Moti Lal Padampat Udyog Ltd. vs Commissioner of Income Tax

R.K. Agrawal, J.—In Income Tax Reference No. 180 of 1989, the Incometax Appellate Tribunal, Allahabad (hereinafter referred to as ''the Tribunal''), has referred the following question of law u/s 256(l) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') for opinion to this Court:

Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 43,78,875 received on account of sales-tax refund by the assessee represented the assessee-company''s income chargeable to tax u/s 41(1) of the Income Tax Act, 1961 for the assessment year 1980-81.

Whereas in Income Tax Reference No. 86 of 1991, the Tribunal has referred the following question of law u/s 256(2) of the Act for opinion to this Court:

Whether the order of the Tribunal is vitiated by a failure to consider the decide all the questions relating to the taxability of the said sum of Rs. 43,78,875 which were left undecided by the Judicial Member for the reasons stated in his separate order, and were decided only by the Accountant Member ?

If the answer of the aforesaid question is in the negative:

Whether, on the facts and in the circumstances of the case, there was a corresponding liability in favour of the customers for an equivalent amount, which was allowable in the computation of the commercial profits of the assessee-company for the assessment year 1980-8 1 ?

The present Reference relates to the assessment year 1980-81.

Briefly stated the facts giving rise to the present reference are as follows:

During the assessment years 1971-72 to 1974-75, the applicant was held to be not entitled for Sales-tax exemption in respect of vanaspati manufactured and sold by it. However, ultimately the Apex court had held that the applicant was entitled for exemption/sales tax holiday for the specified period inrespect of its turnoverof vanaspati manufactured in the new unit as a result of which the applicant was refunded a sum of Rs. 43,78,875, which was paid by it and also collected from its customers during the assessment years 1971-72 to 1974-75. The question arose as to whether the sum of Rs. 43,78,875, which it had obtained as refund from the Sales-tax department could be brought to tax under the Act or not arose before the assessing authority who by invoking the provisions of Sub-section (1) of Section 41 of the Act had held that it was liable to tax. The appeal preferred by the appellant failed. In further appeal before the Tribunal, the difference of opinion occurred between the Accountant Member and the Judicial Member. The Accountant Member held in f avour of the revenue whereas the Judicial Member held in favour of the applicant. The matter was referred to the Third Member, who concurred with the opinion of the Accountant Member. The Tribunal in accordance with the opinion expressed by the Third Member had held that the amount of Rs. 48 lakhs and odd is trading receipts and is liable to tax u/s 41(1) of the Act.

We have heard Sri Ravi Kant, learned senior counsel, assisted by Sri R.S. Agrawal, learned Counsel for the applicant and Sri R.K. Upadhyay, learned standing counsel appearing for the revenue.

We find that the issues involved in the present reference have since been decided by the Apex court in the case of Polyflex (India) Pvt. Ltd. Vs. Commissioner of Income Tax, Karnataka, , wherein the Apex court has held that where any amount of refund is obtained towards an expenditure it is neither cessa''lion nor remission of trading liability and the amount of refund is to be treated as trading receipts deemed to be profit in the year in which it has been refunded u/s 41(1) of the Act.

Respectfully following the aforesaid decision, we are of the considered opinion that the Tribunal was justified in holding that the said amount of Rs. 48,78,875 was liable to be taxed u/s 41(l) of the Act. We accordingly answer all the questions in favour of the revenue and against the assessee. However, there shall be no order as to costs.