M/S.KRISHNA TEXTILES vs. COMMISSIONER OF INCOME TAX

ITR/106/1996HC GujaratGJHC24021786199611 October 2006Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE R.S.GARG7 pages
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What were the facts?

The assessee, M/s. Krishna Textiles, a partnership firm engaged in dyeing art silk cloth, is the subject of this Income Tax Reference. The dispute pertains to Assessment Years 1985-86 and 1986-87. The core issue involves excise duty collected by the assessee from its customers on grey fabrics, which the Assessing Officer treated as trading receipts and disallowed as a deduction under Section 43B of the Income Tax Act, 1961. The assessee had collected this duty, and in some cases, provided bank guarantees backed by fixed deposits as margin money, following a Supreme Court judgment in Ujagar Prints v. Union of India. The Income Tax Appellate Tribunal upheld the Assessing Officer's view, leading to this reference to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was right in law in its findings. Regarding the first issue, the Court reasoned that the assessee could not claim a deduction for amounts collected as excise duty while retaining them due to a dispute about liability. The Court affirmed its earlier decision in CIT v. M/s. Ideal Sheet Metal Stampings & Pressings P.Ltd., stating that the collected excise duty constituted trading receipts and Section 43B was applicable. For the second issue, the Court reiterated its prior holding that a bank guarantee furnished by depositing margin money does not equate to actual payment. Therefore, the Tribunal's decision against the assessee on both counts was upheld. The reference was disposed of accordingly.

What were the issues?

The High Court was asked to decide two questions of law arising from the Income Tax Appellate Tribunal's order: 1. Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that the excise duty collected by the assessee on grey fabrics was in the nature of trading receipts and hence disallowable under Section 43B of the Income Tax Act, 1961? 2. Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that a bank guarantee furnished by the assessee, secured by a fixed deposit as margin money, did not amount to actual payment, and therefore Section 43B was applicable? The assessee contended that amounts collected as excise duty, if ultimately paid to the Excise Department or returned to customers, would not constitute trading receipts. The Revenue, relying on Supreme Court judgments in Chowringhee Sales Bureau P.Ltd. and Sinclair Murray and Co. P.Ltd., and its own prior decisions in CIT v. M/s. Ideal Sheet Metal Stampings & Pressings P.Ltd. and M/s. Mugat Dyeing & Printing Mills v. A.C.I.T., argued that the collected amounts were trading receipts.

Which sections of the Income-tax Act were involved?

Section 43B,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/106/1996 1/7 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 106 of 1996 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG ­ HONOURABLE MR.JUSTICE D.H.WAGHELA ­ ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= M/S.KRISHNA TEXTILES - Applicant(s) Versus COMMISSIONER OF INCOME TAX - Respondent(s) ========================================================= Appearance : MR MANISH J SHAH for Applicant(s) : 1, MR MANISH R BHATT for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR JUSTICE R. S. GARG

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HONOURABLE MR JUSTICE D.H. WAGHELA Date : 11/10/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG)

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