PLASTIC PRODUCTS ENGG. CO. vs. COMMISSIONER OF INCOME-TAX

ITR/174/1984HC GujaratGJHC24011848198423 April 1999Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE5 pages
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What did the High Court hold?

The High Court held that the Tribunal rightly concluded that the receipt of excise duty deposits was taxable income. The facts squarely fall within the principle of Chowringhee Sales Bureau Private Limited v. C.I.T West Bengal (1973) 87 ITR 542. In that case, the Supreme Court held that sales tax received by an auctioneer formed part of its trading receipt, even if disputed, and deduction would be available when paid. Similarly, the assessee received the disputed excise duty as part of the sales price, albeit with a stipulation for refund if the liability was not sustained. The court found the assessee's reliance on Hindusthan Housing and Land Development Trust Limited distinguishable, as that case involved a dispute over the right to receive compensation, whereas here, the right to receive the amount from buyers was not in dispute, only the ultimate liability to pay excise duty. The court noted that the issue of entitlement to deduction for excise duty was not raised before or decided by the Tribunal and therefore could not be examined in the reference. The law, as per Chowringhee Sales Bureau, allows for deduction when the occasion arises.

What were the facts?

The assessee, Plastic Products Engg. Co., is a manufacturer of industrial plastic goods. For the assessment year 1976-77, the assessee credited Rs. 1,97,224 to an excise deposit account. Of this, Rs. 48,682 was returned to customers due to non-delivery or excess deposit. The remaining Rs. 1,48,542 was received on goods sold. The assessee claimed this was not a trading receipt as it was refundable if the excise duty was not finally payable. The Income Tax Officer, CIT(Appeals), and the Tribunal disagreed, holding it to be a trading receipt. The matter was referred to the High Court of Gujarat.

What were the issues?

1. Whether, on the facts and circumstances of the case, the receipt of deposits of Excise duty was taxable income of the assessee? Assessee's contentions: The amount was received on account of Excise Duty, which was a disputed liability. The assessee undertook to refund it to buyers if the dispute was resolved in its favour. Therefore, it never became part of the sale price and remained a contingent receipt. Amounts subject to dispute cannot be considered finally accrued or received as trading income. Relied on C.I.T. West Bengal - II v Hindusthan Housing and Land Development Trust Limited (1987) 161 ITR 524. Revenue's contentions: Whether Excise Duty is shown separately or as part of the sale price is an accounting policy choice. It cannot alter the character of the amount received as part of the sale price for goods sold. The decision of the Tribunal is in consonance with the principle in Chowringhee Sales Bureau case.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 174 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

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The order continues below.

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