COMMISSIONER OF INCOME TAX vs. IDEAL SHEET METAL STAMPINGS & PRESSING P.LTD.

ITR/89/1996HC GujaratGJHC24021769199612 September 2006Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE R.S.GARG11 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. Ideal Sheet Metal Stampings & Pressing P. Ltd., engaged in manufacturing textile machinery parts and auto spare parts, maintained a mercantile system of accounting for Assessment Year 1986-87. During assessment, the Assessing Officer noted that the assessee collected Rs. 7,75,655/- as excise duty but did not pay it to the government. The assessee contended that as the amount was kept separately in an excise deposit account and payment was stayed by the Gujarat High Court due to a dispute, Section 43-B of the Income Tax Act, 1961, was not applicable. The Assessing Officer disallowed Rs. 6,55,595/-, treating the collected excise duty as a trading receipt, relying on Supreme Court judgments. The CIT(Appeals) confirmed the addition. The Income Tax Appellate Tribunal (ITAT) held that the excise collected was a deposit from customers and Section 43-B was not attracted due to the High Court stay.

What did the High Court hold?

The High Court held that the Tribunal was unjustified in observing that Section 43-B of the Act would not be attracted and that the excise duty recovered was kept as a deposit. The Court reasoned that if the assessee collected excise duty from purchasers, such recovery amounts to a trade receipt in its hands. The benefit of Section 43-B is available only if the sum is actually paid. The fact that the amount was kept separately or that there was a dispute regarding liability or a High Court stay did not alter the character of the receipt as a trading receipt if it was not actually paid to the government. The Court emphasized that a liability to pay does not equate to payment. The assessee cannot retain collected excise duty, claim it as a deposit, and simultaneously seek deduction under Section 43-B if it is not actually paid. The ratio is that excise duty collected by a trader, if not paid to the government, forms part of the trading receipt and is not eligible for deduction under Section 43-B unless actually paid. The order of the Tribunal was set aside, and the reference was allowed in favour of the Revenue.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in disallowing Rs. 6,55,595/-, being the amount of excise duty collected by the assessee but not paid, under the provisions of Section 43-B of the Income Tax Act, 1961? Assessee's Contention (as understood from the Tribunal's decision): The excise duty collected from purchasers was in the nature of a deposit. Due to a stay order from the High Court, the assessee was not required to pay the duty to the department. If the assessee had to refund the money to customers, it would partake the character of a deposit, and thus Section 43-B would not be attracted. Revenue's Contention: The Tribunal illegally ignored Supreme Court judgments in Chowringhee Sales Bureau P. Ltd. vs. Commissioner of Income-Tax and Sinclair Murray And Co. P. Ltd. vs. Commissioner of Income-Tax. The revenue argued that any amount collected towards excise duty, if not paid to the government, becomes part of the trading receipt and thus income. The provisions of Section 43-B would apply with full force in such a scenario. Reliance was also placed on an unreported Gujarat High Court judgment in M/s. Mugat Dyeing & Printing Mills vs. A.C.I.T.

Which sections of the Income-tax Act were involved?

Section 43-B,Section 256(1),Section 43(2)

AI-generated summary — verify with the full judgment below

ITR/89/1996 1/11 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 89 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? ========================================================= COMMISSIONER OF INCOME TAX - Applicant(s)

Versus M/S. IDEAL SHEET METAL STAMPINGS & PRESSING P. LTD. - Opponent(s) ========================================================= Appearance : MRS. MONA BHATT for MR. MANISH R. BHATT for Applicant(s).

None for Opponent though served. ========================================================= CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE D.H.WAGHELA Date : 12/09/2006 ORAL JUDGMENT (Per

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