JUDGMENT R.K. Agrawal J.
1. The Income-tax Appellate Tribunal, Delhi, has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the liability of Rs. 5,81,534 for the export duty was allowable as a deduction in the year in question ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the assessee's claim for investment allowance on the ground that the products manufactured by the assessee was not hit by item No. 1 of the Eleventh Schedule to the Income-tax Act ?"
2. Briefly stated, the facts giving rise to the present reference are as follows : The reference relates to the assessment year 1980-81. The respondent is a public limited company and is engaged in the business of manufacture and sale of rectified spirit and Indian made foreign liquor. During the assessment year in question, it claimed deduction of Rs. 5,81,534 relating to export duty while computing the income. It has realised the export duty on the Indian made foreign liquor from the customers. However, no payment was made on the ground that the matter was pending before the Supreme Court and stay order was granted restraining the authorities from realising the amount of export duty from the respondent. It was claimed that the amount was not taxable as income and in case it is held to be taxable as forming part of the trading receipt, deduction should be allowed of the equal amount because it is a statutory liability as it is following the mercantile system of accounting. The Income-tax Officer has rejected the claim on the ground that it can be allowed as deduction in the year in which it is paid over to the Government.
3. The respondent also claimed allowance of investment allowance on the investment made in plant and machinery. The Inspecting Assistant Commissioner (Assessment) disallowed the assessee's claim of investment allowance on the ground that the industry is covered by the entry at item No. 1 in the list enumerated in the Eleventh Schedule. Item No. 1 of the said Schedule relates to "beer, wine and other alcoholic spirits". In appeal, the Commissioner of Income-tax (Appeals) deleted the addition of Rs. 5,81,534 towards export duty on the ground that it is a statutory liability and the respondent is entitled to claim deduction as it is following the mercantile system of accounting. He further held that there is a separate plant for manufacture of rectified spirit and, therefore, the respondent is entitled to claim investment allowance in respect of such plant and machinery. The Revenue's appeal before the Tribunal has failed.
4. We have heard Sri Shambhoo Chopra, learned standing counsel for the Revenue, and Sri Vikram Gulati, learned standing counsel appearing for the respondent.
5. Learned counsel for the Revenue submitted that the amount of export duty forms part of the trading receipt and in support thereof he has relied upon the two decisions of the hon'ble Supreme Court in the cases of Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murray and Co. P. Ltd. v. CIT .
6. He further submitted that the deduction of liability on the ground of export duty could be allowed only in the year when it is actually paid to the Government. As the respondent was disputing his liability to pay, it could not have been allowed during the year in question. On the question of allowance of investment allowance he submitted that as the respondent was engaged in the manufacture and sale of Indian made foreign liquor and rectified spirit and one of the items fell in the prohibited list of the industry mentioned in the Eleventh Schedule, the investment allowance was not allowable.
7. Sri Vikram Gulati, learned counsel for the respondent, however, submitted that even if it is held that the deduction of export duty formed part of the trading receipt in view of the decision of the apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT , the respondent is entitled to claim deduction of the statutory liability of export duty and as the liability has accrued in the year in question. He further submitted that as the respondent was maintaining a separate plant for manufacture of rectified spirit which did not fall in item No. 1 of the Eleventh Schedule, the investment allowance has rightly been allowed.
8. Having heard learned counsel for the parties, we find that the export duty is a statutory liability. The liability has accrued during the assessment year in question since the respondent has been following the mercantile system of accounting. In view of the principles laid down by the apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT the Tribunal was justified in allowing the deduction of statutory liability of the export duty during the assessment year in question. The apex court in the cases of Chowringhee Sales Bureau P. Ltd. and Sinclair Murray and Co. P. Ltd. has only held that the statutory impost realised by the assessee do form part of the trading receipt and an allowable deduction when it is paid. However, in view of decision of the apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT where an assessee follows the mercantile system of accounting, the liability is allowable as deduction moment it is accrued and not when it is paid.
9. So far as the question of investment allowance is concerned, we find that the Commissioner of Income-tax (Appeals) has found that there is a separate plant for manufacture of rectified spirit which does not find mention in item No. 1 of the Eleventh Schedule and, therefore, investment allowance on plant and machinery meant for manufacture of rectified spirit is admissible.
10. In view of the foregoing discussion, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.