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income-tax Officer Vs. Rameshwar Prasad Kishan Gopal - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1983)6ITD311(All.)
Appellantincome-tax Officer
RespondentRameshwar Prasad Kishan Gopal
Excerpt:
.....the assessee was following the mercantile system of accounting and had made provision for excise, duty liability for the assessment year 1967-68. that liability had been disputed by it before the delhi high court and the high court had found that the assessee was not liable to excise duty.the excise department went up in appeal before the supreme court and the appeal in the supreme court remained pending at the time of making the assessment for the assessment year in question. it was held by the hon'ble high court that notwithstanding the decision of the delhi high court, the assessee was entitled to claim deduction in respect of the provision for payment of excise duty made by it in the relevant assessment year, inasmuch as the excise department had gone up in appeal to the supreme.....
Judgment:
1. These two appeals, filed by the revenue, arise out of the orders dated 5-2-1982 and 4-2-1983 of the learned Commissioner (Appeals).

2. In both the appeals, the question relates to the deletion of the additions made for excise duty. The facts are as follows : The assessee is a wholesale dealer in poppy heads. Its system of accounting is mercantile. No rate of excise duty was specified on poppy heads under the Opium Act, 1878, but only under Rule 42A(J) of the U.P. Poppy Head Rules, 1961, under a notification dated 1-7-1969 vide the U.P. Poppy Head (Amendment) Rules, 1969 (at the rate of 50 paise per kg.).

Thereupon the assessee, along with seven other dealers, challenged such levy by means of writ petition No. 955 of 1969 before the Lucknow Bench of the Allahabad High Court in the case of Rameshwar Prasad Kishan Gopal v. V. K. Arora, ITO [1983] 141 ITR 763. Under the orders of the Hon'ble High Court, the assessee had deposited the arrears of excise duty and also had to continue to deposit the same every month after having it duly verified by the District Excise Officer. The Hon'ble High Court vide its order, dated 12-4-1973, ultimately held the said rule 42A to be ultra vires of the Act and ordered that the excise duty deposited by the assessee be refunded (that decision is reported in 1973 ALJ 739). For the assessment year 1978-79, a sum of Rs. 2,58,983.68 was refunded to the assessee which it deposited in its account books on the liability side as the State of UP and the Central Government had moved the High Court on 10-7-1973 for the issue of a certificate of fitness for appeal to the Supreme Court. The Hon'ble High Court vide its order dated 10-2-1975 refused to grant the certificate. Thereupon the State of U.P. and the Central Government moved an application before the Supreme Court for special leave which was granted. As ordered by the Supreme Court, the assessee furnished security for the entire amount of excise duty which was refunded to it.

The assessee went on collecting excise duty from the customers at the rate of 50 paise per kg. and for the assessment year 1978-79, it collected Rs. 98,699 as excise duty which, though not paid to the Excise Department was debited in its trading account. No separate narration of excise duty was given in the cash memos.

3. The case of the assessee before the ITO was that since the Excise Department was still demanding excise duty, it had made a provision in its account books for the payment of duty and debited the same to the profit and loss account. The assessee also mentioned that unless the matter was decided by the Supreme Court, it could not be treated as its income in view of the judgment of the Hon'ble Allahabad High Court in the case of J.K. Synthetics Ltd. v. O.S. Bajpai, ITO 864. It also submitted that as the matter was sub judice before the Supreme Court, its liability had not ceased. However, the ITO did not accept these submissions. He was of the view that since after the High Court's judgment, the assessee was not entitled to charge excise duty from customers, but it was charging the same in the sale amounts, the amount in question was treatable as its income. Assessment was completed accordingly.

4. Similarly for the assessment year 1979-80, the ITO added the amount of Rs. 49,014 as the assessee's income.

5. The assessee, being aggrieved, came up in appeal before the learned Commissioner (Appeals). The assessee contended that what it realised from its customers was sale price and not excise duty. It also pointed out that on the first day of each month it declared in Form No. 9 the quantity of poppy head sold in the previous month and indicated the excise duty liable to be paid for the goods sold. After considering the decision of the Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and of the Hon'ble Allahabad High Court in the case of J.K. Synthetics Ltd.'s case (supra), the Commissioner (Appeals) observed that the assessee's claim could not be disallowed on the basis of the decision of the Hon'ble High Court since final decision from the Supreme Court had yet to arrive. The assessee also filed before the Commissioner (Appeals) a copy of the letter dated 12-10-1981 written by the District Excise Officer, to the Excise Commissioner showing that the Excise Department was examining the question of realisation of excise duty from the assessee as it was not disputing excise duty.

Considering all these facts, the learned Commissioner (Appeals) upheld the assessee's claim and deleted the addition of Rs. 98,699 for the assessment year 1978-79.

6. For the assessment year 1979-80, the assesee pointed out before the Commissioner (Appeals) that the Opium Act, 1878 had been amended by the Opium (U.P. Amendment) Act, 1982 retrospectively with effect from 1-7-1969 vide U.P. Gazette Extraordinary dated 4-11-1982. For this additional reason, the Commissioner (Appeals) upheld the assessee's claim and deleted the addition of Rs. 49,014.

7. That is how the revenue is in appeals before us. Although these appeals were heard on two different dates, but the submissions made on behalf of both the parties being similar, they are, for the sake of convenience, being disposed of by one co mmon order.

8. Shri R.K. Upadhyay, the learned departmental representative, placed strong reliance on the orders of the 1TO. Firstly, Shri Upadhyay relied upon the decision of the Hon'ble Allahabad High Court in Girwar Lal Shri Chand v. CIT [1967J 63 1TR 248 for the proposition that even under the mercantile system of accounting, no deduction could be made unless an ascertained and enforceable liability exists, not even if the liability is likely to be enforced in the future. Next, he referred to the decision of the Hon'ble Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542, where sales tax collected from buyers and not paid to State or owners of goods nor refunded to purchasers was held to constitute the assessee's trading receipt. He particularly relied upon the observations made at page 548 of the Law Report. Next he referred to the decision of the Hon'ble Allahabad High Court in Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 for the proposition that unless the liability has become an ascertained sum of money, a vague liability to make payment could not be entered in the accounts. He also referred to another decision of the Hon'ble Allahabad High Court in Deep Chand Shyam Sunder v. CIT [1980] 125 ITR 724 for the proposition that the liability must be a legal liability and not a mere hypothetical one. He also referred to another decision of the Hon'ble Allahabad High Court in Haji Lal Mohd. Biri Works v. CIT [ 1982] 134 ITR 718, where it was held that the liability to pay sales tax arises in the year in which sale is effected. Lastly, he referred to a decision of the Hon'ble Punjab and Haryana High Court in Khattar Kiln Co. v. CIT [1983] 140 ITR 425, for the proposition that it is the true nature and quality of the receipt and not the head under which it is entered in the account books which would prove decisive and if a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. Shri Upadhyay submitted that neither there was any stay of the order of the Hon'ble High Court nor its order had been reversed by the Supreme Court and, therefore, according to him, the position was that there was no liability on the part of the assessee to pay any excise duty on poppy heads, since Rule 42A had been struck down by the High Court. He pointed out that there were no fresh demands of excise duty by the excise authorities after the retrospective amendment of the Opium Act, 1878, and that, therefore, unless there were fresh demands of excise duty, the assessee could not say that it had any liability regarding excise duty.

Regarding the notice dated 11-1-1983 from the District Excise Officer (copy of which was placed on behalf of the assessee on the paper book), Shri Upadhyay pointed out that it indicated that the demand was raised only on 11-1-1983 and, therefore, such a demand would not be relevant for the assessment years in question. He, therefore, submitted that the orders of the ITO were entitled to be restored.

9. On the other hand, Shri R.K. Gulati, the learned counsel for the assessee, strongly relied upon the orders of the Commissioner (Appeals). Firstly, he submitted that as the assessee was adopting the mercantile system of accounting, the excise duty was referable only to the relevant years in which the statutory obligation in that regard arose. For that proposition he relied upon the decisions of the Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) and Chowringhee Sales Bureau's case (supra) which had been applied by the Madras High Court in M.S. Balakrishna Chelty v. CIT [1975] 101 ITR 557, by the Hon'ble Calcutta High Court in CIT v. Kumardhubi Engg. Works Ltd. [1978] 115 ITR 58, by the Hon'ble Allahabad High Court in CIT v.Brijmohan Das Laxman Das [1979] 117 ITR 121 and by the Hon'ble Kerala High Court in CIT v. K.A. Karim & Sons [1982] 133 ITR 515 (FB). Next, he referred to the decision of the Hon'ble Allahabad High Court in J.K.Synthetics Ltd.'s case (supra), wherein the assessee had made a provision for payment of excise duty and the High Court held that excise duty was not payable. The Excise Department claimed excise duty and the assessee debited the duty in accounts and the judgment had been appealed against. It was held that Section 41(1) of the Income-tax Act, 1961 ('the Act'), could not be resorted to as it could not be said that the liability of the assessee to excise duty had ceased. For the same proposition, he also referred to the decisions of the Hon'ble Allahabad High Court in Rameshwar Prasad Kishan Gopal's case (supra) and CIT v.J.K. Synthetics Ltd. [1983] 143 ITR 771. Next, he referred to the Opium (U.P. Amendment) Act, 1982, which had retrospectively amended the Opium Act, 1878, with effect from 1-7-1969 and the levy of excise duty on poppy heads at the rates specified in the erstwhile Rule 42A had been validated. He also referred to the validation clause and to the decision of the Supreme Court in Jonnala Narasimharao & Co. v. State of AP [1971] 28 STC 262 at page 279 and submitted that the legal fiction introduced had to be taken to its logical conclusion so as to be given full effect, provided in the said amending Act. He also pointed out that the effect of the retrospectivity was that the assessee could claim deduction of excise duty for the assessment years in question.

For this proposition, he referred to the following decisionsM.K.Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC), CST\. Bijli Cotton Mills AIR 1964 (SC) 1594, CIT v. Smt. Eva Raha [1980] 121 ITR 293 (Gau.) and State of U.P. v. Raja Syed Mohammad Saadat AH Khan He also submitted that the notice dated 11-1-1983 referred to in the arguments of the learned departmental representative did not constitute a fresh demand but only activated the demands already made. In this connection, he also relied upon the letter dated 12-10-1981 written by the District Excise Officer to the Excise Commissioner.

10. We have considered the rival submissions as also the decisions referred to above. In the case of J.K. Synthetics Ltd. {supra), the facts were somewhat similar. The assessee was following the mercantile system of accounting. It had made a provision and claimed deduction in respect of excise duty. The claim was disallowed by the ITO and allowed by the AAC. The High Court had held that excise duty was not payable but still the Excise Department was claiming excise duty and the assessee was debiting the duty in accounts. The judgment of the Hon'ble High Court had been appealed against by way of letters patent appeal.

On those facts, after considering the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) and its own decision in CIT v. Poonam Chand Trilok Chand [1976] 105 ITR 618, the Hon'ble Allahabad High Court held that once an appeal has been filed, the appeal destroys the finality of the decision and that since the Excise Department was raising demands against the assessee for excise duty in spite of the decision of the High Court, Section 41(1) was not attracted as the liability of the assessee to excise duty could not be said to have ceased. In the present case also, the Excise Department does not appear to have given up its claim to levy and collect duty as is clear from the letter dated 12-10-1981 referred to above. Also, as pointed out on behalf of the assessee before the Commissioner (Appeals), on the first day of each month, it declared in Form No. 9 the quantity of poppy heads sold in the previous month and indicated the excise duty liable to be paid for the goods sold. Even though the decision of the Hon'ble Allahabad High Court holding Rule 42A to be ultra vires was not stayed by the Supreme Court, but the assessee had furnished bank guarantee by way of security for the entire amount of excise duty which was refunded to it. In these circumstances, the liability of the assessee could not be said to have ceased The fact that the liability had not ceased in the case of the assessee was accepted and recognised by the Hon'ble Allahabad High Court in the case of the assessee itself in Rameshwar Prasad Kishan Gopal's case (supra).

In the case of J.K. Synthetics Ltd. (supra) also, the assessee was following the mercantile system of accounting and had made provision for excise, duty liability for the assessment year 1967-68. That liability had been disputed by it before the Delhi High Court and the High Court had found that the assessee was not liable to excise duty.

The Excise Department went up in appeal before the Supreme Court and the appeal in the Supreme Court remained pending at the time of making the assessment for the assessment year in question. It was held by the Hon'ble High Court that notwithstanding the decision of the Delhi High Court, the assessee was entitled to claim deduction in respect of the provision for payment of excise duty made by it in the relevant assessment year, inasmuch as the Excise Department had gone up in appeal to the Supreme Court and was questioning the correctness of that decision and was insisting that the assessee was liable to pay the excise duty. The facts of this case apply on all fours to the facts of the present case. Apart from this, the case of the assessee is additionally clinched by the Opium (U.P. Amendment) Act, 1982, which retrospectively amended the Opium Act, 1878, with effect from 1-7-1969 and under which, inter alia, Section 5 A was inserted to the following effect: (1) There shall be levied and paid a duty of excise on opium produced in Uttar Pradesh at such rates not exceeding two rupees per kilogram as the State Government may notify from time to time, and different rates may be notified in respect of different forms of opium.

(2) Until a notification is issued under Sub-section (1), the duty of excise on poppy heads, produced in Uttar Pradesh shall be levied and paid at the following rates, namely :(a) On poppy heads exported outside Twenty-five paise Uttar Pradesh per kilogram.(b) On poppy heads other than those It is also relevant to notice that Section 3 of that Amending Act provided as follows : 3. (1) Notwithstanding any judgment, decree or order of any Court in the contrary, the Uttar Pradesh Poppy Head (Amendment) Rules, 1969, shall be deemed to have been made under the principal Act as amended by this Act and shall be deemed to be as valid had lawful as if the provisions of this Act were in force at all material times.

(2) Without prejudice to the generality of the provisions contained in Sub-section (1), all duties levied or collected under the rules referred to in that Sub-section shall be deemed to have been validly levied and collected and accordingly (a) no suit or other proceedings shall be maintained or continued in any Court for the refund of such duty ; and (b) no Court or authority shall enforce a decree or order directing refund of any such duty.

It is, therefore, clear that notwithstanding any judgment, decree or order of any Court to the contrary, the amendment referred to above was applicable retrospectively with effect from 1-7-1969 and that all duties levied or collected under the rules referred to in Section 3(1) were to be deemed to have been validly levied and collected. In the case of M.K. Venkatachalam {supra), the Supreme Court held that on account of a retrospective amendment of the Act, action for rectification was permissible. In the case of Raja Syed Mohammad Saadat Ali Khan {supra), the Supreme Court held that the Appellate Court was duty bound to deal with the appeal in the light of the amended law. To the same effect was the subsequent decision of the Supreme Court in the case of Bijli Cotton Mills {supra) The decision of the Gauhati High Court in the case of Smt. Eva Raha {supra) also applies the same principle. In view of the clear provisions of the Opium (U.P.Amendment) Act, 1982, and the aforesaid decisions of the Supreme Court, we have no hesitation in holding that the assessee was entitled to claim deduction for the provision for excise duty made for the assessment years in question and that the ITO was not justified in holding otherwise. So far as the question of demand is concerned, there is no evidence on the record that the demands made and raised by the excise authorities in respect of the assessment years in question were withdrawn. In fact, the letter dated 12-10-1981 by the District Excise Officer to the Excise Commissioner shows that the excise authorities were very much keeping their demands alive. The interim order of the Supreme Court under which the assessee furnished bank guarantee by way of security for the entire amount of excise duty also points to the same. The question of bank guarantee or security would not have arisen, had the excise authorities treated the demands as not pressed. So far as the notice dated 11-1-1983 is concerned, it was to the effect that by virtue of the Opium (U.P. Amendment) Act, 1982, the levy of excise duty declared illegal by the Hon'ble High Court had been validated and that, accordingly, the Excise Commissioner had issued orders for the recovery of the duty payable with effect from 1-7-1969. The assessee was asked to deposit the same within a week. We can only say that it could not be treated as a fresh demand, but only by way of revival of the existing demands which were never cancelled or withdrawn by the excise authorities. Therefore, in whatever way the matter is looked at, we are of the view that the learned Commissioner (Appeals) was quite justified in taking the view that the additions made by the ITO for the assessment years in question were liable to be deleted. We uphold the same.

11. In the result, the appeals filed by the department fail and are dismissed.


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