CLR Editorial Note: The assessee was a dealer in liquor distributing the rectified spirit to various retail vendors on behalf of the Government. By a Government Order dated 12-5-1992, the amount payable to the assessee was enhanced, consequently, the assessee was entitled to a sum of Rs.2,06,33,600/-. In terms of the Government Order, the said amount was paid to the assessee. It was in the nature of revenue receipt. The said amount was paid unconditionally. The assessee was maintaining mercantile system of accounts. Therefore, this income is chargeable to tax under Section 4 of the Act. It is after payment of the said amount, that a public interest litigation was filed challenging the said Government Order.
The writ petition was allowed and consequently, the assessee had to refund the said amount received under the Government Order. The assessee challenged the order of the Government which withdrew the said Government Order. That writ petition was dismissed and the matter is now pending in the writ appeal. The order withdrawing the said benefit was dated 18-9-2000 whereas the amount was received on 5-6-1992. For nearly 8 years, the assessee had the benefit of the said amount. Between the assessee and the revenue, there was no dispute on this fact. The dispute was raised by the 3rd party in the public interest litigation. The amount, which was paid to the assessee was definite and ascertained amount. The matter as held by the Hon’ble High Court of Karnataka:
“Once the assessee receives the said amount, liability to pay tax under Section 4 of the Act is attracted. Mere pendency of the public interest litigation would not extinguish the liability of assessee to pay tax on the income received. The amount received by the assessee is not in pursuance to any interim order of the court wherein, the interim order merges with the final order and such payment is contingent depending upon the final verdict in the litigation. In this case, ultimately when the Government Order is set aside, if the assessee repays the money, he is eligible for adjustment of tax paid for the income received or for refund of the said amount. On the pretext that the third party has filed the public interest litigation for the relevant assessment year, he cannot avoid payment of tax on the said revenue receipt. In the event of assessee losing the battle, he will be bound to refund the amount of Rs. 2,06,33,600/- to the Government. If he were to pay tax under the Act, when once that amount is returned, he would be entitled for refund of the said tax or adjustment of tax in future, but that does not enable him to withhold payment of tax on the pretext of pending litigation. In that view of the matter, the approach of the Tribunal is not proper. As such, the impugned order requires to be set aside and the substantial question of law is answered in favour of the revenue and against the revenue.”
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Full case file
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Commissioner of Income-tax
v.
Sapthagiri Enterprises
IT Appeal No. 1139 of 2006
Date of Pronouncement 05.03.2013
JUDGMENT
Sreedhar Rao, J The revenue has preferred this appeal challenging the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as ˜the Tribunal™) wherein it has held that the amount received by the assessee was wrapped with the litigation and the assessee had not become the absolute owner of the sum received and he was not liable to pay tax for the assessment year 1993-94.
2. The assessee-Firm is engaged in the business of manufacturing rectified spirit and related alcoholic products. For the assessment year 1993-94, the return was filed on 29-07-1994 declaring the total income of Rs. 38,63,020/-. The assessment was completed under Section 143(3) of theIncome Tax Act (˜the Act™ for short) on 27-02-1996 adopting the total income of Rs.39,81,250/-. Addition was made under Section 40A(3). While completing the assessment for the year 1997-98, the Assessing Officer found that the assessee has received enhanced price for rectified spirit supplied by it to various arrack bottling units on behalf of the Government of Karnataka. The same was shown as outstanding liability in the balance sheet filed along with the return of income for the assessment year 1993-94 and was continued to be shown as liability even during the assessment year 1997-98. The Assessing Officer held that since the assessee has not made a full and true disclosure of its receipt of a sum of Rs.2,06,33,600/- in the assessment year 1993-94 and since the assessee has already received the said sum being the price difference on material supplied by it, to that extent, the income chargeable to tax for the assessment year 1993-94 has escaped assessment. The proceedings under Section 147 of the Act was initiated and reassessment was completed on 20-02-2002. In the said reassessment, the Assessing Officer brought to tax the said sum of Rs. 2,06,33,600/- as revenue receipt. It was held as not contingent. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals).
3. The Appellate Authority held that the assessee had declared the receipt of the said sum in its balance sheet showing it under the head sundry creditors. This is full and true disclosure and therefore, it cannot be treated as income escaped assessment. Further, it held that the assessee received the amount subject to the result of the public interest litigation filed before the Karnataka High Court. The receipt was contingent in nature subject to the outcome of the High Court order. Subsequently, the Government itself has withdrawn its order to pay additional sale price. Therefore, the said income cannot be said to have accrued to the assessee and therefore, ordered for deletion. Aggrieved by the said order, the revenue preferred an appeal before the Tribunal.
4. The Tribunal held that the amount was not received by the assessee unconditionally and was wrapped with the litigation. Unless the assessee is said to be an undisputed owner in his own right to receive the sum, the income cannot be said to have accrued. The income cannot accrue merely for the reason that it will take years to decide the dispute. Though the assessee is disputing the repeal of the order of Karnataka Government, still it cannot be said that the assessee has become the absolute owner of the sum received, which can be considered as accrued income. Therefore, they declared that the amount is not taxable in the assessment year 1993-94. Accordingly, ordered for deletion. Aggrieved by the said order, the revenue is in appeal.
5. Learned counsel for the revenue assailing the impugned order contended that the amount was paid by the Government unconditionally in pursuance to the Government Order which it has passed. The assessee is maintaining the mercantile system of accounts. The moment, the Government Order was passed, actual payment was made to the assessee and the income has accrued and received by the assessee. Therefore, Section 4 of the Income Tax Act is attracted and the liability to pay tax on the income arises. Therefore, the finding recorded by the Appellate Authority is incorrect and required to be set aside.
6. Per contra, learned counsel appearing for the assessee submitted that though the amount was received, challenging the same the public interest litigation was filed in this court. During the pendency of the said litigation, the Government itself withdrew the Circular under which, payment had been made and therefore, subsequently, the Government withdrew the benefit conferred on the assessee, which is ofcourse now under challenge before the Appellate Court. Therefore, it was a contingent income/liability and therefore there was no liability to pay tax.
7. From the aforesaid facts and rival contentions, the substantial question of law that arise for consideration in this appeal is as under:
Whether the Tribunal was right in holding that a sum of Rs.2,06,33,600/-received from the Excise Commissioner during the current assessment year for the difference in supply of alcoholic products in earlier years cannot be treated as income of the assessee during the current assessment year?
8. The facts are not in dispute. The assessee is a dealer in liquor distributing the rectified spirit to various retail vendors on behalf of the Government. By a Government Order dated 12-5-1992, the amount payable to the assessee was enhanced, consequently, the assessee was entitled to a sum of Rs.2,06,33,600/-. In terms of the Government Order, the said amount was paid to the assessee. It is in the nature of revenue receipt. The said amount was paid unconditionally. The assessee was maintaining mercantile system of accounts. Therefore, this income is chargeable to tax under Section 4 of the Act. It is after payment of the said amount, the public interest litigation was filed challenging the said Government Order. The writ petition is now allowed. Consequently, the assessee has to refund the said amount received under the Government Order. But he has challenged the order of the Government withdrawing the said Government Order. That writ petition is dismissed and the matter is now pending in the writ appeal. The order withdrawing the said benefit is dated 18-9-2000 whereas the amount was received on 5-6-1992. For nearly 8 years, the assessee had the benefit of the said amount. Between the assessee and the revenue, there is no dispute. The dispute was raised by the 3rd party in the public interest litigation. The amount, which was paid to the assessee was definite and ascertained amount. Once the assessee receives the said amount, liability to pay tax under Section 4 of the Act is attracted. Mere pendency of the public interest litigation would not extinguish the liability of assessee to pay tax on the income received. The amount received by the assessee is not in pursuance to any interim order of the court wherein, the interim order merges with the final order and such payment is contingent depending upon the final verdict in the litigation. In this case, ultimately when the Government Order is set aside, if the assessee repays the money, he is eligible for adjustment of tax paid for the income received or for refund of the said amount. On the pretext that the third party has filed the public interest litigation for the relevant assessment year, he cannot avoid payment of tax on the said revenue receipt. In the event of assessee losing the battle, he will be bound to refund the amount of Rs. 2,06,33,600/- to the Government. If he were to pay tax under the Act, when once that amount is returned, he would be entitled for refund of the said tax or adjustment of tax in future, but that does not enable him to withhold payment of tax on the pretext of pending litigation. In that view of the matter, the approach of the Tribunal is not proper. As such, the impugned order requires to be set aside and the substantial question of law is answered in favour of the revenue and against the revenue.
9. Accordingly, the appeal is allowed and the impugned order is hereby set aside.
Parties are directed to bear their own costs.
