M/S. POLYFLEX (INDIA) PVT. LTD. versus COMMISSIONER OF INCOME TAX, KARNATAKA

Citation: [2002] SUPP. 2 S.C.R. 123 · Decided: 06-09-2002 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Dismissed

Judgment (excerpt)

MIS. POL YFLEX (INDJA) PVT. LTD. 
A 
V. 
COMMISSIONER OF INCOME TAX, KARNATAKA 
SEPTEMBER 6, 2002 
[S. RAJENDRA BABU, K.G. BALAKRISHNAN AND P. 
B 
VENKATARAMA REDD!, JJ.] 
Income Tax Act, 1961; Section 41 (1): Applicability of the provision-
Deduction made in the assessment in earlier years in respect of expenditure/ C 
trading liability-Subsequently refund obtained by the assessee-Held, the 
amount refunded is taxable during the year it was obtained. 
Expenditure and trading liability-Distinction between-Though these 
are overlapping concepts the law-makers apparently intended to deal with 
allied concepts separately to effectuate the objective underlying the provision. D 
Phrases .. obtained any amount in respect of loss or expenditure" and 
"some benefit in respect of such liability by wey of remission or cessation 
thereof'-lnterpretation of-Held, the correct way would be to read them as 
distinct and separate since it would be doing violence to the language and 
structure if second phrase is read as governing the previous phrase. E 
Interpretation of statutes. 
Appellant-assessee had paid certain amount of excise duty in the year 
1986. The assessee, however, challenged the levy successfully before the 
Appellate Authority, and it was confirmed by the CEGAT. Accordingly 
the amount of excise duty paid was refunded to the assessee on 20-9-1988 F 
by the Excise Department. This refund was brought to Income tax for the 
assessment year 1988-89 by invoking Section 41(1) of the Income Tax Act. 
In the meanwhile, Excise Department unsuccessfully challenged the refund 
order before the High Court. Thereafter S.L.P. was filed before this Court. 
Assessce successfully challenged the levy of Income Tax before the G 
Appellate Authority on the ground that there was no remission or cessation 
of trading liability within the meaning of Section 41(1) of the Act when 
' 
matter was subjudice before the Supreme Court. On dismissal of appeal, 
Income Tax Department filed reference petition and Tribunal framed a 
123 
H 
124 
SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R. 
A question of law as to whether the Tribunal was right in law in holding 
that excise duty refund is not assessable under Section 41(1) of the Income 
Tax Act. Answering the reference in negative, High Court remanded the 
matter back to the Tribunal for ascertaining the facts about refund of 
excise duty and to pass appropriate order accordingly. Hence this appeal. 
B 
It was contended for the appellant-assessee that opinion of the High 
Court was based on the decision of this Court in "Thirumalaiswamy 
Naidu's case which has no application in the instant case; and since the 
question of liability to pay excise duty was not settled finally during the 
assessment year in which refund was obtained, Section 41(1) is not 
C attracted. 
Dismissing the appeal, the Court 
HELD: I. I In a case where a statutory levy in respect of goods dealt 
in by the assessee is discharged and subsequently the amount paid is 
D refunded, it is the first clause of Section 41(1) of the Income Tax Act that 
more appropriately applies. It will not be a case of benefit accruing to him 
on account of cessation or remission of trading liability. It will be a case 
which squarely falls under the earlier clause, namely, "obtained any 
amount in respect of such expenditure". Once the assessee gets back the 
E amount which was claimed and allowed as business expenditure during 
the earlier year, the deeming provision in Section 41(1) of the Act comes 
into play and it is not necessary that the Revenue should await the verdict 
of higher Court or Tribunal. If the Court or Tribunal upholds the levy at 
a later date, the assessee will not be without remedy to get back the relief. 
[128-G, H; 129-B[ 
F 
1.2. Expenditure and trading liability may be over-lapping concepts; 
but the law-makers apparently intended to deal with allied concepts 
separately and specifically so as to make the provision as comprehensive 
as possible in order to effectuate the objective underlying the provision. 
The anatomy of the Section and the collocation of the words employed 
G therein would suggest that the test of cessation or remission of liability 
has to be applied vis-a-vis trading liability and it cannot be projected into 
the previous clause. [129-C, DI 
Chief Commissioner of Income Tax v. Kesaria Tea Co. Ltd, [2002[ 3 
H SCC 684 and Union of India v. JK. Synth<1tics Ud, 199 ITR 14, distinguished. 
.. 
• 
I 
M/S. 

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