Hyderabad Bottling Co.(P) Ltd., Hyderabad V. Commissioner of Income Tax Andhra Pradesh Hyderabad

RC/53/1994

AI Insights

The case involves Hyderabad Bottling Co.(P) Ltd., which sought judicial clarification on two issues related to the taxability of a Central Excise duty refund and the deductibility of excise duty paid under specific circumstances. The Income Tax Appellate Tribunal had previously ruled on these matters, which were contested by the assessee. The High Court of Andhra Pradesh, after considering the arguments and relevant legal provisions, upheld the Tribunal's decisions, affirming that the refund amount is taxable income and the excise duty payment does not qualify for deduction under Section 43B of the Income Tax Act, 1961.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 810550 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 21-08-2013
• Assessment Year: misc
• Other Referred Cases: C.I.T. v. Sahney Steel & Press Works Ltd., Union of India v. Bombay Tyre International Ltd., Lakhanpal National Limited v. Income Tax officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Assessment Year 1984-85; Central Excise Duty; Income Tax; Refund; Taxability
• Section: 43B; 5; 41(1)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU REFERRED CASE NO.53 OF 1994 DATED:21.8.2013 Between: Hyderabad Bottling Co.(P) Ltd., Hyderabad … Petitioner And Commissioner of Income Tax Andhra Pradesh Hyderabad … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE K.C. BHANU REFERRED CASE NO.53 OF 1994 ORDER: (per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This matter has been referred to this Court for its opinion on the following questions. 1. “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the refund of Central Excise duty of Rs.14,30,244/- is chargeable to tax under Section 41(1) of the Income Tax Act, 1961 even when the matter is pending in appeal before the Hon’ble Supreme Court for final disposal? 2. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the sum of Rs.7,34,000/- paid by the assessee company on account of Central Excise duty during the assessment year 1984-85 as per the directions of the Hon’ble Supreme Court is not allowable as deduction under Section 43B of the Income Tax Act, 1961?” 2. First, we shall deal with question No.1. We set out short fact relevant thereto. The assessee is a private limited company engaged in the business of manufacturing soft drinks like Goldspot, Limca, Thums Up etc. For the assessment year 1984-85, the assessee has filed its return of income declaring loss of Rs.72,42,823/- as against which the Assessing Officer completed the assessment on a total income of Rs.31,33,610/- after setting off the carry forward losses and depreciation of Rs.73,81,063/-. In the course of assessment, the Income Tax Officer brought to tax an amount of Rs.14,30,244/- under Section 41(1) of the Income Tax Act, 1961 (for short, ‘the Act’), being the Central Excise Duty received by the assessee. 3. The assessee paid Central Excise Duty at the rate of 20% on aerated waters manufactured by it during the period from 17.3.1972 to 3.5.1977, acting under a mistaken impression that excise duty at 20% is in fact payable on aerated waters, including soft drinks. After the aforesaid payment, the Bombay High Court by its judgment rendered in the case of Duke and Sons (P) Ltd. and another, in W.P. No.944 of 1973, dt.11.10.1976, held that soft drinks such as Goldspot, Limca etc., manufactured by the assessee do not contain blended flavouring concentrates but contain only synthetic flavouring essence and as such the said soft drinks like Limca, Goldspot, etc., are not liable to Central Excise Duty at the higher rate of 20% but they were liable to duty at a lesser rate of 10% only as per the Central Excise Rules and notifications. On the basis of the aforesaid judgment of the Bombay High Court, the assessee has filed an application before the Central Excise authorities, claiming refund of the excise duty paid in excess by it, as aforesaid, for the period from 17.3.1972 to 3.5.1977. The Central Excise authorities rejected the said applications filed by the assessee on the ground that the said claims were barred by limitation. Aggrieved by it, the assessee filed writ petitions (W.P. Nos.3649 of 1979 and 3665 of 1980) in this Court seeking directions to the Central Excise authorities to work out the excess excise duty paid by the assessee and refund the same to the assessee. The High Court by orders dt.25.10.1982 and 12.4.1983 directed the Central Excise authorities to work out the excess excise duty paid by the assessee and refund the same. Thereafter, in terms of the judgment of the High Court, the Assistant Collector of Central Excise, by his orders dt.19.7.1983 and 15.12.1983 refunded the amount of Rs.14,30,244/- to the assessee. However, the Central Excise authorities did not accept the decision of this Court and carried the matter in appeal to the Supreme Court. 4. Hence, the matter is still sub judice and the appeal is yet to be decided as per the information supplied by learned counsel for the parties. In view of the fact of pendency of the matter before the Supreme Court, the assessee has shown an amount of Rs.14,30,244/- in its Balance Sheet under the head ‘Liability for other finances’ for the assessment year 1984-85. The Assessing Officer held that pendency of the appeal before the Supreme Court is no bar to tax this refund amount and, as aforesaid, brought it to tax under Section 41(1) of the Income Tax Act, for the assessment year 1984-85. This decision was also upheld by the Commissioner of Income Tax (Appeals), on appeal, following the decision of this Court in the case of C.I.T. v. Sahney Steel & Press Works Ltd.[1]. The Tribunal also, on a further appeal preferred by the assessee, upheld the decision of the Commissioner of Income Tax (Appeals). 5. Learned counsel for the assessee contends that the aforesaid refund amount of Central Excise duty cannot be said to be income as the matter is still sub judice and pending before the Hon’ble Supreme Court and it cannot be said that the income at the hands of the assessee has been crystalized. According to him, if the Supreme Court decides against the assessee, the amount has to be refunded to Revenue. As such, it was shown as liability. 6. Mr. S.R. Ashok, learned Counsel for Revenue, submits that admittedly refund has been received and benefit of the amount has been derived by the assessee. Under the provisions of the Income Tax Act, the moment the money is actually received and is treated to be income, what would happen in future about this money because of decision of a Court, does not operate as deferment of computation of income. Therefore, he submits that this question has to be answered in favour of the Revenue and against the assessee. 7. We have considered the rival contentions of learned counsel for the parties. Admittedly, the factual position is that the assessee, in terms of the orders of the High Court, has received the amount and has been availing the benefit thereof. Section 5 of the Income Tax Act, which provides as to the ‘total income’, to the extent relevant to this case, reads as follows: “Scope of total income 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which – (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: … … …” 8. Thus, it is clear that going by the provision of Section 5 of the Act, the assessee has received the amount and hence it is taxable automatically. What would happen in future after judgment delivered by the Supreme Court cannot be taken into consideration now and further, making a provision for liability in the books of account does not change the situation to render the provision of law inapplicable. Under these circumstances, we are of the view that the aforesaid amount is chargeable to tax under Section 41(1) of the Act. However, in the event the Supreme Court decides in favour of the Revenue, then the assessee will have to pay back the money to Revenue and later on, the assessee will get deduction automatically and in that case, the said refunded amount should not be taken as income automatically. Therefore, we answer question No.1 in affirmative. 9. Now, we shall deal with the second question. We narrate short fact in relation thereto. In the course of assessment, the Income Tax Officer, rejected the claim of the assessee for deduction of a sum of Rs.7,34,000/- under Section 43B of the Income Tax Act. During the period 1979 to 1983, there was a dispute between manufacturers of excisable goods and the Central Excise Department, as to whether all expenses incurred by manufacturers subsequent to manufacture of the goods, can be included in the assessable value of the product for the purpose of levy of Central Excise Duty, in terms of Sections 3 and 4 of the Central Excise and Salt Act, 1944. There was a difference of opinion amongst various High Courts, on this issue. The jurisdictional High Court took the view that excise duty is not payable on post- manufacturing expenses and therefore, they need not be included while determining the assessable value of goods under Section 4 of the Central Excise and Salt Act. Thereafter, in the year 1983, the Supreme Court in its judgment rendered in the case of Union of India v. Bombay Tyre International Ltd.[2] held that such of those post- manufacturing expenses which would go to enhance the value of the product should be included while computing the assessable value and the other product should not be included in arriving at the assessable value. In the light of that decision, manufacturers were directed by the Government to determine what portion of the post-manufacturing expenses already claimed by them during the period 1979-1983 would fall within the ambit of the Supreme Court Judgment, for the purpose of levy of excise duty. The total amount of duty involved on account of post-manufacturing expenses claimed by the assessee during the period 1978-79 to 1982-83 was Rs.31,81,150/-. The assessee admitted that Rs.21,46,000/- was covered by the Supreme Court judgment and therefore it is liable to pay the same. Accordingly, the assessee paid Rs.7,34,000/- during the assessment year 1984-85 and claimed deduction of the said amount under Section 43B of the Income Tax Act. The said deduction was disallowed by the Income Tax Officer, followed by all the authorities below. 10. Learned counsel for the assessee contends that factually the amount was paid on account of central excuse duty. Once the amount is paid, according to him, the deduction under Section 43B of the Act is an automatic choice. He drew our attention to language of Section 43B of the Act and submits that this Section starts with a non obstante clause. Therefore, it has got a mandatory character. Accordingly, deduction should be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him. He also relied on a decision of Gujarat High Court in the case of Lakhanpal National Limited v. Income Tax officer[3]. 11. Mr. S.R. Ashok, learned counsel for the Revenue, submits that the assessee might have paid the amount on excise duty factually, but in the books of account it has been shown otherwise. No provision for making of payment was made. Since the assessee is maintaining mercantile system of accounting and the authority concerned going by this system accepted irrespective of factual position. 12. After hearing the learned counsel and examining the admitted facts, we find that there is no dispute that the assessee has paid excise duty after the same was worked out in terms of the Supreme Court judgment. It is also an admitted position, this amount was paid on account of central excise. Once this fact is established, in our view, the provision of Section 43B of the Act will come into play automatically. We find substance in the contention of learned counsel for the assessee that Section 43B of the Act has a mandatory character, as it starts with a non obstante clause. We set out Section 43B of the Act, insofar as it is relevant to this case. “Certain deduction to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) ... … … (c) … … … (d) … … … shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: … … …” 13. Thus, it is clear that the actual payment is the criteria in giving deduction irrespective of a provision being made in accounting system. We are of the view that the moment the payment is made, deduction has to be granted automatically. The scope of Section 43B of the Act was examined by the Gujarat High Court in the aforesaid case of Lakhanpal National Limited (supra), wherein it was observed as follows: “On a perusal of the language of section 43B, it is clear that it opens with a non-obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, section 43B will have overriding effect. Keeping in mind, if we examine the language of the section, it clearly brings out the intention of the Legislature that the deduction in respect of any tax or duty under any law would be an allowable deduction in computing the income under section 28 of that previous year in which such sum is actually paid by the assessee. The intention is made more specific by providing that it would be so irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by the assessee. This clearly makes out that even if the mercantile method of accounting is employed and the liability to pay might have accrued which would give the assessee a right to obtain deduction, in view of the specific language of the section, the assessee would not be entitled to get deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. The Legislature has also taken care by providing an Explanation that the assessee shall not be entitled to any deduction under section 43B of the Act in respect of such sum in computing the income of the previous year in which such sum is clearly paid by him in case a deduction in respect of any such sum was allowed in the previous year. It is, therefore, clear that the assessee shall not be entitled to get the benefit twice, i.e., at the time when the liability arises and also at the time when the actual payment is made. 14. In view of the aforesaid exposition of law, and while accepting the aforesaid view, we also hold that not making any provision in the books of account does not debar the assessee from getting deduction. Under these circumstances, the assessee is entitled to deduction. However, it has to be examined whether on earlier point of time, deduction has been given on this account, because the assessee is maintaining mercantile system of accounting. Therefore, it is necessary for the Assessing Officer to scrutinize this aspect. After scrutiny, if it is found that deduction was given earlier, on making of actual payment, then a further deduction shall not be given. 15. In view of the aforesaid discussion, we answer this question in negative and in favour of the assessee, however, with a rider that the Assessing Officer has to examine whether any deduction was given on earlier point of time on the same account, and if it is found that deduction was given earlier, then a further deduction shall not be given. 16. The reference is answered accordingly. ________________________ K.J. SENGUPTA, CJ ______________________ K.C. BHANU, J 21.8.2013 bnr [1] 152 ITR 39 (AP) [2] AIR 1984 SC 420 [3] 162 ITR 240 (Guj.) "