Comorin Match Industries (P) Ltd. vs Commissioner Of Income Tax on 7 March, 1997

Madras High Court
Comorin Match Industries (P) Ltd. vs Commissioner Of Income Tax on 7 March, 1997
Equivalent citations: 1998 230 ITR 530 Mad
Author: Thanikkachalam

ORDER

Thanikkachalam, J.

1. In pursuance of the direction given by this Court in TCP No. 46 of 1978, dt. 14th June, 1982, the Tribunal referred the following question for the opinion of this Court, under s. 256(2) of the IT Act, 1961, hereinafter referred to as the ‘Act’ :

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that despite the Central Act 28 of 1969 and Madras Act 3 of 1969 there was a remission or cessation of liability under s. 41(1) of the IT Act, 1961 ?”

2. The assessee is a private limited company carrying on business in manufacturing safety matches. The assessment year involved in this tax case is 1972-73 for which the relevant previous year ended on 31st March, 1972. In respect of sales effected by the assessee during the accounting year, relevant to the asst. yr. 1957-58 to 1965-66 to the accounts, the assessee paid Rs. 1,37,041 by way of central sales-tax. The ITO gave deduction for this amount in the assessments for the relevant assessment years. The assessee had filed writ petition before this Court, challenging the validity of the above levy and also inclusion of excise duty in the turnover for sales-tax purpose. By judgment dt. 31st January, 1968, this Court held that levy is invalid and ordered refund of the sales-tax paid. On 31st December, 1968, an Ordinance was passed, validating the levy of sales-tax.

3. Levy was validated by Ordinance dt. 31st December, 1968. Therefore, this Court directed the refund of the entire amount collected by way of sales-tax. The sum of Rs. 1,37,041 was refund to the assessee on 14th May, 1971. The ITO treated this receipt as a trading receipt coming under s. 41(1) of the IT Act, 1961, and brought it to tax for the asst. yr. 1972-73. Since the High Court had invalidated the sales-tax legislation by its judgment, dt. 31st January, 1968, protective action for the asst. yr. 1968-69 was also taken, taxing the same amount under s. 41(1) of the Act in that year. The AAC, on appeal, deleted the above amount. When the matter regarding the above came up on appeal before the Tribunal, the assessee submitted by a letter dt. 2nd February, 1974, that the sales-tax authorities had called upon the assessee to repay the sum of Rs. 1,37,041 to the Government. The Tribunal wanted the assessee to produce the details of the demand and his reply thereto. In fact, even in 1977 the alleged refund has not been paid back into the Treasury or collected by the sales-tax authorities. The assessee was not able to produce a receipt showing repayment. The Tribunal held that all the conditions of s. 41(1) of the Act were satisfied and the refunded amount was taxable for the asst. yr. 1972-73. The Tribunal also negatived the contention of the Department that the assessee was entitled to the refund on the date the High Court delivered its judgment, invalidating the sales-tax levy, i.e., on 31st January, 1968, and so the amount of Rs. 1,37,041 was assessable for the asst. yr. 1968-69. The Tribunal directed that, hence, the protective assessment for the asst. yr. 1968-69 should be cancelled.

4. Before us, the learned counsel appearing for the assessee submitted that as against the Ordinance, validating the levy, the assessee went on appeal before the Supreme Court in Civil Appeal No. 2206 of 1982 wherein the Supreme Court, by judgment dt. 16th April, 1996, dismissed the civil appeal filed by the assessee. Therefore, still there is liability to pay the sales-tax. Hence, the learned counsel appearing for the assessee submitted that inasmuch as the liability on the part of the assessee to pay sales-tax is existing, it cannot be said that the amount of Rs. 1,37,041 can be treated as trading receipt, and, therefore, taxable under s. 41(1) of the Act. On the other hand, the learned senior standing counsel appearing for the Department submitted that inasmuch as the refunded amount is in the hands of the assessee, which was not refunded till now, the assessee is liable to pay tax thereon.

5. We have heard, both the learned counsel appearing for the assessee as well as the learned senior standing counsel appearing for the Department. The fact remains that originally sales-tax was levied. The assessee collected the sales-tax and paid to the Government. Thereafter the assessee filed proceedings before this Court, wherein the levy was held to be invalid. On account of that, sales-tax paid was refunded to the assessee. Subsequently, by an ordinance, the Government revalidated the levy and thereby fastening the liability on the assessee to pay the sales-tax. As against this, the assessee went in appeal before the Supreme Court by filing Civil Appeal No. 2206 of 1982. In the said appeal, the Supreme Court upheld the Ordinance and dismissed the appeal filed by the assessee. The judgment is dt. 16th April, 1996.

6. A similar question came up for consideration before this Court in TC Nos. 291 to 293 of 1976 in the case of CIT vs. Mohideen Match Works & Ors. According to the facts arising in that case, the assessee filed writ petitions for issue of writ of mandamus to refund the tax collected from the assessee. The refund was ordered. The Department contended that the amounts refunded will be liable to be taxed under s. 41(1) of the Act. In the meanwhile by the Central Act 28 of 1969, the levy was validated, as against which suits were filed by the assessee. Suits were dismissed. Appeals were filed before the High Court. The appeals were also dismissed. Therefore, this Court held that s. 41(1) of the Act will not be applicable to the facts of this case. However, a direction was given to the ITO to tax the same if the assessee succeeded in the Supreme Court in the appeal filed by them.

7. In CIT vs. Thirumalaiswamy Naidu (1984) 147 ITR 657 (Mad) : TC 19R.234, this Court held the refund received by the assessee from the sales-tax department was not a payment receivable by the assessee in its trading transaction, but was received purely in a fiscal transaction. There was no business relationship of any kind between the assessee and the ST Department in the refund granted. Sec. 41(1) of the Act could not, therefore, be invoked to assess the sales-tax refund. Nor could it be brought to tax de hors this section any other valid principle of taxation of income.

8. Similarly, the Madhya Pradesh High Court in the case of CIT vs. Deora Pu Canbeon Mfg. Co. (P) Ltd. (1986) 156 ITR 831 (MP) : TC 19R.232, held that the conclusion arrived at by the Tribunal that the amount belonged to the Madhya Pradesh Electricity Board was based on the material on record and on the interpretation of the agreement between the assessee and the Electricity Board and this was a finding of fact. There was no finding that the Electricity Board had given up this claim to this money. The amount was not, therefore, assessable as a trading receipt in the hands of the assessee.

9. A combined reading of the decisions cited supra would go to show that refund of sales-tax in the hands of the assessee herein is liable to be paid back on account of the subsequent Ordinance passed by the Government, validating the levy of sales-tax, especially when the assessee lost its case before the Supreme Court. In as much as still the liability is existing for payment of sales-tax, s. 41(1) of the Act cannot be made applicable to the facts of this case. Therefore, the Tribunal was not correct in coming to the conclusion that the sales-tax refund in the hands of the assessee is taxable under s. 41(1) of the IT Act, 1961. Accordingly, we answer the question referred to us in the negative and in favour of the assessee. No costs.

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