Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 212 of 1975

Judges

Hon'ble Mr. Justice Shailesh Bhadrayulal Majmudar

Acts

provisions of s. 41(1) of the I. T. Act
s. 41(1) of the I. T. Act, 1961,

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Smart Summary

Summary of Legal Opinion — Reference on Taxability of Rs. 15,964 (Assessment Year 1971-72)

Factual and Procedural Background

The reference arises from a question posed by the revenue asking whether the Tribunal was justified in holding that Rs. 15,964 was not taxable in assessment year 1971-72 either under section 28(iv) of the Income-tax Act or otherwise.

The assessee is a private limited company engaged in recovering caustic soda from mercerising waste caustic liquor and supplying the recovered product to mills. The excise department served a notice that excise duty was recoverable on dilute waste lye sent from one mill to another for concentration or recovery, work which the assessee performed for others. The assessee paid the excise duty and recovered Rs. 15,964 from its constituents.

The assessee contested liability before the excise department, succeeded, and the excise department refunded Rs. 15,964 in calendar year 1970 (the relevant accounting year). The assessee credited that refund to its profit and loss account and claimed a deduction before the ITO on the basis that the amount was casual and non-recurring; the ITO denied the deduction.

On appeal the AAC allowed the assessee's claim (noting the Tribunal had decided a similar point for the assessee in assessment year 1968-69). The revenue appealed to the Income-tax Appellate Tribunal (Tribunal). Before the Tribunal the revenue argued that the amount was taxable either under section 28(iv) as the value of a benefit arising from business or under section 41(1) (on the basis that the amount had been previously deducted as an expense and, on refund, must be treated as income). The Tribunal dismissed the revenue's appeal. The present reference asks whether the Tribunal was justified in so holding.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 15,964 was not taxable in the assessment year 1971-72 either under section 28(iv) of the Income-tax Act or otherwise?
More specifically: whether the refunded amount was taxable under section 28(iv) as the value of any benefit or perquisite arising from business?
Whether the refunded amount fell within the ambit of section 41(1) of the Income-tax Act (i.e., income attributable to an earlier deduction) or was taxable on general commercial principles analogous to section 41(1)?

Arguments of the Parties

Revenue's Arguments (Appellant)

The amount Rs. 15,964 recovered from constituents by the assessee (and later refunded by excise authorities) represented part of the assessee's business receipts — analogous to sales price plus excise — and thus should be taxable.
On the primary ground, the refund should be brought to tax under section 28(iv) as the value of a benefit or perquisite arising from business.
Alternatively, the refund should be taxed under section 41(1) because the assessee would have obtained a deduction for the payment of excise duty (or ought to have done so) and, upon refund, the amount becomes liable to tax; the revenue relied on interpretations of s. 41(1) (including Motilal Ambaidas v. CIT).
Additionally, if s. 41(1) could not strictly be invoked, the revenue argued that general commercial principles analogous to s. 41(1) or the principle underlying s. 41(1) should be invoked (relying on decisions such as In re Union Bank of Bijapur and Sholapur Ltd. and CIT v. Lakshmamma).

Assessee's Arguments (Respondent)

The assessee contended before the excise department that duty was not leviable; the excise department accepted this and refunded the amount in 1970.
The assessee treated the refunded amount by crediting it to the profit and loss account and claimed a deduction before the ITO classifying the amount as casual and non-recurring; the assessee relied on an earlier favourable decision of the Tribunal in assessment year 1968-69 in its favour.
Implicitly, the assessee's position before the Tribunal was that the refund was not income under s. 28(iv) nor did it fall within s. 41(1) or analogous principles in a way that would render it taxable for AY 1971-72.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454 (Madras HC)	Consideration of appellate discretion; surveyed Supreme Court decisions relevant to Tribunal's power to refuse new points requiring further evidence.	Used to support the settled principle that appellate authorities may refuse to entertain new points which require investigation of facts not on record.
Moti Ram v. The Commissioner Of Income Tax [1958] 34 ITR 646 (SC)	Tribunal's jurisdiction to refuse permission to lead further evidence where deciding the new question would require additional evidence.	Quoted to show the Tribunal was right in declining to allow the revenue to raise the s. 41(1) point at the Tribunal stage because further evidence/investigation would have been necessary.
Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1	Decision considered along with Moti Ram to identify the principle limiting appellate authorities from deciding new factual points without evidence.	Cited (via Madras Industrial Investment Corporation Ltd.) to reinforce the Tribunal's discretion in refusing to entertain new factual issues on appeal.
Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj)	Interpretation of s. 41(1): when s. 41(1) speaks of a deduction in the past it may mean what was actually deducted or what ought to have been deducted.	The revenue relied on this decision to argue s. 41(1) applied; the Court acknowledged the decision but declined to decide s. 41(1)'s applicability on the present facts because of the need for further factual investigation.
In re Union Bank of Bijapur and Sholapur Ltd. [1942] 10 ITR 21	Authorities invoked for the proposition that general commercial principles can have application analogous to statutory provisions like s. 41(1).	Relied upon by revenue's counsel to argue general principles should be invoked; the Court held that raising such a contention would similarly require investigation of facts, so it could not be examined on the present record.
CIT v. Lakshmamma [1964] 52 ITR 789 (Mysore HC)	Also cited concerning the applicability of general commercial principles analogous to s. 41(1).	Invoked by revenue; Court found the same practical objection (need for investigation) prevented examination of the point on the present record.

Court's Reasoning and Analysis

The Court addressed the issues in two strands: (A) the Tribunal's refusal to permit the revenue to raise the s. 41(1) point on appeal, and (B) the applicability of section 28(iv) (and related general commercial principles).

A. Tribunal discretion and s. 41(1):

The Court observed that established authority (including Moti Ram and decisions considered in CIT v. Madras Industrial Investment Corporation Ltd.) recognizes that the Tribunal has jurisdiction and discretion to refuse to permit a party to raise a new point on appeal if deciding that point would require further evidence or extensive factual investigation.
In this case, the Tribunal concluded that invoking s. 41(1) would require investigation into how the assessee had treated the excise payment in its accounts, whether the refund affected the constituents' rights to claim back the excise duty, and other factual matters not considered by the ITO. The ITO had not considered s. 41(1).
Because the revenue sought to raise an altogether new case at the Tribunal stage that required investigation of facts not on record, the Tribunal refused to allow the department to agitate the point. The Court held that the Tribunal was exercising its jurisdiction correctly in so declining.
The Court therefore declined to decide the chargeability of Rs. 15,964 under s. 41(1) because the revenue had not approached the matter with the necessary factual material at earlier stages and had not given the assessee an opportunity to lead relevant facts.

B. Section 28(iv) and "general commercial principles":

Section 28(iv) taxes "the value of any benefit or perquisite, whether convertible into money or not, arising from business." The Court analysed the language and observed that where the benefit is money (i.e., a cash payment or refund), there is no issue of converting value into money; the provision addresses non-monetary benefits whose value must be ascertained.
The Tribunal had held that the amount received from the excise department was money (a cash refund) and thus s. 28(iv) did not apply. The Tribunal also doubted even whether the amount constituted a "benefit" in the relevant sense.
The Court agreed with the Tribunal that s. 28(iv) cannot be applied to a straightforward cash refund of excise duty received by the assessee and that the statutory language precludes treating such a monetary refund as a non-monetary benefit whose value must be included under s. 28(iv).
Regarding the submission that general commercial principles (analogous to s. 41(1)) should apply: the Court accepted that the revenue's counsel relied on earlier authorities to invoke such principles but held that applying those principles would similarly require factual investigation. Therefore, the Tribunal's refusal to permit the revenue to raise a general-principles argument was for the same reasons it refused to entertain the s. 41(1) point — namely, the need for further fact-finding.

Holding and Implications

Holding: The Court answered the referred question in favour of the assessee and against the revenue — the Tribunal was justified in holding that the amount of Rs. 15,964 was not taxable in assessment year 1971-72 on the bases raised (section 28(iv), section 41(1), or general commercial principles).

Direct consequences:

The conclusions of the Tribunal with respect to section 28(iv) and its refusal to permit the revenue to raise the section 41(1) point were upheld as correct and in accordance with law.
The Commissioner (revenue) was ordered to pay the costs of the reference to the assessee.

Broader implications: The opinion rests on application of established principles concerning appellate discretion and statutory interpretation of s. 28(iv). The Court did not decide the substantive applicability of s. 41(1) or the general-commercial-principles question on the merits because it found that further factual investigation would be necessary. No broader novel principle was laid down beyond these conclusions; the decision affirms the Tribunal's exercise of discretion and the Court's approach is limited to the record before it.

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Commissioner Of Income-Tax, Gujarat-I v. Alchemic Pvt. Ltd.

1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 15,964 was not taxable in the assessment year 1971-72, either under section 28(iv) or otherwise ?"

2. In the instant case, we are concerned with the assessment year 1971-72, the previous year being the calendar year 1970. The assessee is a private limited company and carries on business of recovering caustic soda from mercerising waste caustic liquor and resupplying the same to mills. The assessee was served with a notice that excise duty was recoverable in respect of dilute waste lye sent from one mill to another factory for concentration or recovery which was done by the assessee on behalf of others. On the one hand, the assessee-company paid the amount and on the other, it recovered Rs. 15,964 from its constituents. At the same time the assessee contended before the excise department that duty was not leviable on the facts of the particular case. The assessee succeeded and the amount of Rs. 15,964 was refunded to it by the excise department in calendar year 1970, that is, during the relevant accounting year. This amount was credited by the assessee to the profits an d loss account. The assessee claimed deduction of this amount of Rs. 15,964 before the ITO and there the contention of the assessee was that this amounts was not taxable because it was of a casual and non-recurring nature. This contention was rejected by the ITO and he did not grant this deduction. In the appeal before the AAC, it was pointed out that the Tribunal had dealt with this very point in the case of this very assessee for the assessment year 1968-69. The AAC accepted the assessee's claim on the similar point and he allowed the assessee's appeal. Against the decision of the AAC, an appeal was preferred to the Income-tax Appellate Tribunal by the revenue. According to the contention urged before the Tribunal, the case of the revenue was on two alternative grounds. It was firstly argued on behalf of the revenue that the amount was taxable under s. 28(iv) as value of any benefit arising from business. The alternative contention was that, in any case, the amount fell within the mischief of s. 41(1) as the assessee would have got deduction for payment of this amount of excise duty and that when the amount was refunded, the assessee had become liable to tax. It was urged behalf of the revenue that the excise duty collected from various constituents was a part of the assessee's business receipts and was on par with sales tax and it was contended that excise duty was held to be part of taxable receipts in a number of cases. The Tribunal held that before the claim could be considered under s. 41(1) of the I. T. Act, 1961, some investigation could be necessary. Firstly, it should be seen how the assessee recovered this excise payment reduced the assessee's income. Secondly, it should be seen whether the refund was subject to the claim of the constituents that they should get back the excise duty which the assessee had wrongly recovered from them. The ITO had not considered the provision of s. 41(1) at all. As altogether a new case requiring extensive investigation into facts was sought to be made out at the stage of appeal before the Tribunal, the Tribunal thought that it would not be proper for them to allow the department to agitate the point. As regards the contention with regard to s. 28(iv) of the Act, the Tribunal held that looking to the language of s. 28(iv), since what was received from the excise department was money and not something the value of which was required to be converted into money, the provision of s. 28(iv) would not apply to the facts of this case. The Tribunal, therefore, dismissed the appeal of the revenue, and thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.

3. The position in law regarding the Tribunal's discretion is very clear. In CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454, the Madras High Court considered several decisions of the Supreme Court and particularly the decisions of the Supreme Court in Moti Ram v. The Commissioner Of Income Tax . [1958] 34 ITR 646 and Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1, and from these two decisions it culled out the principle that where the point was taken for the first before the appellate authorities, the appellate authorities would have a discretion not to allow the assessee to raise such a new point, when the consideration of the new point would involve investigation of facts which were not on record. In Moti Ram v. The Commissioner Of Income Tax . [1958] 34 ITR 646, 649 (SC), the Supreme Court observed :

"We are clear in our mind that the Tribunal was right in holding that the question raised by the appellant could not be decided without taking further evidence. The Tribunal refused permission to the appellant to lead further evidence and it had full jurisdiction to do so. We see no reason to interfere with the exercise of the Tribunal's discretion in the matter."

4. Thus, it is clear that when the Tribunal declined to allow the revenue to go into the question arising under s. 41(1) of the Act on the ground that extensive investigation into facts would be necessary, the Tribunal was acting in the exercise of tis jurisdiction.

5. It is not for us to go into this question at this stage because the revenue never approached the question from that angle, nor did it give at opportunity to the assessee to lead proper facts which would have a bearing on the question under s. 41(1) of the Act. It is true, as Mr. Raval for the revenue has urged before us, that excise duty is part of the consideration which the constituents of the assessee would pay to the assessee for the goods purchased from it and the total amount received, namely, the price of the goods together with excise duty, would form part of its trading receipt. On the other hand, as and when excise duty was paid or liability to pay excise duty was incurred by the assessee, since the assessee is keeping its accounts on mercantile basis, the amount of excise duty would be a taxable expenditure in connection with its business activities. In Motilal Ambaidas v. CIT [1977] 108 ITR 136 (Guj), the provisions of s. 41(1) of the I. T. Act were consider ed by a Division Bench of this High Court and it was held that when s. 41(1) speaks of deduction of a particular amount in the past, the words meant not only what was actually deducted but what ought to have been deducted in the past. But the question would still remain whether the amount was received back under particular circumstances and Mr. Raval contended that in the instant case in view of the decision in Motilal Ambaidas' case [1977] 108 ITR 136 (Guj), on the excise authority refunding the amount of Rs. 15,964 back to the assessee, all the provisions of s. 41(1) would come into play. However, the Tribunal in the exercise of its discretion refused to go into this question because various facts would have been required to be investigated into as pointed out by the Tribunal in order to examine the question under s. 41(1) and it was for that reason that the Tribunal declined to go into the question of s. 41(1). In our opinion, the stand taken by the Tribunal was in exercise of jurisdiction and it is not necessary for us to go into the question regarding the chargeability to tax, so far as this amount of Rs. 15,964 was concerned, under s. 41(1) of the Act.

6. Relying on the decision of the Bombay High Court in In re Union Bank of Bijapur and Sholapur Ltd. [1942] 10 ITR 21 and the decision of the Mysore High Court in CIT v. Lakshmamma [1964] 52 ITR 789, Mr. Raval contended that even if the provisions of s. 41(1) could not be invoked, the principle underlying s. 41(1) or analogous to s. 41(1) could be invoked in this case and that in view of the words "or otherwise" occurring at the end of the question referred to us, the revenue should be allowed to urge that on the general principles underlying s. 41(1) the assessee was liable to pay income-tax on this amount of Rs. 15,964 which the assessee received by way of refund from the excise authorities. He contended that s. 41(1) sets out general commercial principles and on those general commercial principles, the amount should be brought to tax. In our opinion, the considerations which led the Tribunal to its conclusion not to allow the revenue to raise this contention under s. 41(1), namely, the necessity to investigation into facts, would also raise so far as the applicability of general commercial principles is concerned. Under these circumstances, the grounds on which the Tribunal refused permission to the revenue to go into the question of s. 41(1) would, with equal force, apply to this question of going into the question of general commercial principles and since investigation of facts would be necessary, it would not be possible for us to examine this question of invoking general commercial underlying s. 41(1).

7. While considering the question of general principles, we are prepared to proceed on the footing that this is merely another aspect of the question of chargeability to tax under s. 41(1) which was sought to be raised before the Tribunal, and for the purpose of this conclusion of ours we have proceeded on the footing that this aspect of the case does arise out of the order of the Tribunal.

8. So far as the question of s. 28(iv) of the Act is concerned, s. 28(iv) provides that that income falling under clause (iv) of s. 28 shall be chargeable to income-tax under the head "Profits and gains of business or profession." Clause (iv) provides :

"the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession."

9. It is obvious that if what is received either by way of benefit or perquisite is money, there is no question of considering the value of such monetary benefit or perquisite under clause (iv) and including the value of such benefit or perquisite under the head "Profits and gains of business or profession." It is only if the benefit or the perquisite is not cash or money but is non-monetary benefit or non-monetary perquisite that the question of including the value of such benefit or perquisite would ever arise. Under these circumstances, the Tribunal was right in rejecting the contention urged on behalf of the revenue that the amount of Rs. 15,964 should be brought to tax as value of any benefit or perquisite within the meaning of s. 28(iv). The tribunal doubted whether the amount of Rs. 15,964 was any benefit - "It may or may not be a benefit". Another question is whether the phrase "whether convertible into money or not" would normally mean something else than money. In our opinion, the conclusion of the Tribunal that s. 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s. 28(iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee.

10. The three contentions urged on behalf of the revenue were on the basis of s. 28(iv), s. 41(1) and on general commercial principles and on each of these three grounds we are of the opinion that the contentions urged on behalf of the revenue must be rejected. The conclusions of the Tribunal, both regarding s. 28(iv) and regarding the decision not to go into the question of s. 41(1), was correct and in accordance with law. We, therefore, answer the question referred to us in the affirmative, that is, the favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.

Commissioner Of Income-Tax, Gujarat-I v. Alchemic Pvt. Ltd.

Summary of Legal Opinion — Reference on Taxability of Rs. 15,964 (Assessment Year 1971-72)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments (Appellant)

Assessee's Arguments (Respondent)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax, Gujarat-I v. Alchemic Pvt. Ltd.

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