COMMISSIONER OF INCOME-TAX VS WOLKEM (PVT.) LTD.
1999 P T D 2692
[228 I T R 129]
[Rajasthan High Court (India)]
Before M. G. Mukherji, Actg. C. J. and, V. G. Palshikar, J
COMMISSIONER OF INCOME-TAX
Versus
WOLKEM (PVT.) LTD.
D.B. Civil Income-tax References Nos.36 and 37 of 1989, decided on 09/08/1996.
(a) Income-tax---
----Income---Business---Remission of liability---Refund of excise duty is not income---Not assessable as income under S.28(iv) or SA1(1)---Indian Income Tax Act, 1961, Ss. 28 & 41.
(b) Income-tax---
----Reference---Powers of High Court---Power to call for supplementary statement of case---Power to reframe question---Indian Income Tax Act, 1961, Ss.256 & 258.
The assessee carried on the business of exploiting calcite and wollastonite mines and sold the minerals extracted after converting them into powder. In the two years under review, the assessee had credited its profit and loss account on account of excise duty to fund of Rs.35,696.66 and Rs.1,61,836 received by it. The assessee initially had shown it as an income in its return of income. During the course of assessment proceedings, the assessee claimed that the refund of excise duty was not liable to be taxed as income. This contention was rejected by the Income-tax Officer but the Appellate Assistant Commissioner accepted the assessee's claim. This was confirmed by the Tribunal. On a reference:
Held, that the refund of excise duty received by the assessee from the Excise Department was not the income of the assessee and since it was not an income, it was neither covered by section 28(iv) nor section 41(1) of the Income Tax Act, 1961, and it would not be considered to be a revenue receipt. On account of it, there was no liability for payment of income-tax. It amounted to a financial transaction and nothing more.
CIT v. Alchemic (Pvt.) Ltd. (1981) 130 ITR 168 (Guj.); CIT v. Nathuabhai Desabhai (1981) 130 ITR 238 (MP); CIT v. Thirumalaiswamy Naidu & Sons (1984) 147 ITR 657 (Mad.); CIT v. Sita Ram Sri Kishan Das (1983) 141 ITR 685 (All.); CIT v. Devatha Chandraiah & Sons (1985) 154 ITR 893 (AP); CIT v. A. Tosh & Sons (P.) Ltd. (1987) 166 ITR 867 (Cal.); CIT v. Kharaiti Lal & Co. (1989) 178 ITR 265 (P & H); CIT v. Lal Textile Finishing Mills (P.) Ltd. (1989) 180 ITR 45 (P & H); CIT v. Ancherry Pavoo Kakku (1986) 160 ITR 88 (Ker.); CIT v. East Asiatic Co. India (Pvt.) Ltd. (1996) 217 ITR 347 (Mad.) and CIT v. Tara Chand Suraj Mal (1996) 217 ITR 315 (All.) fol.
Held further, that the making of entries in the books of account or transferring sums to the profit and loss account for the assessment year 1980-81 was a unilateral act, which had no consequences of its own.
Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC); J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom.); CIT v. Sadabhakti Prakashan Printing Press (P.) Ltd. (1980) 125 ITR 326 (Bom.); CIT v. Sugauli Sugar Works (P.) Ltd. (1983) 140 ITR 286 (Cal.); CIT v. A. V.M. Ltd. (1984) 146 ITR 355 (Mad.); CIT v. B.N. Ellias & Co. (P.) Ltd. (1986) 160 ITR 45 (Cal.); CIT v. Sadul Textiles Ltd. (1987) 167 ITR 634 (Raj.) and CIT v. Combined Transport Co. (Pvt.) Ltd. (1988) 174 ITR 528 (MP) fol.
Held also, on the powers of the High Court to call for a supplementary statement of the case under sections 256 and 258, that the question forwarded to the Court was really very specific and required interpretation and construction of the provisions contained in section 28(iv) and section 41(1) of the Income-tax Act only and that the High Court had not been requested to express its opinion on the wider question of the nature of income or taxability under the provisions, apart from what are provided in the two specified sections 28(iv) and 41 of the Income-tax Act. Section 258 of the Income-tax Act did not confer power on the Court to reframe the question so as to widen the controversy and to call for a supplementary statement of the case, moreso when the facts of the present case did not justify exercise of such a power.
Agha Abdul Jabbar Khan v. CIT (1971) 82 ITR 872 (SC); CIT v. Bijli Cotton Mills (P.) Ltd. (1979) 116 ITR 60 (SC); CIT v. Tollygunge Club Ltd. (1977) 107 ITR 776 (SC); Cursetji J. Dubash v. CIT (1963) 49 ITR 671 (Bom.); Kamlapat Motilal v. CIT (1962) 45 ITR 266 (SC); Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634 (SC); Mahabir Parshad v. CIT (1983) 144 ITR 447 (P & H); Sarathy Mudaliar (C.P.) v. CIT (1966) 62 ITR 576 (SC) and Sukhdeo Charity Estate v. CIT (1984) 149 ITR 470 (Raj.) ref.
D.S. Shishodia, Senior Advocate and Sandeep Bhandawat for the Commissioner.
N.M. Ranka, Senior Advocate and R.K. Yadav, Vineet Kothari and Anjay Kothari for the Assessee.
JUDGMENT
M.G. MUKHERJI, ACTG. C.J.---In D.B. Civil Income-tax Reference No.36 of 1989, the Revenue has preferred the following question by way of reference to this Court:
"Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that refund of excise duty amounting to Rs.35,696.66 was not in the nature of income under section 28(iv) or under section 41(1) of the Income Tax Act, 1961?"
In D.B. Civil Income Tax Reference No.37 of 1989, the following question was referred to this Court for our considered opinion:
"Whether, on the facts and in the circumstances the Tribunal was right in law in holding that refund of excise duty amounting to Rs.1,61,316, was not in the nature of income under section 28(iv) or under section 41(1) of the Income Tax Act, 1961?"
The assessee, Wolkem Private Limited. Udaipur, is a private limited company, which carries on the business of exploiting calcite and wollastonite mines and sells the same after converting them into powder. In the year under review, the assessee had credited its profit and loss account on account of excise duty refund of Rs.35,696.66 and Rs.1,61,836 received by it. The assessee initially had shown it as an income in its return of income filed in the Department. During the course of assessment proceedings, the assessee raised its claim that the refund of excise duty is not liable to be taxed as income and placed reliance on the decisions in CIT v. Alchemic (Pvt.') Ltd. (1981) 130 ITR 168 (Guj.) and CIT v. Nathuabhai Desabhai (1981) 130 ITR 238 (MP).
In CIT v. Alchemic (Pvt.) Ltd. (1981) 130 ITR 169 (Guj), the assessee was served with a notice for payment of excise duty paid by it, a part of which was recovered from its constituents. The assessee contended before the excise authorities that the duty was not payable by it and obtained a refund of the amount from them in a particular calendar year. The assessee credited this amount to its profit and loss account and claimed it as exempted on the ground that it was a casual receipt. This contention was rejected by the income-tax Officer, but the Appellate Assistant Commissioner accepted the assessee's claim. On further appeal, it was contended on behalf of the Revenue that the amount was taxable under section 28(iv) or, in the alternative, it was covered by section 41(1) of the Income-tax Act. The Tribunal held that before the claim could be considered under section 41(1) some investigation would be necessary as the Income-tax Officer had not considered the provisions of section 41(1) at all. As an altogether a new case requiring extensive investigation into the facts was sought to be made out, the Tribunal held that it would not be proper to allow the Department to agitate this point. The Tribunal also held that section 28(iv) would not apply to the facts of the case and dismissed the appeal. On a reference, it was contended on behalf of the Revenue that the Tribunal was not justified in refusing permission to raise the question whether the amount was assessable under section 41(1). It was held that while the Tribunal declined to allow the Revenue to go into the question arising under section 41(1) on the ground that extensive investigation into the facts would be necessary, the Tribunal was acting in the exercise of its jurisdiction. The consideration which led the Tribunal to its conclusion not to allow the Revenue to raise the contention under section 41(1), viz., the necessity to investigate into the facts, would also apply to the question whether the amount was assessable under the general principles underlying section 41(1). The Tribunal was justified in its conclusion that the question could not be considered from the point of view of section 41(1) or the general principles underlying section 41(1). It was further held in this case 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 so realized was not taxable under section 28(iv).
In CIT v. Nathuabhai Desabhai (1981) 1'30 ITR 238 (MP), it was held that the jurisdiction of the High Court in a reference under section 256 of the Income Tax Act, 1961, is only advisory and a question of law has to be answered within the ambit of this jurisdiction. However, the basic frame of the question cannot be altered, nor can the Court embark on the other provisions of the Act to justify the chargeability or otherwise of a particular item of income. It is imperative that the question itself arise out of the Tribunal's order and this is possible, only if all the necessary facts on which the order is based have been placed before the Tribunal. If those facts are not present, the Tribunal cannot refer to them and in such a case no question outside the parameter of the case as presented before the Tribunal can be enquired into. Unless it is proved that an allowance or deduction has been made in the assessment in any previous year in respect of loss, expenditure or trading liability, it is not open to the Revenue to refer to section 41(1), for charging tax on the receipt by the assessee by refund or otherwise of such expenditure in a subsequent year.
In CIT v. Nathuabhai Desabhai (1981) 130 ITR 238 (MP), the assessee had collected sales tax from its constituents during certain assessment years and paid the same to the State Government. Later, the amount was refunded to the assessee during the previous year relevant to the assessment year as the levy was found to be illegal and unconstitutional. The Income-tax Officer assessed the amounts of refund of sales tax as income under section 41(1) in the assessment year on the ground that the amounts were allowed as deduction in the assessments of the assessee in the past. On appeal, the Appellate Assistant Commissioner held that no deduction was ever claimed by the assessee or allowed by the Revenue during the previous years and, therefore, section 41(1) did not apply and the refund of sales tax could not be treated as income in the previous year. On a further appeal the Tribunal affirmed the order of the Appellate Commissioner. On a reference, the Madhya Pradesh High Court held that the refund of sales tax could not be assessed as income under section 41(1) in the previous year relevant to the assessment year and if the Revenue's contentions were to be accepted, the High Court would have to enquire into not only the taxability of the receipt, but also about the year or years in which various amounts paid in numerous instalments could be chargeable to tax. There was no factual foundation for such an enquiry and, therefore, within the limited jurisdiction of the High Court under section 256, the High Court could not make a general enquiry and answer the question in a way different from the one, which had been posed and referred to the High Court by the Tribunal.
The claim was made by the assessee on the plea that though it raised on the customers bills for the supply of the powder, which included the excise duty amount as well, it was specifically mentioned that this was being charged only as a precautionary measure and that the company was really contending that no excise duty was payable on it. However, the Income-tax Officer arrived at the conclusion that the company had no intention of providing the names of the customers and of refunding the amount to the customers and had intention only to grab the amount, which was clear from the facts that the amount was credited to the profit and loss account.
The view of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). According to him, it was a receipt in the nature of revenue directly springing from the day to day conduct of the business and taxable under normal commercial principles in computing the business income under section 28 of the Income-tax Act itself. The Commissioner of Income-tax (Appeals) also observed that in order to be fair to the assessee, as and when the amounts are refunded to the customers, the same was to be allowed in respect of the years. The order of the Commissioner of Income-tax (Appeals) not having satisfied the assessee, it took the matter before the Income-tax Appellate Tribunal. The Tribunal found that the process of conversion according to the excise authorities was chargeable to excise duty. Against this contention of the assessee that it is outside the ambit of excise duty laws, the assessee alongwith its rate chart mentioned the terms and conditions for the sale which make it clear that "applicable excise duty and sales tax will be charged extra", excise duty was recovered along with the sale value of merchandise separately, excise duty so collected was credited to an account titled "Central Excise Duty Deposit Account", all amounts that were paid to the excise authorities under protest were debited to this account. This treatment was started some time in March 1976, and continued till December 1978, and in the years under reference, the excise authorities came to the conclusion that the products dealt with by the assessee were exempt from the excise duty levied and consequently refunded the excise duty so deposited. While refunding the amount, the excise authorities had refunded a certain amount directly to various parties from whom the amount was collected by the assessee and deposited by the assessee. The assessee furnished a detailed paper book wherein it included the rate chart, terms and conditions for the sale, photostat copies of the bills showing charging of the excise duty separately, copy of the Central Excise Duty Deposit Accounts for the period under review, copies of audited balance-sheet and profit and loss accounts for the two years, details of advances recoverable for the years December 31, 1976, to December 31, 1979, details of claim of refund of excise duty, copy of a notification by which the excise duty was declared as refundable, reconciliation statement of Central excise duty paid and refund received from the excise authorities, list of customers to whom Central excise duty is refundable pertaining to the period June 18, 1977, to December 31, 1978, party-wise summary of excise duty refundable to the customers on lumps from March 1, 1975, to May 20, 1978, copy of the letter to the Assistant Collector, Central Excise, copy of letter, from R.P. Sales Corporation in respect of reimbursement of excise duty paid by them to the company under trust, etc.
The Tribunal ultimately observed that the Department has not disputed that it was not the income as such of the assessee and it was also not disputed that the amount was payable to several parties. The Tribunal further found that the Department had sought to tax the amount of refund under section 41(1) on the premise that the liability might not be ultimate and the same was to be appropriated by the assessee, in which case it would escape tax altogether.
Being aggrieved by the order of the Tribunal, the Revenue made a reference application under section 256(1) of the Income-tax Act. Initially, there was a difference of opinion between the Members of the Tribunal, which was ultimately resolved by the Third Member, who held that the conclusions arrived at by the Tribunal are mixed questions of law and fact, and the reference was ultimately made. The reference is practically in respect of two years and covered by two separate reference orders and the questions posed in both the case have already been delineated as above.
It is made clear from the findings of the Tribunal that it held that (i) the assessee was not liable to tax under section 28(iv) as regards cash amount; (ii) it could not be taxed under section 41(l); (iii) there existed a liability to repay various customers and, the receipt does not bear the character of income. The Tribunal expressed its opinion that the apprehension of the Department that most of the claim may not be paid, could not really form the basis for taxing the said refund as income of the assessee. The Tribunal found that the terns "income" was not exhaustively defined, but then it had to be seen as to whether the receipt really did bear the character of income or not, and ultimately reached a conclusion that the refund of excise duty was not liable to be taxed and, hence, its inclusion was accordingly deleted.
The assessee-respondent in its reply has already contended that the question formulated by the applicant was not a question of law, it being a pure question of fact. The Tribunal appreciated the evidence on record and on such appreciation, came to the conclusion that the impugned amount was trust money with the assessee and was refundable to the dealers. It was not an income of the assessee. The Tribunal being the final fact finding body could arrive at a conclusion on facts and its findings of fact were unassailable. The conclusion arrived at by the Tribunal was supported by the decisions and was in consonance with the rulings of the Supreme Court in CIT v. Tollygunge Club Ltd. (1977) 107 ITR 776 and CIT v. Bijili Cotton Mills (P.) Ltd. (1979) 116 ITR 60. The view was also supported by the decision of this Court in Sukhdeo Charity Estate v. CIT (1984) 149 ITR 470. The ultimate stand taken by the assessee-respondent was that no referable question of law did arise out of the order of the Tribunal.
It has to be borne in mind that after the question was referred for consideration of this Court, the applicant-Revenue did not raise any objection before the Tribunal as well as did not make any application under section 256(2) of the Income-tax Act before this Court. It was submitted by Mr. Ranka, learned Senior Advocate appearing for the assessee-respondent, that in the totality of the circumstances and on account of inaction or non-action and for the reason that remedy available to the applicant not having been availed of within 180 days from the date of receipt of the statement of the case, a fresh request was made on April 4, 1996, while the reference application was heard out and that this Court should require the statement to be amended under section 258 is a stand much too belated. A reference could be made under section 258 of the Income-tax Act for requiring the statement to be amended, only if we are satisfied that the statements already made are not sufficient to enable us to determine the question raised thereby. We may refer the case back to the Appellate Tribunal for the purpose of making such additions thereto or alterations therein as we may direct in that behalf.
Mr. Ranka further submitted that this Court cannot ask the Tribunal to state a case on a question which the Tribunal has not referred to and, thus, impliedly refused to refer. The Supreme Court in Kamlapat Motilal v. CIT (1962) 45 ITR 266, has held that section 258 cannot obviously do service for section 256(2). If the assessee was dissatisfied with the order of the Tribunal refusing to state a case on certain questions, the clear duty of the assessee was to move the High Court for making a reference within the time allowed by law. If we, on the other hand, took resort to the other provisions, where the High Court or the Supreme Court was not satisfied that the statements were sufficient to enable it to determine the question raised thereby, it might refer the case to the Appellate Tribunal for the purpose of making such additions thereto or alterations therein, as it might direct in that behalf but this submission really is not called into play in such matters. The Supreme Court in Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634 (SC), held that the power under section 66(4) of the old Act might be exercised to call for a supplementary statement, only when the Court is satisfied that the statements in a case referred under section 66(1) and (2) were not sufficient to enable it to determine the question raised by the statement. Section 66(4), now section 258, did not coufer a power to raise any additional questions or to call for a statement of case on questions not referred by the Tribunal. The Supreme Court in C.P. Sarathy Mudaliar v. CIT (1966) 62 ITR 576, held that in a reference under section 66 the High Court can exercise advisory jurisdiction and it does not sit in appeal over the judgment of the Tribunal. If the High Court finds that the material facts are not stated in the statement of the case or the Tribunal has not stated its conclusions on material facts, the High Court may call upon the Tribunal to submit a supplementary statement of the case under section 66(4), but the High Court has no power to set aside the order of the Tribunal, even if it is of the view that the Tribunal has not considered the question which in its opinion should have been considered and the High Court must answer the question posed before it and, thereafter, it is the duty of the Tribunal to pass such orders as are necessary to give effect to the judgment of the High Court. The Bombay High Court in Cursetji J. Dubash v. CIT (1963) 49 ITR 671, observed that the High Court will not direct the Tribunal to make a supplementary statement of the case merely because the facts stated in the statement of the case agreed to by the parties, are challenged at the stage of the argument of the reference before the High Court. It is a well-settled
proposition of law that the jurisdiction under section 256 as exercised by the High Court is advisory, not appellate or revisional or writ, and the High Court is to express its opinion only on the question of law as formulated and forwarded by the Tribunal under section 256(1) of the Income-tax Act or called for by the High Court under suction 256(2). The High Court has no jurisdiction to widen the controversy and to call for a supplementary statement of the case under section 258 of the Income-tax Act, when the applicant failed to object while finalisation of the statement of the case was made by the Tribunal and, thus, failed to make an application under section 256(2) of the Income-tax Act requesting the High Court to call for a reference on the question formulated by the applicant-Revenue. The power of the High Court to reframe the question and/or to call for a supplementary statement of the case, is restricted to the question formulated and forwarded by the Tribunal under section 256(1) or called for by the High Court under section 256(2) of the Income-tax Act.
Mr. D.S. Shishodia, learned Senior Advocate appearing for the Department, sought to rely on the Supreme Court decision in Agha Abdul Jabbar Khan v. CIT (1971) 82 ITR 872 at page 875 (SC). The Supreme Court in this decision expressed its view clearly that the High Court had no jurisdiction to raise new questions of law. The questions raised by it do not flow from the question referred to it for its opinion. The High Court's power under the Act is only to give its opinion on the questions of law referred to it by the Tribunal. It cannot take into consideration the questions of law, which have not been referred to it for its opinion. The observations of the Supreme Court that if the High Court thought that the question referred to it did not bring out the real point in issue, it was open to it to call for a fresh statement of the case and direct the Tribunal to submit for its opinion the real questions arising for decision which are indeed there, but such an exercise of jurisdiction is to be sparingly done.
The decision of the Punjab and Haryana High Courts in Mahabir Parshad v. CIT (1983) 144 ITR 447, as relied on by Mr. Shishodia, is also inapplicable on the facts of the present case and the principles enunciated in that case are not called into play. In that case, the Tribunal had forwarded the question which was wide enough and general in nature and the High Court was of the opinion that the questions of law referred to the Court cannot be decided on the facts found by the Tribunal and it would be necessary to ask the Tribunal to submit a supplementary statement of the case on certain points as such. The High Court accordingly called the Tribunal to submit a supplementary statement of the case on two points. It did not reframe the question and did not widen the controversy. It restricted itself to the question forwarded to it for its opinion.
We are constrained to hold that the question forwarded to this Court is really very specific and requires interpretation and construction of the provisions contained in sections 28(iv) and 41(1) of the Income-tax Act only. The High Court has not been requested to express its opinion on the wider question of the nature of income or taxability under the provisions, apart from what are provided in the two specific sections 28(iv) and 41(1) of the Income-tax Act. We are of the considered view that section 258 of the income-tax Act does not confer power on this Court to reframe the question so as to widen the controversy and to call for a supplementary statement of the case, more so when the facts of the present case do not justify exercise of such a power.
Mr. Ranka drew our pointed attention to the statement of the case as made by the Tribunal. As per the Rules of the Tribunal, the paper book has to be submitted in triplicate and two copies are retained by the Tribunal for the two Members and one copy is provided to the respondent. In this case, the paper book was duly provided and it was not objected to on behalf of the Revenue. It was considered by the Accountant Member, who subscribed to the main order.
Last but not least we answer the question by holding, inter alia, that section 28(iv) is not applicable and we rely in this context on the decision in CIT v. Alchemic (Pvt.) Ltd. (1981) 130 ITR 168 at 173 (Guj). We are further of the opinion that section 41(1) is also not called into play and in reaching such a conclusion, we have taken into account the following decisions:
(a) CIT v. Nathuabhai Desabhai (1981) 130 ITR 238 (MP);
(b) CIT v. Thirumalaiswamy Naidu & Sons (1984) 147 ITR 657, 665, 667 (Mad.);
(c) CIT v. Sita Ram Sri Kishan Das (.1983) 141 ITR G85 (All.);
(d) CIT v. Devatha Chandraiah & Sons (1985) 14 ITR 893 (AP);
(e) CIT v. A. Tosh & Sons (P.) Ltd. (1987) 166 ITR 867 (Cal.);
(f) CIT v. Kharaiti Lal & Co. (1989) 178 ITR 265 (P&H);
(g) CIT v. Lal Textile Finishing Mills (P.) Ltd. (1989) 180 ITR 45 (P&H);
(h) CIT v. Ancherry Pavoo Kakku (1986) 160 ITR 88 (Ker.);
(i) CIT v. East Asiatic Co. India (Pvt.) Ltd. (1996) 217 ITR 347 (Mad.);
(j) CIT v. Tara Chand Suraj Mal'(1996) 217 ITR 315 (All.).
Making of entry in the books of account or transferring to profit and loss account for the assessment year 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. v. CIT (1979) 116 ITR 1 (SC), J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom.), CIT v. Sadabhakti Prakasdhan Printing Press (P.) Ltd. (1980) 125 ITR 326 (Bom.), CIT v. Sugauli Sugar Works (P.) Ltd. (1983) 140 ITR 286 (Cal.), CIT v. A.V.M. Ltd. (1984) 146 ITR 355 (Mad.), CIT v. B.N. Elias & Co. (P.) Ltd. (1986) 160 ITR 45 (Cal.), CIT v. Sadul Textiles Ltd. (1987) 167 ITR 634 (Raj.) and CIT v. Combined Transport Co. (Pvt.) Ltd. (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 section 28(iv) nor section 41(1) of the Income-tax 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
M.B.A./3038/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered