1. The assessee is a private limited company engaged in the business of manufacture and sale of sugar. For the assessment year 1964-65 (year ending June 30, 1963), the assessee returned a loss of Rs. 2,75,355 in the sugar mill business. The ITO, however, did not accept the return, but after making an addition of Rs. 4,17,847 computed the income at Rs. 1,13,976. The addition of Rs. 4,17,847 by the ITO, to the income returned by the assessee, was under two heads: (1) Rs. 3,71,136 being the refund of excise duty and (2) 46,711, being the recovery of export losses, and this was challenged by the assessee before the AAC. The AAC deleted the addition of the sum of Rs. 4,17,847. The Revenue took the matter in appeal, and the Tribunal upheld the order of the AAC though slightly for a different reason. Aggrieved against the order of the Tribunal, the Revenue has sought and obtained a reference to this court on the following question of law:
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 3,71,136 and Rs. 46,711 were properly held not to be chargeable to income-tax for the assessment year 1964-65 ?'
2. The addition of Rs. 3,71,136, to the income returned by the assessee, was made by the ITO in the following circumstances. As regards the sale of sugar, the Central Govt. under a notification dated May 4, 1961, issued under the Central Excises and Salt Act, 1944, reduced the excise duty payable in respect of the sugar manufactured if the production had exceeded a particular percentage when compared with the base year. On the basis of the said notification, the assessee claimed an aggregate refund of Rs. 9,31,684 for the period November 1, 1960, to October 5, 1961, by a letter dated December 2, 1964, addressed to the Collector of Customs and Central Excise, Pondicherry, and received by him of December 7, 1961. The claim for refund was accepted by the Collector on June 7, 1962, only to the extent of Rs. 5,60,548.63 relating to the period subsequent to September 8, 1961, and a refund order was issued for the said sum. He, however, held that the claim for refund as regard the excise duty paid prior to September 8, 1961, to the tune of Rs. 3,71,135.78 having become time-barred as per r. 11 of the Central Excise Rules, 1944, the refund of the said amount cannot be allowed, unless the CBR relaxes the provision of r. 11 of the Central Excise Rules, 1944. Thereafter, the Collector of Central Excise addressed the CBR for relaxation of r. 11 and after obtaining the Central Board's relaxation, a refund of Rs. 3,71,135.78 was ordered on September, 29, 1962. The ITO has brought in the said amount as a revenue receipt i the year of account on the ground that the said sum constituted revenue receipts in that year. The assessee's contention, however, before the ITO was that the sum of Rs. 3,71,135.78, though refunded in the year of account, should be deemed to have accrued in the previous year when the application for refund was made on December 2, 1961. The ITO rejected that claim of the assessee and held that the right to get refund accrued only after the assessee's claim for refund has been considered and allowed and not when the application for refund was made.
3. As regard the sum of Rs. 46,711, representing the differential payment of Rs. 4.49 per quintal for the export of sugar through the export agency division of the Indian Sugar Mills Association made during the year in respect of the exports made in the previous year, the assessee contended that the said sum of Rs. 46,711 should be taken to go to reduce the loss which the assessee had claimed in the previous year and, therefore, it should be taken as a revenue receipt during the accounting year. The ITO, however, did not accept this contention on the ground that at the time of the export the assessee had been paid a cum of Rs. 60 per quintal on account and that the sum of Rs. 4.49 per quintal was paid during the year as the balance of the sale consideration for the stocks of sugar exported in the previous year and that, therefore, the sum of Rs. 46,711 cannot be claimed as going for the reduction of the export loss allowed in the previous year.
4. So far a the sum of Rs. 3,71,135.78 is concerned, the AAC, on appeal, had taken the view that the right to claim refund accrued to the assessee under the notification, that even otherwise, since the Collector having admitted the assessee's entitlement to the refund, subject to the time-limit prescribed under r. 11 of the Central Excise Rules, 1944, being relaxed by the Central Board, in his order dated June 7, 1962, that date should be taken to be the date of accrual of the right to the refund and that, therefore, the right to get refund should be taken to have accrued in the previous accounting year, and not during the year in question. As regard the sum of Rs. 46,711, the AAC felt that as the assessee was bound to export a portion of is production under the statutory provisions and the sum of Rs. 60 per quintal was only an 'on account payment', it cannot be taken as a revenue receipt in the year of account. The Tribunal has upheld the view of the AAC.
5. One of the questions that arises for consideration before us is whether the sum of Rs. 3,71,135.78, being the amount actually refunded to the assessee in the year of account, can be taken as an amount accrued in the previous year when the application for the refund of excise duty was made by the assessee in pursuance of the relevant notification issued by the Central Govt. The date of the notification was May 4, 1961, and that notification granted exemption from excise duty subject to certain conditions. Claiming that it was entitled to the benefit of the refund under the said notification, the assessee made an application, for a refund, to the Collection of Customs and Central Excise, Pondicherry, on December 2, 1961. The said application was considered by the Collector and he passed an order of refund for Rs. 5,60,583.63 and as regards the balance, he held that it related to a period in respect of which the claim for refund was barred under r. 11 of the Central Excise Rules, 1944, that unless a relaxation of r. 11 of the Central Excise Rules, 1944, was ordered by the CBR, refund was not possible and that he (the Collector) was addressing the CBR for the necessary relaxation. Thus, the assessee got a refund of only a sum of Rs. 5,60,583.63 in the previous year of assessment. As regards the balance of Rs. 3,17,135.78, the assessee got an order of refund only on September 29, 1962, after the CBR gave the necessary relaxation. According to the assessee, though the refund was actually order during the accounting year, the right to get the refund accrued even on December 2, 1961, when the claim for refund was made. According to the Revenue there is no question of accrual of the right to get a refund unless the CBR either excused the delay or relaxed the rule providing for limitation. Both the AAC as well as the Tribunal had upheld the assessee's stand. The contention of the Revenue before us is that whenever a claim for refund is time-bared, there is no question of the accrual of any right to get a refund unless the provision providing for limitation is relaxed, and, in this case, r. 11 of the Central Excise Rules was relaxed by the Central Govt. (CBR), and the refund was order thereafter only in the year of the account, that so long as the delay in making the claim for refund is not condoned, the right to get refund does not accrue to the assessee and that, therefore, the date of making the application cannot be taken to be the date of accrual.
6. The learned counsel for the assessee refers to the decision of this court in CIT v. Ashoka Lungi Company : 120ITR413(Mad) . In that case, in pursuance of a scheme framed by the Govt. of India for the development of exports, exporters of handloom fabrics were given licences to import cotton, which licences should be surrendered in lieu of cash incentives. The assessee who maintained his accounts on the mercantile basis and who had exported handloom fabrics, applied for and obtained such cash incentives. The assessee made applications for such cash incentives and received the same in respect of earlier applications which were filed during the accounting year ending April 13, 1967. The assessee claimed that the right to receive cash incentives arose on the date of the application itself and, therefore, the amounts received as cash incentives should be taken to have accrued on the date of the application itself, and therefore, the amount received as cash incentives should be taken to have accrued on the date of the concerned applications. The Tribunal having accepted the claim put forward by the assessee, the matter came before this court on a reference. A Division Bench of this court took the view that as the assessee maintains its accounts on mercantile basis and it having made applications for cash incentives in the previous year, the fact that there was some delay on the part of the concerned authorities in making the actual disbursement, will not stand in the way of the assessee being assessed with regard to the said amount, which became due to the assessee at the time of the application itself, that the right to the amount was established on the date of the application and that, therefore, the Tribunal was right in holding that the date of the application should be the date on which the amount due to the assessee should be taken to have accrued.
7. We are not in a position to see how the said decision will apply to the facts of this case. It is not doubt true that the said decision will apply if the assessee in this case had applied for a refund of the excise duty paid within the time-limit prescribed under the Central Excises and Salt Act, 1944, or the the Rules framed thereunder. Only in such cases the right to get refund should be taken to have accrued on the date of the claim, for, once the assessee makes out he case for refund, it has to be automatically allowed by the conceded authorities. But that i not the case here where the application for refund has been filed after the rime prescribed by the statute. In such cases, unless the delay in filing the application for refund is condoned by the concerned authority, the assessee cannot be said to have acquired the right to get refund. As a matter of fact, the provision relating to refund, which was in force at the relevant time is somewhat mandatory. The relevant provision is r. 11 of the Central Excise Rules, 1944, which runs as follows:
'11. No refund of duties or charges erroneously paid, unless claimed within three months. -No duties or charges which have been paid or have been adjusted in an account-current maintained with the Collector under rule 9, and of which repayment wholly or impart is claimed in consequence of the same having been paid through inadvertence, error or misconstruction, shall be refunded unless the claimant makes an application for such refund under his signature and lodges it with the proper officer within three months from the date of such payment or adjustment, as the case may be.'
8. The rule is in a mandatory form and it says that no refund of duties or charges erroneously paid, unless claimed within three months, shall be made. Admittedly, the assessee's application so far as it relates to the sum of Rs. 3,71,135.78 was filed after the three month's period limit provided under the said r. 11. Therefore, as per r. 11, since the application for refund has been filed beyond the three month's period referred to under r. 11, no refund shall be ordered. In this case the CBR has chosen to relax the rigour of r. 11 and it is only thereafter, the application for refund, so far as it related to the aid sum, was considered by the authority and the refund was ordered. Admittedly, on December 2,1961, when the claim for refund was made, the bar to have a refund in respect of the time-barred application was very much in force and in the face of the said provision, it is not open to the assessee to say that the right to get the refund had accrued to it on the date of the application. If really the Collector of Customs and Central Excise, Pondicherry, had granted relief by way of refund in respect of the sum of Rs. 3,71,135.78 without any relaxation of r. 11, it would have been contrary to the rules and the order of refund would have been void and illegal. Therefore, the right to the refund of Rs. 3,71,135.78 cannot, in any event, be said to have accrued to the assessee on December 2, 1961, when the claim was made or on June 7, 1962, when the application for refund was considered by the Collector, as has been held by the AAC as well as the Tribunal. Taking into account the facts and circumstances of the case we are clear that the right to refund accrued to the assessee only when the claim of the assessee was allowed after the condonation of the delay or after the relaxation of r. 11 by the CBR. In this view of the matter, we are not in a position to agree with that portion of the order of the Tribunal which held that for the sum of Rs. 3,71,135.78, the right accrued in the previous year.
9. Coming to the sum of Rs. 46,711, it is seen that the said sum represented the sum of Rs. 4.49 per quintal paid during the assessment year for the exports made in the previous year. As already stated when the stocks of sugar were exported, Rs. 60 per quintal was paid on account and the assessee-company also received it a an 'on account payment'. Since all the sugar mills made a representation that the sum of Rs. 60 per quintal paid towards the stocks exported was quite inadequate, the further sum of Rs. 4.49 per quintal was paid during the year of account. This payment can be taken to be a part of the sale price a finally agreed for the stocks exported in the previous year. In this case, the assessee itself has treated the earlier payment of Rs. 60 per quintal as an 'on account payment' which means that the price payable for the stocks exported in the earlier year has not been finally settled and that the price came to be settled only in the year of of the account when Rs. 4.49 per quintal was made as the balance of the sale price payable for the goods exported. It is not doubt true that the assessee has claimed in the previous year business loss taking Rs. 60 per quintal as the final price and that has been given by the I.T. authorities. Based on the said allowance, the assessee claims that the payment of Rs. 4.49 per quintal during the year in question will go to reduce the losses allowed in the previous year. We do not see how the assessee could claim a business loss when the sale price for the goods exported has not been finally fixed. Whatever that be, we are of the view that the sum of Rs. 46,711 which represents the different price of Rs. 4.49 per quintal does not cease to be the balance of the sale price for the goods exported. It is nothing but a revenue receipt in the year of account. Therefore, we are not inclined to agree with the view taken by the Tribunal on this part of the case as well.
10. Thus, we have to answer the questions referred to us in the negative and in favour of the Revenue. The reference is answered accordingly. The Revenue will have its costs. The costs are fixed at Rs. 500.