COMMISSIONER OF INCOME TAX versus M/S EXCEL INDUSTRIES LTD.

Citation: [2013] 10 S.C.R. 490 · Decided: 08-10-2013 · Supreme Court of India · Bench: RAJENDRA MAL LODHA · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2013] 10 S.C.R. 490 
COMMISSIONER OF INCOME TAX 
v. 
MIS EXCEL INDUSTRIES LTD. 
(Civil Appeal No. 125 of 2013 etc.) 
OCTOBER 8, 2013 
[R.M. LODHA, MADAN B. LOKUR AND 
KURIAN JOSEPH, JJ.] 
Income Tax Act, 1961 - s.28(iv) - 'Advance licence 
C benefit' and 'duty entitlement pass book benefit' under import 
export policy - Taxability of - relevant assessment year -
Whether the year of receipt of benefit or the year in which such 
benefits are actually utilized - Held: Income becomes taxable 
when it is accrued - Income tax cannot be levied on 
D hypothetical income - Income can be said to have accrued 
when it becomes due and is accompanied by a corresponding 
liability of the other party to pay the amount - The benefits in 
the present case could be hypothetical income until the goods 
are actually imported and made available for clearance -
E Hence, assessment of the assessee u/s.28(iv) in the facts of 
the present case, not correct. 
The question for consideration in the present 
appeals was whether 'advance license benefit and 'duty 
entitlement pass book benefit' are taxable in the year in 
F which they are actually utilised by the assessee and not 
in the year of receipt. 
The plea of the Revenue was that in view of the 
provisions of s.28(iv) of the Income Tax Act, the value of 
G the benefit obtained by the assessee is its income and 
is liable to tax under the head ' Profits and gains of 
business or profession'. 
·oismissing the appeals, the Court 
H 
490 
COMMISSIONER OF INCOME TAX v. MIS EXCEL 
491 
INDUSTRIES LTD. 
HELD: 1.1. Income tax cannot be levied on 
A 
hypothetical income. Income accrues when it becomes 
due, but it must also be accompanied by a corresponding 
liability of the other party to pay the amount. Only then 
can it be said that for the purposes of taxability that the 
income is not hypothetical and it has really accrued to the 
B 
assessee. [Paras 17 and 20] [498-B; 499-A-B] 
1.2. Applying the three tests laid down by various 
decisions of this Court, namely, whether the income 
accrued to the assessee is real or hypothetical; whether 
there is a corresponding liability of the other party to pass C 
on the benefits of duty free import to the assessee even 
without any imports having been made; and the 
probability or improbability of realisation of the benefits 
by the assessee considered from a realistic and practical 
point of view (the assessee may not have made imports), 
D 
it is quite clear that in fact no real income, but only 
hypothetical income had accrued to the assessee and 
Section 28(iv) of the Act would be inapplicable to the 
facts and circumstances of the case. Essentially, the 
Assessing Officer is required to be pragmatic and not 
E 
pedantic. [Para 27] [501-B-D] 
1.3. In the present even if it !s assumed that the 
assessee was entitled to the benefits under the advance 
licences as well as under the duty entitlement pass book, 
F 
there was no correspo_nding liability on the customs 
authorities to pass on the benefit of duty free imports to 
the assessee until the goods are actually imported and 
made available for cl~arance. The benefits represent, at 
best, a hypothetical income which may or may not 
materialise and its money value is therefore not the G 
income of the assessee. [Para 21] [499-C-D] 
1.4. In the subsequent accounting year, the assessee 
did make imports and did derive benefits under the 
advance licence and the duty entitlement pass book and 
H 
492 
SUPREME COURT REPORTS 
[2013] 10 S.C.R. 
A paid tax thereon. Therefore, it is not as if the Revenue has 
been deprived of any tax. The rate of tax remained the 
same in the present assessment year as well as in the 
subsequent assessment year. Therefore, the dispute 
raised by the Revenue is entirely academic or at best may 
B 
.ave a minor tax effect. There was, therefore, no need for 
the Revenue to continue with this litigation when it was 
quite clear that not only was it fruitless (on merits) but 
also that it may not have added anything much to the 
public coffers. [Para 32) [503-C-E] 
c 
Ajamshri Ranjitsinghji Spinning and Weaving Mills vs. 
Inspecting Assistant Commissioner 1992 41 ITD 142: (Mum) 
Commissioner of Income Tax vs. Shoorji Va/labhdas and Co. 
(1962) 46 ITR 144 (SC); Morvi Industries Ltd. vs. 
Commissioner of Income-Tax (Central) (1971) 82 ITR 835 
D (SC); Godhra Electricity Co. Ltd. vs. Commissioner of Income 
Tax (1997) 225 ITR 746 (SC); Income Tax vs. Bir/a Gwalior 
(P.) Ltd.

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