collector and the Superintendent of Central Excise classified the products as liable to basic and regulatory excise duty. The assessee appealed to the Appellate Collector of Central Excise, who held that the products were exempt from duty. The assessee claimed a refund of the excise duty paid, but the refund was not granted. The assessee filed a petition in the High Court seeking a direction to the Central Government and the Central Excise authorities to refund the amount. During the pendency of the petition, the Central Government issued a show-cause notice to the assessee under section 36(2) of the Central Excises and Salt Act, 1944, seeking to revise or review the order of the Appellate Collector. The refund was eventually granted to the assessee on August 8, 1975, while the review or revisional proceedings were still pending. The Income-tax Officer included the refund amount in the assessee's total income for the assessment year 1974-75, relying on section 41(1) of the Income-tax Act, 1961. The assessee challenged the inclusion, contending that the refund had not accrued to it in the year of account relevant to the assessment year 1974-75, as the review or revisional proceedings were still pending. The Appellate Assistant Commissioner and the Tribunal held in favor of the assessee.
Finding of the Court:
The High Court held that the assessee obtained the refund of the excise duty amount only on April 30, 1976, the date on which the review or revisional proceedings were dropped. The refund became includible in the assessee's total income for the assessment year 1976-77 under section 41(1) of the Act. The Tribunal was right in holding that the amount was not chargeable to income-tax in the assessment year 1974-75.
Issues: 1. Whether the assessee had obtained the refund of excise duty in the year of account relevant to the assessment year 1974-75? 2. Whether the amount of refund was chargeable to income-tax in the assessment year 1974-75?
Ratio Decidendi: 1. The key words in section 41(1) of the Income-tax Act, 1961, are "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". It is the obtaining of the amount or benefit that is contemplated by the Legislature, not the mere accrual of the right to receive it. 2. The system of accounting followed by the assessee is irrelevant for considering the taxability of an amount under section 41(1). The relevant factor is whether the assessee has obtained the amount or benefit in the previous year in question. 3. In the instant case, the assessee's claim for refund of excise duty was in jeopardy during the pendency of the review or revisional proceedings under section 36(2) of the Central Excises and Salt Act, 1944. The assessee obtained the refund only when the proceedings were dropped on April 30, 1976. Therefore, the refund was not taxable in the assessment year 1974-75.
Final Decision: Both the questions referred to the High Court were answered in the affirmative and against the Revenue. The reference was answered accordingly with no order as to costs.
Advocate Appeared:
For the Petitioner: M.J. Thakore, instructed by M.R. Bhatt, for R.P. Bhatt and Co.
For the Assessee :K.C. Patel, Advocate.
JUDGMENT :
R.C. Mankad, J.
The assessee is a registered partnership firm running an iron rolling mill and the assessment year under reference is 1974-75, the previous year being the financial year ending on March 31, 1974. The assessee manufactured round bars, square bars, flat bars, octagonal bars, angles and channels from scrap-based ingots produced in electric arc furnaces and these products were classified by the Assistant Collector of Central Excise, Bhavnagar, and the Superintendent of Central Excise (Tech.), Bhavnagar, as liable to basic central excise duty under Notification No. 138/75-Central Excises, dated August 29, 1965, as amended by Notification No. 121/69-Central Excises, dated April 29, 1969, and Notification No. 74/72-Central Excises, dated March 17, 1972. The Assistant Collector and the Superintendent of Central Excise, Bhavnagar, also held that the aforesaid rolled products manufactured by the assessee were liable to regulatory duty of excise under Notification No. 144/72 Central Excises, dated May 28, 1972, in addition to basic excise duty as aforesaid. Being aggrieved by the order passed by the Assistant Collector and the Superintendent of Central Excise, Bhavnagar, the assessee went in appeal before the Appellate Collector of Central Excise, Bombay. The Appellate Collector held that there was no warrant to interpret serial No. (1) of Notification No. 206/63-Central Excises, dated November 30, 1963, as amended by Notification No. 123/65-Central Excises, dated August 14, 1965, by restricting its scope only to those ingots which, before cutting or breaking, do not resemble any of the items mentioned in sub-item (i) of item No. 26AA of the relevant Schedule. He, therefore, held that rerolled products manufactured by the assessee from scrap-based ingots produced in electric arc furnaces when cut or broken so as to resemble the shape of any product mentioned in sub-item (i) of item No. 26AA of the relevant Schedule are exempt from payment of duty under Notification No. 206/63-Central Excises, dated November 30, 1963, as amended from time to time. In this view of the matter, the Appellate Collector set aside the orders passed by the Assistant Collector and the Superintendent of Central Excise, Bhavnagar, regarding the classification of the aforesaid products which formed the subject-matter of the appeals. The Appellate Collector further directed that the assessee would be entitled to the consequential relief. In view of the order passed by the Appellate Collector, the assessee, by its letter dated April 6, 1974, addressed to the Assistant Collector of Central Excise, Bhavnagar, requested him to refund the excise duty alleged to have been illegally recovered from it. It appears that, in spite of several letters written by the assessee claiming refund of the excise duty, the Assistant Collector did not refund the excise duty as ordered by the Appellate Collector. The assessee, therefore, filed a petition being Special Civil Application No: 160 of 1974, in this court seeking a direction against the Assistant Collector and other respondents in the petition to refund the excise duty alleged to have been illegally recovered from it. This petition was filed some time in April, 1974. The assessee filed a return of income for the assessment year 1974-75 on August 28, 1974. On December 28, 1974, the joint Secretary to the Government of India, Ministry of Finance, issued notice to the assessee under section 36(2) of the Central Excises and Salt Act, 1944 (the "Excise Act" for short ), calling upon it to show cause why the order of the Appellate Collector of Central Excise, Bombay, should not be set aside. The assessee resisted the review or revision of the order of the Appellate Collector by its reply dated February 26, 1975. However, during the pendency of the review or revisional proceedings before the Central Government, as aforesaid, excise duty of Rs. 1,81,427 was refunded to the assessee on August 8, 1975. The review o
