Law: Income Tax Act, 1961

Section: 256,37

Income-tax---Business expenditure---Year in which expenditure is allowable---General principles---Excise duty ---Assessee manufacturing article from 1968---Excise Duty Authorities holding in beginning that article was not liable to excise duty ---Assessee applying for licence and licence issued in February, 1977--¬Provision for excise duty payable from 1968 made in accounts maintained on mercantile system in accounting year ending on 31-3-1977---Deed from Excise Duty Authorities in July, 1977---Liability accrued in February, 1977---Provision for payment of excise duty deductible in assessment yea. 1977-78--Indian Income Tax Act 1961, S.37. In all fiscal statutes there will be three stages. In the first stage a charge is created, which may also be described as declaration of liability indicating what would be liable to taxation. The second stage is the quantification of that liability in the form of an assessment. The third stage is the recovery. Thus, in fiscal statutes the point of taxation is on the happening or occurrence of the taxable event. Different enactments may provide different kinds of taxable events. The Central Excises and Salt Act imposes a duty on the production or manufacture of goods. The assessee was a company engaged in the manufacture of electrical equipment. It was manufacturing ceramic fuse bodies, which are in turn used in the manufacture of H.R.C. fuse links. The assessee had been manufacturing this item from 1968 onwards. At that time, the Central Excise Authorities determined that those goods were not liable to excise duty. In November, 1973, the Central Excise Authorities revived their claim and demanded that the assessee should take out a licence and pay duty on H.R.C. fuse links. Though the assessee challenged this demand and was successful, in November, 1976, the assessee was advised that ceramic fuse bodies were themselves liable to excise duty. This advice was given on the basis of an observation made to that effect by the High Court in the decision in English Electric Co. of India Ltd. v. Superintendent, Central Excise, AIR 1974 Mad. 393. The assessee applied for a licence and it was issued on February 1, 1977. The assessee…

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