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

                       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.
                           M/S. POL YFLEX (INDIA) PVT.LTD."· C.l.T.            125
             K.G. Subramanyam v. C./.T., 195 ITR 199, approved.                        A
             Rameshwar Prasadv. V.K. Arora, 141 /TR 763 and J.K. Synthetics Ltd
        v. I. T.O., !05 ITR 684, held not applicable.

             2.1. The correct way of understanding Section 41(1) would be to
        read the latter clause-"some benefit in respect of such trading liability      B
        by way of remission or cessation thereor• as a distinct and self-contained
        provision. To read the phrase "by way of remission or cessation thereor'
        as governing the previous clause as well, i.e. "obtained any amount in
        respect of such loss or expenditure", would be doing violence to the
        language and structure of the provision. That apart, the operation of the      C
        provision which is designed to have widest amplitude will get constricted
        and truncated by reason of such interpretation. (132-F, G, H(

                K.G. Subramanyam v. C./Jf., 195 ITR 199, approved.

              V. T. Audyogik Sahakari Mandi Ltd v. C./. T., 242 ITR 627 and C./. T.    D
        v. Bharat Iron & Steel Industries, 199 ITR 67, held not applicable.

              2.2. Apart from what has been laid down in Thirumalaiswamy
        Naidu's case, the ingredients of Section 41(1) are satisfied in the instant
        case, therefore, the amount of excise duty refunded becomes taxable during
        the year in question. This is a case in which the assessee obtained the        E
        amount by way of refund in respect of the business expenditure incurred
        by it during an earlier year, for which the assessee had the benefit of
        deduction or allowance. Normally, the payment of certain amount to
        discharge the statutory levy such as sales tax, excise duty in the course of
        carrying on business is an expenditure. (128-D, E, Fl
                                                                                       F
             C.I. T. v. Thirwnalaiswamy Naidu & Sons, (230 ITR 534( and Kedar
        Nath Jute Manufacturing Co. v. C.I.T. 82 ITR 363, relied on

                CIVIL APPELLATE JURISDICTION : Civil Appeal No. 823 of
        2001.
                                                                                       G
             From the Judgment and Order dated 5.1.2000 of the High Court of
        Karnataka in ITRC-53/99.

              Dhruv Mehta, Ms. Shobha and Ms. Anu Mehta for M/s. K.L. Mehta &
•   I
        Co. for Appellants.                                                            H
    126                       SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R.

A         R.P. Bhatt and Ms. Sushma Suri, for the Respondent.

          The Judgment of the Court was delivered by

          P. VENKATARAMA REDDI, J. In this appeal by Special Leave, the
    question of applicability of Section 41 (I) of the Income Tax Act to the case
B   on hand arises for consideration.

         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 Section 41 (I) of the Income Tax Act (for short 'Act'). It appears
C 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 tiled 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
D within the meaning of Section 41(1) so long as the issue was pending
  detennination 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:
E
           · "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 Section 41(1) of the LT. Act."

    The High Court held that the Tribunal was not right in holding that the
F   refunded amount was not assessable under Section 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 asses see' s counsel that the amount has not
G   been received by the assessee. In coming to the conclusion that the excise
    duty refunded was liable to be taxed under Section 41 (I) of the Act, the High
    Court relied on the decision of this Court in C. /. T. v. Thiruma/aiswamy
    Naidu and Sons, 230 ITR 534. This view of the High Court has been questioned
    in th is appeal.

H         The learned counsel for the appellant - assessee submits that the ratio
     MIS. POLYFLEX (INDIA) PVT. LTD. v. C.l.T. [VENKATARAMA REDD!. J.]     127
of decision of this Court in Thirumalaswamy Naidu' case, on which the              A
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, Section
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            B
there was no cessation of liability as per Section 41(1) as the issue was
pending final adjudication and, therefore, the refunded amount does not fonn
part of the deemed income of the year 1989-90.

        It is true that in Thiruma/aiswamy Naidu 's case the question of
interpretation or applicability of any particular limb of Section 41 (I) of the    C
Act did not specifically fall for consideration. However, this Court did make
 it clear that when the assessee actually made payment towards statutory levy
(sales tax) and later got back the amount by way of refund as a sequel to the
judgment of the High Court, it becomes a revenue receipt and in such a
situation, Section 41 (I) is clearly attracted. The following are the crucial
observations in the judgment:                                                      D
        "The entire amount of sale turnover of the assessee inclusive of the
        amount of tax collected was clearly includible in the assessee's taxable
        income. If any deduction was given from that income and later the
        same was refunded back to the assessee, the refund will have the
        character of revenue receipt. It has to be treated as a receipt on the     E
        revenue account and has to be assessed as such. The position has
        been placed beyond doubt by the express provisions of section 41 {/)
        of the Income-tax Act. "
                                                          (Emphasis supplied)
                                                                                   F
Though there is no elaborate discussion as regards applicability of Section
41 (I) of the Act the Court did refer to and rely on that provision in support
of its conclusion.

      Section 41 (I), as it stood at the relevant time reads as follows:
                                                                                   G
        "41 (I) Profits chargeable to tax: Where an allowance or deduction
        has been made in the assessment for any year in respect of loss,
        expenditure or trading liability incurred by the assessee, and
        subsequently during any previous year the assessee has obtained,
        whether in cash or in any other manner whatsoever, any amount in
        respect of such loss or expenditure or some benefit in respect of such     H.
    l 28                      SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R.

A           trading liability by way of remission or cessation thereof, the amount
            obtained by him or the value of benefit accruing to him, shall be
            deemed to be profits and gains of business or profession and
            accordingly chargeable to income-tax as the income of that previous
            year, whether the business or profession in respect of which the
            allowance or deduction has been made is in existence in that year or
B           not."

    Section 41 ( l) applies if the following conditions and circumstances are
    satisfied:

    In the assessment for the relevant year an allowance or deduction has been
C made in respect of any loss, expenditure or trading liability incurred by the
    assessee. This is the first step. Coming to the next step the assessee must have
    subsequently (i) obtained any amount in respect of such loss or expenditure
    or (ii) obtained any benefit in respect of such trading liability by way of
    remission or cessation thereof. In case either of these events happen, the
D   deeming provision enacted in the closing part of sub-section (I) comes into
    play. Accordingly, the amount obtained by the assessee or the value of benefit
    accruing to him is deemed to be profits and gains of business or profession
    and it becomes chargeable to income-tax as the income of that previous year.

           We are of the view, apart from what has been laid down in
E   Thirumalaiswamy Naidu's case (supra), that the ingredients of Section 41(1)
  are satisfied in the instant case and, therefore, the amount of excise duty
  refunded becomes taxable during the year in question. This is a case in which
  the assessee can be said to have obtained the amount by way of refund in
  respect of the business expenditure incurred by it during an earlier year, for
F which the assessee had the benefit of deduction or allowance. Normally, the
  payment of certain amount to discharge the statutory levy such as sales tax,
  excise duty in the course of carrying on business is an expenditure. If authority
  is needed, we may refer to Kedar Nath Jute Manufacturing Co. v. C.J. T, 82
  ITR 363 wherein this Court held that the amount of sales tax paid or payable
  by the assessee is an expenditure within the meaning of Section IO(ii)(xv) of
G the Act.
        We are inclined to think that in a case where a statutory levy in respect
  of goods dealt in by the assessee is discharged and subsequently the amount
  paid is refunded, it is the first clause that more appropriately applies. It will
  not be a case of benefit accruing to him on account of cessation or remission
H of trading liability. It will be a case which squarely falls under the earlier
     M/S. POLYFLEX (INDIA) PVT. LTD. v. C.l.T. (VENKATARAMA REDD!, J.)      129
clause, namely, ''.obtained any amount in respect of such expenditure". In          A
other words, where expenditure is actually incurred by reason of payment of
duty on goods and the deduction or allowance had been given in the assessment
for earlier period, the assessee is liable to disgorge that benefit as and when
he obtains refund of the amount so paid. The consideration whether there is
a possibility of the refund being set at naught on a future date will not be a      B
relevant consideration. Once the assessee gets back the amount which was
claimed and allowed as business expenditure during the earlier year, the
deeming provision in Section 41 (I) 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.                                  C
       True 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 therein would suggest D
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.

       The typical example of remission or cessation of trading liability is to
be found in the recent decision rendered by us in Chief Commissioner of
Income Tax v. Kesaria Tea Co. Ltd., [2002] 3 SCC 684. In that case the E
assessee made a provision in the books of account towards purchase tax
liability which was in dispute. Under the impression that the dispute was
finally settled with the dismissal of SLP in some other case, the assessee
thought it fit to reverse the provision made earlier and accordingly 'wrote
back' in its ~ccounts the sums for which the provision was made during F
earlier years towards purchase tax. It was sought to be taxed by the Income-
tax department treating the same as the income of the year during which such
reversal of entries was made. However, the Tribunal (with which the High
Court agreed ) held on facts that the issue regarding the exigibi!ity of purchase
tax still remained notwithstanding the holding of the High Court on a part of
the controversy relevant to the issue. Even reassessment proceedings were G
pending. It was, therefore, held that the liability did not cease during the year
in question. This Court affirmed the view taken by the High Court of Kerala.
It may be seen that unlike the present case, there was no actual refund as no
amount towards purchase tax was paid but only a provision towards liability
was made in the books of account.                                                 H
    130                        SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R.

A         Another case which is illustrative of the point is the decision of Allahabad
    High Cot1rt in Rameshwar Prasad v. V.K. Arora, 141 ITR 763. In that case
    the assessee, who was following the mercantile system of accounting was
    allowed deduction in respect of its liability towards excise duty. The assessee,
    however, filed writ petition disputing its liability to pay the duty. During the
B   pendency of the writ petition, the excise duty amount was deposited with the
    Court, The writ petition was ultimately allowed and the amount deposited by
    way of security was refunded to the petitioner. However, that decision of the
    High Court did not become final as the State went in appeal to the Supreme
    Court. Therefore, the assessee still treated the security deposit amount received
    from the Court as a possible liability and objected to its inclusion in the
C   taxable income under Section 41 (I). The High Court held as follows:

            "The excise duty had been deposited by the petitioner in the court
            itself and that amount was directed to be refunded to it. The amount,
            therefore was refunded to the petitioner by the court and not by the
            State Govt. It is also not correct for the ITO to state that there is no
D           present liability existing against the assessee. It is clear, therefore,
            that since the assessee followed the mercantile system of accounting,
            it was allowed deduction in respect of its liability to excise duty. The
            petitioner challenged its liability to pay the excise duty and during
            the pendency of the writ petition deposited the excise duty in the
E           court. That payment was not by way of discharge of the liability but
            was only by way of security and when the writ petition was allowed
            by the court the amount was refunded to the petitioner. It was not,
            therefore, a case where an allowance had been made in respect of any
            expenditure incurre.d by it or reimbursement of the expenditure
            subsequently. It was an allowance in respect of a trading liability and
F           in view of the fact that the decision of this court has not become
            final and is the subject-matter of appeals before the Supreme Court,
            there has been no remission or cessation of the liability so as to
            attract s.41 (I) of the Act"

         The High Court correctly appreciated the scope of Section 41 (I) and
G applied the second limb of the sub-section to the fact situation. It may be
  noted that assessee did neither pay the excise duty to the Government nor did
  it get refund of duty from the concerned authority. Notwithstanding the High
  Court 's judgment in favcur of the petitioner, the stage had not yet reached
  when it can be said that the liability for which allowance was given earlier
H ceased. The view taken by the High Court in substance is that the benefit in
     MIS. POLYFLEX (IND!A) PVT. LTD. v. C.l.T. [VENKATARAMA REDD!, J.)        131

respect of the trading liability would accrue only when the liability definitely      A
ceased after the termination of the proceedings in the Apex Court in favour
of the petitioner. This very decision of the Allahabad High Court was relied
upon by the Tribunal without appreciating the correct ratio of decision.

      Our attention has been drawn by the learned counsel for the appellant
to the case of Union of lndia v. J.K. Sy111hetics Ltd., 199 lTR 14. One qfthe         B
points urged before the Court was whether the assessei:'s liability towards
excise duty had ceased justifying action under Section 41 (I). This Court,
while affirming the view taken by the High Court ,observed thus:

        "So far as the second question is concerned, it is obvious that the           C
        liability to tax under section 41 of the Act will depend on the outcome
        of the appeal before this court. It is also stated that, as'regards another
        part of the liability, the issue is pending before the Tribunal. It would,
        therefore, appear that no cessation of liability can be postulated until
        the tribunal has decided the matter"
                                                                                      D
         The relevant facts are not mentioned in the judgment. The ~estion
whether the latter or earlier clause of section 41 (I) applies did not arise for
consideration in that case. The decision of the High Court which was the
subject matter of appeal in this Court is reported in J.K. Synthetics Ltd., v.
J. T. 0., All I05 !TR 684. From the facts stated therein it appears that there E
was no actual payment of duty nor any refund obtained by the assessee. The
assessee-company was making provision in the books of account in respect
of excise duty payable while disputing the liability to pay duty. Deduction
was allowed for various assessment years. The writ petition filed by the
assessee-company contesting the demands relating to excise duty was allowed
by the High Court However, the Excise Department preferred Letters Patent F
Appeal against the order in the writ petition. While so, based on the decision
of the writ petition, the J.T.O. took steps to disallow the deduction· allowed
earlier and further disallowed the claim for the current year. Questioning the
addition to the income of the relevant previous year, the assessee company
filed writ petition which was allowed by the High Court. The facts .of the case G
are quite close to Remeshwar Prasad's case (supra). The following
observations in the judgment may be noted as they clearly reveal the fact
situation in that case:

        "The company, no doubt, is still resisting the claim of the excise ·
        authorities, but this fact does not debar the company from claiming H
     132                        SUPREME COURT REPORTS (2002) SUPP. 2 S.C.R.

A            deduction on account of the excise duty being demanded from it and
             for which the company had made provision in its books of accounts.
             The company is following the mercantile system of accounting and
             it can legitimately claim deduction in respect of a business liability
             even if such liability has not been quantified or paid."

B The High Court then held that the liability of the assessee as regards the
     payment of excise duty cannot be said to have ceased because the judgment
     of the Single Judge of the High Court did not attain finality.

            Though, the conclusion of the High Court which was affirmed by this
    Court cannot be legally faulted, we cannot however approve of the following
C analysis of the Section occurring in the judgment: "in short, what this provision
    means is that if an assesee has been allowed a deduction in the computation
    of its total income of any liability on account of loss or expenditure and if,
    subsequently, the liability of the assessee on account of such loss or expenditure
    is remitted or ceases, that part of the liability which is remitted or ceases shall
D be treated to be the income of the assessee of the previous year in which such
    remission or cessation takes place." The High Court proceeded on the
    assumption that the words 'remission and cessation thereof could be
    transposed into the first clause which speaks of obtaining any amount in
    respect of loss or expenditure. The High Court could have merely said that
    the trading liability provided for in the books of account and for which
E deduction was allowed earlier did not cease in view of the pendency of the
    dispute. Instead, the High Court referred to the expression "loss or expenditure"
    occurring in the first limb'. As the assessee company did not obtain any
  · amount by way of refund on excise duty account, the first clause of Section
    41 (I) will not be applicable; it is only the latter part that applies in which
F case the remission or cessation of liability would assume importance. However,
    in the present case, as discussed above, it is the first clause that squarely
    applies but not the second one. Whether there was cessation or remission of
    liability would be an irrelevant line of enquiry here. The correct way of
    understanding Section 41(1) would be to read the latter clause -"some benefit
    in respect of such trading liability by way of remission or cessation thereof'
G as a distinct and self-contained provision. To read the phrase "by way of
    remission or cessation thereof' as governing the previous clause as well, i.e.
    "obtained any amount in respect of such loss or expenditure", would be
    doing violence to the language and structure of the provision. That apart, the
    operation of the provision which is designed to have widest amplitude will
H get constricted and truncated by reason of such interpretation.
     MiS. POLYFLEX (INDIA) PVT. LTD. v. C.l.T. [VENKATARAMA REDDI. J.]     133
       Learned counsel for the appellant has also relied on a decision of the      A
Gujarat High Court V. T. Audyogik Sahakari Mandi Ltd. v. C.l. T., 242 ITR
627. That dedsion prima facie supports the appellant. The learned Judges
proceeded on the basis that in all situations falling under section 41 ( 1) the
test whether there was remission or cessation of trading liability has to be
applied, and therefore, concluded that even if the amount of refund is received,   B
section 41(1) cannot be invoked so long as there is no final decision on the
question of legality of levy. To reach such a conclusion, the decision in J.K.
Synthetics 's case (supra) and Rameshwar Prasad's case (supra) were relied
upon. We have already explained the ratio of those decisions. Another case
on which strong reliance was placed by the learned Judges is the judgment
of the Full Bench in C./. T. v. Bharat Iron and Steel Industries, 199 ITR 67.      C
In the said Full Bench decision, though the discussion by and large proceeded
on right lines, we find that the actual decision reached in the concluding para
is based on a wrong interpretation of the provision. The Full Bench was of
the view that the assessee's claim for refund of excise duty was in jeopardy
in view of the pending revisional proceeding although the assessee obtained
refund. The assessee received the refund of excise duty on 8.8.1975. The           D
High Court took the view that the assessee obtained the refund only on
30.4.1976 when the proposed revision was withdrawn. It was therefore held
that the refunded amount became includible in the assessee' s total income
for the assessment year 1976-1977 under section 41(1) of the Act, but not for
the assessment year 1974-1975. The expression obtained any amount' was             E
virtually given an interpretation which is contrary to its plain meaning.
However, it must be noted that the High Court rightly avoided reference to
the expression' remission or cessation thereof.

     With respect, we are unable to accept the view taken by Gujarat High
Court in the two decisions afore- mentioned as correct.                            F
      The decision of Karnataka High Court in K.G. Subramanyam v. C.l. T.,
195 ITRl99 is quite apposite in the context of present case. The State of
Karnataka levied 'litre fee' which is in the nature of a duty of excise. The
levy was challenged by the assessee. Pending such challenge, the assessee
paid the litre fee which was allowed as deduction while computing the a~sessee'    G
s income. Later on the levy of litre fee was declared as unconstitutional and
the fee collected was refunded to the assessee. Relying on Section 41 (I), the
refunded amount was subjected to tax treating it as income of the year during
which refund was obtained. The Tribunal and the High Court held that Section
41 ( 1) was attracted and the Revenue was well justified in assessing the          H
    134                        SUPREME COURT REPORTS [2002) SUPP. 2 S.C.R.

A same. The High Court held that the payment in discharge of statutory liability
  incurred while earning the income is an expenditure and even if it is possible
  in some cases that such payment is liable to be excluded from the income as
  a liability incurred in the course of trade, it does not detract from its character
  as expenditure. It was, therefore, held, "We have no hesitation that the              ..
B deduction given to the assessee in respeft of the litre fee paid by him was by
  way of an expenditure, therefore, the amounts refunded on the levy being
  held unconstitutional were the amounts received by him in respect of the said
  expenditure and such receipts are liable to be taxed under section 41 (l)"
  The High Court observed that on the facts of that case, the question of
  cessation or remission of liability did not arise for consideration at all. We
C are in agreement with the view expressed by the Karnataka High Court.
           In the light of the above discussion we find no merit in the appeal,
    though we must say that the order under appeal is cryptic and the short
    reasoning recorded therein is inaccurate. The appeal is dismissed without
    costs.
D
    S.K.S.                                                       Appeal dismissed.