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Judgment
This is a Tax Reference Case sent u/s 256(1) of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal, Patna Bench, Patna. The Tribunal has referred two questions of Law, which are as under:-
On the facts and in the circumstances of the case, whether the Tribunal was justified in law in holding that dividend (Rs. 5.05 lac) Capital gains (Rs. 10.75 Lacs) and provision of Excise Duty written back (Rs. 95.25 lacs) should be held as profit from business for the purpose of deduction u/s 32AB of the I.T. Act?
On the facts and in the circumstances of the case, whether the learned Tribunal was justified in law in holding that the issue on this matter was debatable and so the provisions of Sec. 154 were not applicable?
It appears from the statement of the case submitted before us that the Tribunal not only decided the issues in favour of the assessee on the basis of legal opinion formed by it in the order dated 8.1.1998 but also was of the view that the order ought to be rectified u/s 154 of the I.T. Act, 1961 which was wrongly done by the lower authority, looking to the scope of Section 154 of the Act of 1961. The Assessing Officer has given reason for forming opinion that the provisions of the excise duty, written back, should be held as profit from business for the purpose of deduction u/s 32AB of the I.T. Act, 1961 and the Tribunal was justified in law in holding that the dividend (Rs. 5.05 Lacs), capital gains (Rs. 10.75 Lacs) were also deductible u/s 32AB of the Act of 1961. However, in the order of reference dated 18.5.99, the questions have been referred to us for deciding the question of correctness about the decision given by the Tribunal in order dated 8.1.98 with respect to its interpretation of Section 154 of the Act in the facts of the case.
The learned counsel for the revenue Sri Deepak Roshan vehemently submitted that the Tribunal has committed serious error of law by taking help of Section 41(1)(a) of the Act, 1961 when specific provision for computation u/s 32AB is available. Counsel for the Revenue further vehemently submitted that, it is true that the assessee has submitted his returns in relevant years and claimed the liability created by the order passed by the Excise Department to be a liability of the assessee and he therefore, was not taxed on that amount which was meant for the excise duty payment. Ultimately the Patna High Court decided in favour of the assessee and held, that the assessee is not liable to pay the excise duty; therefore, from the judgment of the Patna High Court, it is clear that the liability of the Assessee in the relevant year was not ascertained as it was disputed by the Assessee and ultimately, it was found that the assessee was not liable to pay the excise duty and therefore, the said liability of the assessee was not ascertained liability and consequently, in view of Section 32AB(3)(V), the Assessee was not entitled to add the accumulated amount for the contingent liability as provided under the relevant year so as to claim the adjustment u/s 32AB of the Act. So far as the dividend and the capital gains are concerned, learned counsel for the appellant did not press the issue seriously in view of the judgments rendered by the various High Courts wherein, it has been held that the dividend and the capital gains are income for the purpose of allowance u/s 32AB of the Income Tax Act.
Learned counsel for the respondent, Shri N.K. Poddar drew our attention to the various judgments which include the decisions of the Bombay High Court ( Commissioner of Income Tax Vs. Parle Biscuits Ltd., and, the decision of the Calcutta High Court delivered in the case of Britannia Industries Ltd. Vs. Joint Commissioner of Income Tax and Others, , Assam Brook Ltd. Vs. Commissioner of Income Tax, and another judgment delivered in the case of J. Thomas and Co. (P) Ltd. Vs. Commissioner of Income Tax, .
In support of the contention that for allowance u/s 32AB, whatever income is of the Company, in terms of the Companies Act and particularly, as per part II and III of the Schedule- VI of the Companies Act, 1956 are the incomes allowable and that income may not be the income as per the provision of Act of 1961; so, because of the reason that specifically the reference of Part II and III of the VIth Schedule of the Companies Act, 1961 is in Sub-section 3 of Section 32AB of the Act, 1961, and the views taken by the Bombay and the Calcutta High Courts attained finality and therefore the revenue cannot take the plea contrary to the view taken by different High Courts, which has been accepted in other cases.
Learned counsel for the respondent -assessee also submitted that, practically the assessee was denied the benefit of allowance u/s 32AB of the Act and he could not get the benefit because of the reason that the amount of the tax liability under the Excise Act was treated as non-profit in that year and therefore, the assessee could not get the benefit u/s 32AB of the Act in those relevant years. Section 41 in unambiguous terms shows that upon cessation of the liability, the liability shall be deemed to be profit and gain of business or profession and shall accordingly be chargeable to income tax as the income of that previous year, whether the business or profession in respect of which, the allowance or deduction has been made is in existence in that year or not. In view of various provisions making the amount in question as provided u/s 41(a) and (b), the assessee cannot be denied the benefit of the allowance permissible u/s 32AB of the Act.
Learned counsel for the assessee vehemently submitted that, this reference application may be rejected only on the ground that the Tribunal was right in holding that the correction made u/s 154 of the Act was not in fact any correction in the order but it is virtually hearing of the matter and that too, on debatable question of Law. According to the learned counsel for the respondent it is settled by the Hon''ble Apex Court that change in legal opinion cannot be the ground to invoke powers u/s 154 of the I.T. Act.
We have considered the submissions of the learned counsel for the parties and perused the facts and the reasons given in the statements as well as the impugned order.
Undisputedly, the assessee was served with the demand notice raising the excise duty demands, those amount have been shown by the assessee in its returns to be a liability and that was accepted by the revenue and it was not rejected on the ground of it being an un-ascertained liability or contingent liability, therefore, in those past years, the petitioner was not entitled to any allowance u/s 32AB of the Act on the basis of its income after deduction of the excise liability. The assessee was also not taxed for the said amount as its income in those relevant years. However, when the Patna High Court quashed the demand, the assessee reversed the above amount as income of the previous current year and claimed the allowance u/s 32AB of the Act on the basis of above reversal. The revenue''s contention is that the liability was not ascertained liability, however, the Assessing Officer in its final order considered the Sub-section 3(a) of Section 32AB as well as Part-III of the Schedule VI of the Companies Act, 1956 and thereafter held, as the provisions made in the Accounts up to Assessment year 1984-85 was to be considered as reserve and the amount withdrawn from this reserve should have been deducted from the profit as per provisions of Section 32AB 3(a) of the I.T. Act, 1961 and after considering Circular No. 461 dated 9.7.1986 reached to the conclusion that the amount of Rs. 95.25 lacs should be treated as a reserve only and not a provision. Hence this amount is accordingly, rectified. Therefore, it appears from the order that on the basis of undisputed and admitted facts, different view was taken by the Assessing Officer while exercising jurisdiction u/s 154 of the Act, 1961. The Tribunal in its order dated 8.1.1998 observed this issue in detail and in our opinion rightly reached to the conclusion that the order of the Assessing Officer was liable to be set aside.
In view of the facts and the reasons mentioned in all the order, we are also of the considered opinion that the Tribunal has rightly considered the issue in its order dated 8.1.1998. We find force in the argument of the learned counsel for the assessee that reference of Part II and III of Schedule-VI of the Companies Act 1956 in Sub-Section(3) of Section 32AB clearly indicates that the "provisions" is in accordance with the requirement of part II and III of the said Schedule of the Companies Act 1956. The said view finds support from the judgments referred above, which have been relied upon by the learned counsel for the Assessee, therefore, it is clear from the facts of the case that there was an order relating to the liability of the ascertained amount. In our opinion, mere change in its liability in toto and not to quantitative only cannot be made the liability as un-ascertained liability, which was ascertained when demanded and in the same way, liability was contingent depending upon ambiguity in legal opinion which upon judgment of Patna High Court in assessee''s case wiped out the ascertained contingent liability of the Assessee. The distinction is required to be seen in un-ascertained and contingent liability. In the facts of the case, the petitioner''s liability was quantified, the amount on the basis of the order passed by the Excise Authorities and did not pay the tax in corresponding relevant years of those ascertained demands and it was accepted by the Revenue and not rejected on the basis of being un-ascertained amount. Therefore, in earlier years, the assessee was not entitled to get the benefit of Section 32AB and therefore, it is not a case of taking double benefit, rather say other view will deny the benefit to petitioner in both the years which will amount to total denial of benefit u/s 32AB. Admittedly, the petitioner was taxed on this amount i.e. Rs. 95.25 lacs in the year, in which, he has claimed the allowance u/s 32AB of the Act and therefore, there cannot be two views-for the purpose of taxing one income amount of Rs. 95.25 lacs. Therefore, not only it was a case of invoking of powers u/s 154 on forming a different opinion on question of law but also it was legally wrong. In view of the above reasons, the questions referred to us are answered in the way that the Tribunal was right in holding that the matter in question could not have been decided by the Assessing officer by invoking Section 154 of the Act and so far as on merits, the questions were rightly decided in favour of the assessee and we are also of the same view. Reference is answered accordingly.