C.I.T CENTRAL-III vs. M/S EXCEL INDUSTRIES LTD

C.A. No.-000125-000125 - 2013Supreme Court08 October 2013Bench: R.M. LODHA MADAN B. LOKUR KURIAN JOSEPH16 pages
For Petitioner: ANIL KATIYAR
AI SummaryDismissed

What were the facts?

The assessee, M/s Excel Industries Ltd., maintains its accounts on a mercantile basis. For Assessment Year 2001-02, it claimed deductions for advance licence benefit receivable (Rs. 12,57,525) and duty entitlement pass book (DEPB) benefit receivable (Rs. 4,46,46,976). These benefits related to duty-free import of raw materials against export obligations. The assessee argued these benefits accrued only upon actual import and consumption. The Assessing Officer, however, treated these benefits as income under Section 28(iv) of the Income Tax Act, 1961, deeming them vested and absolute upon fulfillment of export obligations. The Commissioner (Appeals) and the Income Tax Appellate Tribunal (ITAT) ruled in favour of the assessee, a view consistently held in its favour for multiple assessment years. The Revenue appealed to the High Court, which declined to admit the appeal, and subsequently to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals. It held that income tax cannot be levied on hypothetical income, citing Commissioner of Income Tax v. Shoorji Vallabhdas and Co. and Morvi Industries Ltd. v. Commissioner of Income-Tax. Applying the tests of whether income accrued was real or hypothetical, whether there was a corresponding liability of the other party to pass on benefits without imports, and the probability of realization, the Court found that only hypothetical income had accrued, making Section 28(iv) inapplicable. The Court also noted the consistent view taken in favour of the assessee from assessment year 1992-93 onwards, and the principle of not reopening settled issues in subsequent assessment years, as per Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax and Parashuram Pottery Works Ltd. v. Income Tax Officer. Furthermore, the Court observed that the assessee did pay tax on these benefits in the subsequent year when imports were made and benefits derived, and the tax rate remained the same, rendering the Revenue's dispute academic with minimal tax effect. The Revenue was advised to implement its litigation policy more practically.

What were the issues?

1. Whether the benefit of an entitlement to make duty-free imports of raw materials obtained through advance licences and DEPB, against export obligations, is income in the year the exports are made or in the year the duty-free imports are made? (Question of law turning on Section 28(iv) of the Income Tax Act, 1961). Assessee's contentions: The benefits could not be said to have accrued until imports were made and the raw material consumed. Reliance was placed on ITAT's decision in Jamshri Ranjitsinghji Spinning and Weaving Mills v. Inspecting Assistant Commissioner and the CIT(A)'s order in its own case for prior assessment years. Revenue's contentions: In view of Section 28(iv) of the Act, the value of the benefit obtained by the assessee is its income and is liable to tax under the head 'Profits and gains of business or profession'. The Assessing Officer argued that upon export, the right to receive the benefit becomes vested and absolute.

Which sections of the Income-tax Act were involved?

Section 28(iv),Section 260-A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Page 1 JUDGMENT REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JUDISDICTION CIVIL APPEAL NO.125 OF 2013 Commissioner of Income Tax ...Appellant Versus M/s Excel Industries Ltd. …Respondent WITH CIVIL APPEAL NO.5195 OF 2011 WITH CIVIL APPEAL NO. 9101 OF 2013 (Arising out of SLP(C) No.l9897 of 2012) AND CIVIL APPEAL NO. 9100 OF 2013 (Arising out of SLP(C) No.l9898 of 2012)

J U D G M E N T Madan B. Lokur, J.

1.

Leave granted in the Special Leave Petitions.

2.

The question for consideration in all these appeals is whether the benefit of an entitlement to make duty free imports of raw materials obtained by the assessee through advance C.A. No. 125 of 2013 etc. Page 2 JUDGMENT licences and duty entitlement pass book issued against export obligations is income in the year in which the exports are made or in the year in which the duty free imports are made.

3.

In our opinion, the income does not accrue in the year of export but in the year in which the imports are made.

4.

The facts pertaining to Civil Appeal No. 125 of 2013 (M/s Excel Industr

The order continues below.

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