COMMISSIONER OF INCOME TAX, PATIALA. vs. M/S NAHAR SPINNING MILLS (P) LTD., PATIALA

Facts

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, referred a question of law to the High Court of Punjab & Haryana concerning the taxability of cash incentive and duty drawback amounts claimed but not actually received by the assessee, M/s Nahar Spinning Mills (P) Ltd. The Commissioner of Income Tax, Patiala, was the appellant (revenue). The procedural history indicates that a similar question was considered in ITC No.184 of 1994, where the High Court declined to refer the matter for opinion, finding the ITAT's view that no income accrued until quantification and verification to be not erroneous. The revenue was unable to distinguish this precedent or present a contrary argument. The assessee also submitted that for assessment year 1983-84, the incentive and drawback were eventually adjusted in assessment year 1986-87, supported by an affidavit.

Held

The High Court held that the amount on account of cash incentive and duty drawback, though claimed but not received actually by the assessee, would not be taxable under the Income Tax Act. The Court's reasoning was based on its previous decision in ITC No.184 of 1994, where it was held that no income accrues to the assessee until the claim is quantified and verified. The Tribunal's view on this factual aspect was found to be not erroneous. The revenue could not distinguish this precedent or present a contrary argument. The Court also noted the assessee's submission, supported by an affidavit, that the amounts for assessment year 1983-84 were adjusted in assessment year 1986-87. Consequently, the question of law was answered in favour of the assessee, in terms of the order in ITC No.184 of 1994 and the decision in Commissioner of Income Tax vs. Manav Tolls (India) P. Ltd. The reference was answered against the revenue. No specific operative directions were issued beyond answering the reference.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the amount on account of cash incentive and duty drawback, though claimed but not received actually by the assessee, would be taxable under the Income Tax Act? (Question of law) Assessee's contentions: The assessee argued that no income accrues until it is quantified and verified, citing the High Court's order in ITC No.184 of 1994. Additionally, the assessee asserted that the disputed amounts for assessment year 1983-84 were eventually adjusted in assessment year 1986-87, supported by an affidavit and an order of the Inspecting Assistant Commissioner of Income Tax, Ludhiana, dated 29.03.1988. Revenue's contentions: The revenue was unable to distinguish the High Court's prior order in ITC No.184 of 1994 or the decision in Commissioner of Income Tax vs. Manav Tolls (India) P. Ltd. ([2011] 336 ITR 237), and therefore, could not raise an argument to the contrary.