P. Venkatarama Reddi, J. - (1.)In this appeal by Special Leave, the question of applicability of S. 41(1) of the Income-tax Act to the case on hand arises for consideration.
(2.)For the assessment year 1989-1990, a sum of Rs. 9,64,206/- which is the amount of excise duty refunded by the department was brought to tax by invoking S. 41(1) of the Income-tax Act (for short 'Act'). It appears that the excise duty was paid in the year 1986. On appeal, the first Appellate Authority as well as CEGAT held that the goods were not liable to duty. On 20-9-1988, the excise duty was refunded. On appeal filed to the High Court, it was dismissed. Thereafter, the Excise Department filed SLP in this Court. The fate of the SLP is not known. The appellant contended before the first Appellate Authority that there was no remission or cessation of trading liability within the meaning of S. 41(1) so long as the issue was pending determination by the Supreme Court. That contention was accepted and the appeal was allowed. The appeal filed by the Income-tax Department against the said order was also dismissed. On a reference application filed by the Commissioner of Income-tax, the Tribunal referred the following question of law for the opinion of the High Court of Karnataka :
"Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that excise duty refund is not assessable under S. 41(1) of the I.-T. Act."
The High Court held that the Tribunal was not right in holding that the refunded amount was not assessable under S. 41(1) of the Act. However, the High Court observed that the Tribunal may consider the question whether the excise duty was actually refunded to the assessee or not and pass appropriate orders in the light of its finding. This observation was made after referring to the argument of the assessee's counsel that the amount has not been received by the assessee. In coming to the conclusion that the excise duty refunded was liable to be taxed under S. 41(1) of the Act, the High Court relied on the decision of this Court in C.I.T. vs. Thirumalaiswamy Naidu and Sons (230 ITR 534). This view of the High Court has been questioned in this appeal.
(3.)The learned counsel for the appellant-assessee submits that the ratio of decision of this Court in Thirumalaiswamy Naidu's case, on which the opinion of the High Court rests, has no application to the present case. As the question of liability to pay excise duty on the goods has not been settled finally during the assessment year in which the refund was obtained, S. 41(1) is not attracted, according to the learned counsel. It is contended, as was contended before the Appellate Authorities and the High Court, that there was no cessation of liability as per S. 41(1) as the issue was pending final adjudication and, therefore, the refunded amount does not form part of the deemed income of the year 1989-1990.