JUDGMENT
Suhas Chandra Sen, J.
1. The Tribunal has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (“the Act”), to this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that recovery of excise duty of Rs. 17,61,161 made by the Central Excise authorities is allowable as a deduction under Section 37 of the Income-tax Act in computing the income of the assessee for the assessment year 1973-74 ?”
2. In this proceeding, the assessment year involved is 1973-74 for which the corresponding year of account is the year ended on December 31, 1972.
3. The facts found by the Tribunal as narrated in the statement of case are as under :
“The assessee-company claimed deduction of a total amount of Rs. 17,61,161 representing central excise duty payable by the company on manufacturing of tea in respect of the following calendar years :
Rs.
1968 1,08,500 1969 7,34,911 1970 6,09,150 1971 2,56,600 1972 52,000 ------------ 17,61,161 ------------
4. The aforesaid duty was debited by the assessee-company in the respective calendar years for which the accounts were drawn up and the claim of the assessee for deduction thereof was allowed by the ITO in the respective assessment years. The assessee had not made payments of the said amounts itself in the Government Treasury but had handed over the sums in question to the Garden Bankers (known as Kayas) for payment The job of the Kayas was to collect tax from various tea companies on account of central excise, etc. and to make deposit of the amounts so collected in the Treasury, i.e., the State Bank of India, Tezpur. The said Kayas represented to the assessee-company that the amount in question had been paid by them and alleged receipts issued by the State Bank of India for the said payments were also filed by them with the aforesaid company. Subsequently the Central Excise authorities informed the assessee-company in 1972 that the central excise duty as aforesaid aggregating to Rs. 17,61,161 had not been deposited by them in the Government Treasury and that, therefore, the said amount must be deposited forthwith. As the company resisted the aforesaid claim of the Central Excise authorities, they issued a certificate to the Collector for realisation of the sum of Rs. 17,61,161. The Collector also distrained the plant and machinery, stock of tea of the assessee-company as well as future production of tea. The company thereupon felt compelled to make the payment.
5. Simultaneously, the assessee filed both criminal and civil cases against the Kayas and further lodged a claim with the insurance company. The criminal and civil suits filed by the assessee as also the claim preferred with the insurance company were still pending decision. The assessee claimed before the Income-tax Officer that the amount of Rs. 17,61,161 paid by it to the Central Excise authorities be allowed as a deduction of business loss incurred by the assessee-company during the calendar year 1972 relevant to the assessment year 1973-74. The Income-tax Officer rejected the assessee’s claim. On appeal, the Commissioner of Income-tax
(Appeals) allowed the assessee’s claim and directed the Income-tax Officer to allow deduction of the entire amount of Rs. 17,61,161 in recomputing the income of the assessee-company for the assessment year 1973-74.”
6. On further appeal “the Tribunal held that ‘so far as the assessee-company is concerned, there was not only a liability incurred in regard to the said sums but there was also physical outgoing of cash corresponding to the said liability. The said outflow of cash, however, did not reach the correct destination and it is not clear as to where the entire amount evaporated. A finding is yet to be reached by the competent court as to whether the amount was deflected by the Kayas or whether the bank officials concerned had defalcated the money after deposit thereof in the bank or whether there was collusion between the Kayas and the bank officials. The claim made by the assessee-company during the year under consideration does not pertain to the loss of cash in the manner indicated above. What is being claimed by the assessee-company is the second payment of Rs. 17,61,161, which it was forced to pay to the Central Excise authorities on account of attachment of its machinery, tea stock, etc., during the accounting year under consideration. But for such payment its business would have come to a standstill. The payment in question was, therefore, made in order to remove the obstacle from the smooth running of the business. Such a payment is, in our opinion, directly relatable to the carrying on of the assessee’s business and is, therefore, an allowable expenditure in terms of Section 37 of the Income-tax Act, 1961. If and when there was any recovery from the bank officials from the Kayas or from the Central Excise Authority with regard to the alleged earlier payments, if any, the Income-tax Officer would be entitled to bring the said amount of recovery to tax in terms of Sub-section (1) of Section 41 of the Act because the said amount would be on account of liability which had already been debited in the books of account of the assessee and which was not enforceable by the Customs authorities on account of double payment thereof. The learned Commissioner of Income-tax (Appeals) has already made the above position clear and, in our opinion, that observation of the Commissioner of Income-tax (Appeals) is in accordance with law. The claim of the assessee in the circumstances was rightly allowed by him. The order of the Commissioner of Income-tax (Appeals) being in accordance with law is hereby confirmed”.
7. On behalf of the Revenue, it has been contended that the assessee is not entitled to double deduction on account of the same liability. It has been claimed that the liability to pay excise duty arose in the assessment
years 1969-70 to 1973-74. This liability was shown in the assessee’s books of account and the assessee obtained deduction in respect thereof. The assessee cannot in the assessment year 1977-78 once again claim deduction on account of the same liability of excise duty. It has been contended that the liability to pay accrued only once when the excisable goods were manufactured. There cannot be a second liability in respect of the same. On the well-known principles of the mercantile system of accounting, the assessee is entitled to claim deduction only when the liability arises.
8. In our opinion, on the facts of this case, the contention made on behalf of the Revenue cannot be upheld. The facts of this case are unusual. The amount payable as excise duty was duly sent by the assessee through Kayas to the local branch of the State Bank of India. The challans were received by the assessee-company purportedly issued by the State Bank of India evidencing receipt of the money by the State Bank of India. If the challans were fictitious and the amounts were not actually paid into the till of the bank, then the assessee would once again have to pay the amount. If the assessee has to pay twice for the same liability under coercion of law, then the assessee would be entitled to obtain deduction twice for the same liability on account of excise duty. It is the case of the assessee that the excise duty has been paid, receipted challans of the bank have been obtained for the same and yet the Excise Department has claimed the amount once again and has actually attached the properties of the assessee-company for enforcement of its claim. In such a situation, having made the payment once again, the assessee can lawfully claim the amount as deduction. If the challans were fictitious and the amounts were not actually deposited with the State Bank of India, then in the eye of law there has been no payment of excise duty by the assessee-company. But the money was spent by the assessee-company for the purpose of payment of excise duty. The employees or agents of the assessee-company may have misappropriated the amount, but the Income-tax Officer has not questioned the genuineness of the assessee’s case that the assessee had actually spent the money twice.
9. The contention that there cannot be double deduction on account of the same liability cannot be upheld on the facts of this case. If the assessee has to pay twice on account of the same liability, we fail to see why it cannot claim deduction of the amount of expenditure that has been incurred by the assessee towards that liability. The Tribunal has pointed out that if the assessee recovers the money by virtue of the civil and criminal cases filed by it, the amount will be brought to tax as and
when it will be recovered. There is also no doubt about it that if the amount of excise duty to the tune of Rs. 17,61,161 is ultimately found to have been received twice from the assessee-company by the Excise Department, then any refund made on that account will also have to be treated as income in the year in which the refund is made. Likewise, if the assessee-company received any money from the insurance company on account of the loss suffered by it, the amount of compensation will have to be shown as the income of the assessee in the year in which such compensation is paid.
10. There is another aspect of this case. There is no finding that the assessee has paid the amount twice to the State Bank of India, the duly authorised agent of the Excise Department. The case is under investigation. It is yet to be found out how the receipted challans of the State Bank of India were issued. If the assessee sent money for payment of excise duty and the money, for some reason or other, did not reach its destination because of embezzlement by the servants or agents of the assessee, then the loss of money must be regarded as having arisen in course of carrying on the business of the assessee. In such a situation, it cannot be said that the assessee has claimed deduction twice on account of the same liability. The genuineness of the assessee’s case has not been doubted by the Income-tax Officer.
11. In the case of CIT v. Malayalam Plantations Ltd, [1964] 53 ITR 140, it was observed by the Supreme Court as follows (at page 150) :
“… The expression ‘for the purpose of the business’ is wider in scope than the expression ‘for the purpose of earning profits’. Its range is wide : it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business …”
12. It has been contended, in our view rightly, that the assessee has to pay the amount in question under coercive process of law. The business of the assessee was in jeopardy because of the coercive measure adopted by the Central Excise Department.
13. The question must be answered in the affirmative and in favour of the assessee.
14. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
15. I agree.