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C.I.T. versus MM/S. L.M. CO.

High Court of Judicature at Allahabad

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C.I.T. v. Mm/S. L.M. Co. - INCOME TAX REFERENCE No. 133 of 1987 [2004] RD-AH 1582 (2 December 2004)


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R e s e r v e d

I.T.R. Number 133 of 1987

Commissioner of Income Tax (Central) Kanpur


M/s London Machinery Company, Kanpur


Hon'ble R.K.Agarwal,J.

Hon'ble Prakash Krishna, J.

(Delivered by Hon'ble Prakash Krishna,J.)

The Income Tax Appellate Tribunal, Allahabad, has referred the following questions of law under section 256 (1) of the Income Tax Act, 1961 (here in after referred to a the Act) for opinion of this Court, relevant to the assessment year 1976- 77:

"1- Whether in law and on the facts of the case the Tribunal was justified in holding that the remaining amount of refund of excise duty of Rs.30,851/ which was distributed amongst the partners of the firm was not the income of the assessee firm.

2- Whether in law and on the facts of the case the Tribunal was justified in holding that the amount of Rs.30,851/- was not assessable under section 41 (1)  of the Income tax Act, 1961 in the year under consideration."

The brief facts of the case are as follows:

The assessment for the assessment year 1976- 77 was initially completed by the assessing authority but was subsequently set aside by the Commissioner of Income Tax (Appeals) vide his order-dated 14-11-1979. The revised return on 13-02-1979 showing total income of Rs.1,89,410/- as against the assessed income of Rs.3,22,900/- was filed. The Commissioner of Income Tax (Appeals) while setting aside the original assessment order directed the assessing authority to also take into account the revised return. In the revised return the assessee credited unclaimed excise duty in the profit and loss account amounting to Rs.30,851/- . The ITO found that the assessee had received a sum of Rs.90,924/- in the accounting year 1969-70 from M/s Varuna Sales Limited, Ahemdabad towards credit note of the excise duty. The assessee out of the said amount did not refund Rs.30,821.40 to the customers and the same was credited in the assessment year 1976- 77. This amount was added to the total income of the assessee by the ITO but was set aside by the Commissioner of Income Tax (Appeals) in the appeal preferred by the assessee. The Tribunal has confirmed the order of Commissioner of Income Tax (Appeals).

Heard learned Standing Counsel for the department. None appeared on behalf of the assessee as Sri R.S.Agarwal, Advocate, has stated that he has no instruction in the matter.

Reiterating the stand which was taken by the department before the Tribunal, the learned Standing Counsel submitted that the Tribunal was not correct in deleting the addition of Rs.30,851/- ,the excise duty  to be refunded in the year 1970- 71. It was contended that the liability in respect of this amount ceased to exist during the year under consideration of the sum of Rs.30,851/- was accordingly charge able to tax under section 41 (1) of the Act.

We have given careful consideration to the submission of learned Standing Counsel for the Revenue. However we are unable to agree with him. A sum of Rs.30,8151/- was received by the assessee respondent in the accounting year 1969-70. The said amount was not refunded to the customer and has been credited in the profit and loss account for the assessment year 1976- 77 and has been distributed amongst the partners. In view of these facts, provision of Section 41 (1) of the Income Act will not be applicable. The said section applies on account of cession of liability or on account of the fact that the assessee had not to pay the amount to any body. In the present case there was no cession of liability by the assessee. There is still possibility that such sum can be claimed by the customers.. Rs.30,821/- was in the nature of unclaimed balance with the assessee. It has been held that unclaimed balance, there was no profit making quality about them when money were received at the initial stage and writing down of the liability in balance sheet and appropriation of these sum by the assessee in a later year did not alter the quality of receipt ( See CIT Vs. Sanderson and Morgens ( 1970) 75 ITR 433). Learned Standing Counsel has placed reliance upon a judgment of this Court in Indian Motor Transport Company Vs. Commissioner of Income Tax 114 ITR 677.  In this case it was held that if unclaimed amount is transferred to profit and loss account, provision of Section 41 (1) of the Act are attracted. The said ruling is distinguishable on facts. The assessee on 31-03-1970 transferred certain amount to its profit and loss account in the year in which the assessee received the amount. In this case this Court has distinguished the case of Bijli Cotton Mills (P) Ltd. Vs. Commissioner of Income Tax, reported in (1971) 81 ITR 400 on the ground that the amount in question was held not to belonging to the assessee at all. It was in the hands of the assessee as trust money, which never altered its character. The facts of the case in hand are similar to the facts of the case of  Bijli Cotton Mill (P) Ltd. The money in question was received by the assessee in the accounting year 1969- 70 from M/s Varuna Sales Limited, Ahemdabad towards credit note of excise duty refundable to the customer.

In view of the foregoing discussion we answer the above questions referred to us in affirmative  i.e. against the department and in favour of the assessee. There shall be no order as to costs.

Dt:  2.12.2004



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