THE VISNAGAR TALUKA AUDYOGIK- SAHAKARI MANDLI LTD. vs. COMMISSIONER OF INCOME-TAX

ITR/59/1997HC GujaratGJHC24020223199722 September 1999Author: HONOURABLE MR. JUSTICE B.C.PATEL,HONOURABLE MR. JUSTICE P.B.MAJMUDAR11 pages
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What were the facts?

The assessee, The Visnagar Taluka Audyogik-Sahakari Mandli Ltd., received a refund of Rs. 1,18,05,960 from the Central Excise Department during the assessment year 1991-92. The Revenue contended that the assessee maintained accounts on a cash basis and had placed this refund under 'liability'. The Assessing Officer proposed to treat the refund as income under Section 41(1) of the Income-tax Act, 1961. The refund arose from a dispute regarding the classification of a product, which was eventually decided in favor of the assessee by the CEGAT. However, the Excise Department appealed this decision to the Supreme Court. While the Supreme Court admitted the appeal, there was no stay on the refund payment. The assessee's appeal against the Assessing Officer's order was rejected by the Tribunal, confirming the addition of the refund as income.

What did the High Court hold?

The High Court answered the assessee's first question in the negative, in favor of the assessee and against the Revenue. The Court held that the provisions of Section 41(1) of the Income-tax Act, 1961, cannot be invoked at an intermediary stage, even if a refund or part of it is received in consequence of a court's order, as long as the dispute has not attained finality. The Court relied on the Supreme Court's decision in the case of CIT v. V. Damodaran, which held that an amount in dispute in an appeal, where the assessee is not permitted to withdraw the amount without furnishing security, is not income arising or accruing during the relevant previous year. The Court also referred to its own decision in Topandas Kundanmal v. CIT, stating that an inchoate right does not amount to a vested right. Consequently, the Court found it unnecessary to answer the assessee's second question. For the Revenue's questions, the Court held that since the refund is not considered income for the period in question, it would not be necessary to answer them. The Special Civil Application was permitted to be withdrawn.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law in upholding the addition of Rs. 1,18,05,966 made by the Assessing Officer on account of Excise Duty Refund by invoking the provisions of section 41(1) of the Act, and confirmed by CIT (Appeals)-VIII, Ahmedabad? (Assessee's Question 1) 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law in considering the amount of Rs. 1,18,05,960 received by the applicant on account of refund of Excise Duty, as income of applicant, in spite of the fact that the amount received is not undisputedly earned by the applicant without any encumbrance and that the appeal is still pending before the Hon'ble Supreme Court? (Assessee's Question 2) 3. Whether, the appellate Tribunal is right in law and on facts in allowing the assessee to raise additional claim under section 80-HH? (Revenue's Question 1) 4. Whether, the Appellate Tribunal is right in law and on facts in permitting the assessee to file audit report for the purpose of claiming deduction under section 80-HHC? (Revenue's Question 2) Assessee's Contentions: The refund received was not undisputedly earned and was subject to pending appeal before the Supreme Court, thus Section 41(1) should not be invoked. The refund was not taxable as business income of the year and there was no opportunity to file an audit report. Revenue's Contentions: The assessee maintained accounts on a cash basis, and the refund received should be taxed in the year of receipt. The assessee should be allowed to raise additional claims and file audit reports for deductions.

Which sections of the Income-tax Act were involved?

Section 41(1),Section 80-HH,Section 80-HHC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 59 of 1997

with SPECIAL CIVIL APPLICATION No 6082 of 1999

For Approval and Signature:

Hon'ble MR.JUSTICE B.C.PATEL and Hon'ble MR.JUSTICE P.B.MAJMUDAR ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? YES

2.

To be referred to the Reporter or not? YES :

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement? NO 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? NO 5. Whether it

The order continues below.

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