COMMISSIONER OF INCOME TAXversusM/S EXCEL INDUSTRIES LTD.

                       [2013] 10 S.C.R. 490


A               COMMISSIONER OF INCOME TAX
                                 v.
                  MIS EXCEL INDUSTRIES LTD.
                (Civil Appeal No. 125 of 2013 etc.)
                        OCTOBER 8, 2013
B
             [R.M. LODHA, MADAN B. LOKUR AND
                     KURIAN JOSEPH, JJ.]

        Income Tax Act, 1961 - s.28(iv) - 'Advance licence
C benefit' and 'duty entitlement pass book benefit' under import
  export policy - Taxability of - relevant assessment year -
  Whether the year of receipt of benefit or the year in which such
  benefits are actually utilized - Held: Income becomes taxable
  when it is accrued - Income tax cannot be levied on
D hypothetical income - Income can be said to have accrued
  when it becomes due and is accompanied by a corresponding
  liability of the other party to pay the amount - The benefits in
  the present case could be hypothetical income until the goods
  are actually imported and made available for clearance -
E Hence, assessment of the assessee u/s.28(iv) in the facts of
  the present case, not correct.

       The question for consideration in the present
  appeals was whether 'advance license benefit and 'duty
  entitlement pass book benefit' are taxable in the year in
F which they are actually utilised by the assessee and not
  in the year of receipt.
       The plea of the Revenue was that in view of the
  provisions of s.28(iv) of the Income Tax Act, the value of
G the benefit obtained by the assessee is its income and
  is liable to tax under the head ' Profits and gains of
  business or profession'.
       ·oismissing the appeals, the Court
H                               490
 COMMISSIONER OF INCOME TAX v. MIS EXCEL                 491
             INDUSTRIES LTD.
     HELD: 1.1. Income tax cannot be levied on                  A
hypothetical income. Income accrues when it becomes
due, but it must also be accompanied by a corresponding
liability of the other party to pay the amount. Only then
can it be said that for the purposes of taxability that the
income is not hypothetical and it has really accrued to the     B
assessee. [Paras 17 and 20] [498-B; 499-A-B]

     1.2. Applying the three tests laid down by various
decisions of this Court, namely, whether the income
accrued to the assessee is real or hypothetical; whether
there is a corresponding liability of the other party to pass   C
on the benefits of duty free import to the assessee even
without any imports having been made; and the
probability or improbability of realisation of the benefits
by the assessee considered from a realistic and practical
point of view (the assessee may not have made imports),         D
it is quite clear that in fact no real income, but only
hypothetical income had accrued to the assessee and
Section 28(iv) of the Act would be inapplicable to the
facts and circumstances of the case. Essentially, the
Assessing Officer is required to be pragmatic and not           E
pedantic. [Para 27] [501-B-D]

     1.3. In the present even if it !s assumed that the
assessee was entitled to the benefits under the advance
licences as well as under the duty entitlement pass book,       F
there was no correspo_nding liability on the customs
authorities to pass on the benefit of duty free imports to
the assessee until the goods are actually imported and
made available for cl~arance. The benefits represent, at
best, a hypothetical income which may or may not
materialise and its money value is therefore not the            G
income of the assessee. [Para 21] [499-C-D]

    1.4. In the subsequent accounting year, the assessee
did make imports and did derive benefits under the
advance licence and the duty entitlement pass book and          H
    492      SUPREME COURT REPORTS           [2013] 10 S.C.R.


A paid tax thereon. Therefore, it is not as if the Revenue has
  been deprived of any tax. The rate of tax remained the
  same in the present assessment year as well as in the
  subsequent assessment year. Therefore, the dispute
  raised by the Revenue is entirely academic or at best may
B .ave a minor tax effect. There was, therefore, no need for
  the Revenue to continue with this litigation when it was
  quite clear that not only was it fruitless (on merits) but
  also that it may not have added anything much to the
  public coffers. [Para 32) [503-C-E]
c      Ajamshri Ranjitsinghji Spinning and Weaving Mills vs.
  Inspecting Assistant Commissioner 1992 41 ITD 142: (Mum)
  Commissioner of Income Tax vs. Shoorji Va/labhdas and Co.
  (1962) 46 ITR 144 (SC); Morvi Industries Ltd. vs.
  Commissioner of Income- Tax (Central) (1971) 82 ITR 835
D (SC); Godhra Electricity Co. Ltd. vs. Commissioner of Income
  Tax (1997) 225 ITR 746 (SC); Income Tax vs. Bir/a Gwalior
  (P.) Ltd. (1973) 89 ITR 266 (SC); Morvi Industries Poona
  Electric Supply Co. Ltd. vs. Commissioner of Income Tax
  (1965) 57 ITR 521 (SC); State Bank of travancore vs.
E Commissionerof Income Tax, (1986) 158 ITR 102 (SC) -
  relied on.

        R.B. Jodha Mal Kuthiala vs. Commissioner of Income
    Tax (1971) 82 ITR 570 (SC) - referred to.

F      2.1. A consistent view has been taken in favour of
  the assessee on the questions raised, starting with the
  assessment year 1992-93, that the benefits under the
  advance licences or under the duty entitlement pass
  book do not represent the real income of the assessee.
G Consequently, there is no reason for this court to take a
  different view unless there are very convincing reasons,
  none of which have been pointed out by the counsel for
  the Revenue. [Para 28) [501-D-E]

H         2.2. In several assessment years, the Revenue
 COMMISSIONER OF INCOME TAX v. MIS EXCEL              493
             INDUSTRIES LTD.
accepted the order of the Tribunal in favour of the          A
assessee and did not pursue the matter any further but
in respect of some assessment years the matter was
taken up in appeal before the High Court but without any
success. That being so, the Revenue cannot be allowed
to flip-flop on the issue and it ought let the matter rest   B
rather than spend the tax payers' money in pursuing
litigation for the sake of it. [Para 31) [503-A-B]

    Radhasoami Satsang Saomi Bagh vs. Commissioner of
Income Tax (1992) 193 ITR 321 (SC); Hoystead vs.
Commissioner of Taxation, 1926 AC 155 (PC); Parashuram
                                                             c
Pottery Works Ltd. vs. Income Tax Officer (1977) 106 ITR 1
(SC) - relied on.
                    Case Law Reference:
                                                             D
    1992 41 ITD 142             relied on       Para 6
    (1962) 46 ITR 144 (SC)      relied on       Para 17
    (1971) 82 ITR 835 (SC)      relied on       Para 18
    (1997) 225 ITR 746 (SC)     relied on       Para 22      E
    (1973) 89 ITR 266 (SC)      relied on       Para 24
    (1965) 57 ITR 521 (SC)      relied on       Para 24
    (1986) 158 ITR 102 (SC)     relied on       Para 25      F
    (1971) 82 ITR 570 (SC)      referred to     Para 26
    (1992) 193 ITR 321 (SC)     relied on       Para 29
    1926 AC 155 (PC)            relied on       Para 29
                                                             G
    (1977) 106 ITR 1 (SC)       relied on       Para 30
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 125
of 2013.

                                                             H
    494      SUPREME COURT REPORTS               (2013] 10 S.C.R.


A       From the Judgment and order dated 25.11.2011 of the
    High Court of Bombay in ITA No. 1183 of 2011.
                                   WITH
    Civil Appeal No. 5195 of 2011.

B Civil Appeal No. 9101 of 2013.

    Civil Appeal No. 9100 of 2013.

         R.P. Bhatt, S. Ganesh, Rashmi Malhotra, T.M. Singh (for
c   B.V. Balaram Das), Praveena Gautam, Tarun Gulati, Sparsh
    Bhargava for the appearing parties.

          The Judgment of the Court was delivered by

        MADAN B. LOKUR, J. 1. Leave granted in the Special
o   Leave Petitions.

       2. The question for consideration in all these appeals is
  whether the benefit of an entitlement to make duty free imports
  of raw materials obtained by the assessee through advance
  licences and duty entitlement pass book issued against export
E obligations is income in the year in which the exports are made
  or in the year in which the duty free imports are made.

         3. In our opinion, the income does not accrue in the year
    of export but in the year in which the imports are made.
F
         4. The facts pertaining to Civil Appeal No. 125 of 2013 (M/
    s Excel Industries Limited for the Assessment Year 2001-02)
    are referred to for convenience.

       5. The assessee maintains its accounts on a mercantile
G basis. In its return (revised on 31st March 2003) the assessee
  claimed a deduction of Rs.12,57,525/- under the head advance
  licence benefit receivable. The assessee also claimed a
  deduction in respect of duty entitlement pass book benefit
  receivable amounting to Rs.4,46,46,976/-. These benefits
H
 COMMISSIONER OF INCOME TAX v. M/S EXCEL                       495
    INDUSTRIES LTD. [MADAN B. LOKUR, J.]
related to entitlement to import duty free raw material under the      A
relevant import and export policy by way of reduction from raw
material consumption. According to the assessee, the amounts
were excluded from its total income since they could not be said
to have accrued until imports were made and the raw material
consumed.                                                              B

     6. During the assessment proceedings, the assessee
relied upon a decision of the Income Tax Appellate Tribunal in
Jamshri Ranjitsinghji Spinning and Weaving Mills v.
Inspecting Assistant Commissioner [1992) 41 ITD 142 (Mum)              C
and, also the order of the Commissioner of Income Tax
{Appeals) in its own case for the assessment years 1995-96
to 199~-98.

      7. By his order dated 24th March 2004, the Assessing
Officer did not accept the assessee's claim on the ground that         D
the taxability of such benefits is covered by Section 28{iv) of
the Income Tax Act, 1961 (for short 'the Act') which provides
that the value of any benefit or perquisite, whether convertible
into mciney or not, arising from a business or a profession is
income. According to the Assessing Officer, along with an              E
obligation of export commitment, the assessee gets the benefit
of ill)Porting raw material duty free. When exports are made,
the obligation of the assessee is fulfilled and the right to receive
the benefit becomes vested and absolute, at the end of the year.
In the year under consideration, the export obligation had been        F
made and the accounting entries were based on such fulfilment.
The Assessing Officer distinguished Jamshri on the ground that
it pertained t0 the assessment year 1985-86 when the export
promotiOnScheme was totally_different and the taxability of such
a benefit was examined only with reference to Section 28{iv)           G
of the Act but "in the present case the taxability of such benefit
is to be examined from all possible angles as it forms part of
the profits ~nd gains of business according to the ordinary
principles of commercial accounting."

                                                                       H
    496      SUPREME COURT REPORTS               [2013] 10 S.C.R.


A      8. The assessee took up the matter in appeal and by an
  order dated 15th September 2008 the Commissioner of
  Income Tax (Appeals) .referred to an earlier appellate order in
  the case of the assessee relevant to the assessment years
  1999-2000 and 2000-01 and following the conclusion arrived
B at in those assessment years, the appeal was allowed and it
  was held that the advance licence benefit receivable amounting
  to Rs.12,57,525/- and duty entitlement pass book benefit of
  Rs.4,46,46,976/- ought not to be taxed in this year. Reliance
  was also placed on the order of the Income Tax Appellate
c Tribunal in the assessee's own case for the assessment year
  1995-96.

       9. Feeling aggrieved, the Revenue preferred a further
  appeal before the Income Tax Appellate Tribunal (for short 'the
  ITAT) which referred to the issues raised by the Revenue and
D by its order dated 29th April 2011 dismissed the appeal
  upholding the view taken by the Commissioner of Income Tax
  (Appeals).

        10. The Tribunal held that the issues were covered in
E favour of the assessee by earlier orders of the Tribunal in the
  assessee's own cases. It had been held by the Tribunal in the
  earlier cases that income does not accrue until the imports are
  made and raw materials are consumed by the assessee. As
  regards the accounting year under consideration, it was found
F that there was no dispute that it was only in the subsequent year
  that t!le_imports were made and the raw materials consumed
  by the assessee.

       11. The Tribunal also took the note of the fact in the
  assessee's own cases starting from the assessment year 1992-
G 93 onwards these issues had been consistently decided in its
  favour. It was also noted that for some of the assessment years
  namely 1993-94, 1996-97 and 1997-98 appeals vyere filed by
  the Revenue in the Bombay High Court but they were not
  admitted.
H
 COMMISSIONER OF INCOME TAX v. MIS EXCEL                     497
    INDUSTRIES LTD. [MADAN B. LOKUR, J.]
     12. Under the circumstances, the Tribunal affirmed the         A
decision of the Commissioner of Income Tax (Appeals) on the
issues raised.

     13. The Revenue then preferred an appeal under Section
260-A of the Act in respect of the following substantial question   8
of law:

    "Whether on facts and in circumstances of the case and
    in law ITAT is justified in law in holding by following its
    decision in the case of Jamshri Ranjitsinghji Spinning &
    Weaving Mills Ltd. (41 ITD 142), that advance license           C
    benefit and DEPB benefits are taxable in the year in which
    these are actually utilized by the assessee and not in the
    year of receipts."

     14. By the impugned order, the High Court declined to          D
admit the appeal filed by the Revenue under Section 260-A of
the Act.

     15. It was submitted before us by learned counsel for the
Revenue that in view of the provisions of Section 28(iv) of the
Act, the value of the benefit obtained by the assessee is its       E
income and is liable to tax under the head "Profits and gains
of business or profession". We are unable to accept the
contention of learned counsel for the Revenue for several
reasons.
                                                                    F
     16. Section 28 (iv) of the Act reads as follows:-

     "Profits and gains of business or profession.

     28. The following income shall be chargeable to income-
     tax under the head "Profits and gains of business or           G
     profession" -



     (iv) the value of any benefit or perquisite, whether           H
    498       SUPREME COURT REPORTS                 [2013] 10 S.C.R.


A         convertible into money or not, arising from business or the
          exercise of a profession;
                      II




         17. First of all, it is now well settled that income tax cannot
B   be levied on hypothetical income. In Commissioner of Income
    Tax v. Shoorji Vallabhdas and Co., [1962] 46 ITR 144 (SC) it
    was held as follows:-

          "Income-tax is a levy on income. No doubt, the Income-tax
c         Act takes into account two points of time at which the
          liability to tax is attracted, viz., the accrual of the income
          or its receipt; but the substance of the matter is the income.
          If income does not result at all, there cannot be a tax, even
          though in book-keeping, an entry is made about a
D         'hypothetical income', which does not materialise. Where
          income has, in fact, been received and is subsequently
          given up in such circumstances that it rem'ains the income
          of the recipient, even though given up, the tax may be
          payable. Where, however, the income can be said not to
          have resulted at all, there is obviously neither accrual nor
E
          receipt of income, even though an entry to that effect might,
          in certain circumstances, have been made in the books
          of account."

        18. The above passage was cited with approval in Morvi
F   Industries Ltd. v. Commissioner of Income-Tax (Central),
  [1971] 82 ITR 835 (SC) in which this Court also considered the
  dictionary meaning of the word "accrue" and held that income
  can be said to accrue when it becomes due. It was then
  observed that: " ........ the date of payment ....... does not affect
G the accrual of income. The moment the income accrues, the
  assessee gets vested with the right to claim that amount even
  though it may not be immediately."

      19. This Court further held, and in our opinion more
H importantly, that income accrues when there "arises a
  COMMISSIONER OF INCOME TAX v. MIS EXCEL                    499
     INDUSTRIES LTD. [MADAN B. LOKUR, J.]
corresponding liability of the other party from whom the income      A
becomes due to pc;iy that amount."

     20. It follows from these decisions that income accrues
when it becomes due but it must also be accompanied by a
corresponding liability of the other party to pay the amount. Only
                                                                     8
then can it be said that for the purposes of taxability that the
income is not hypothetical and it has really accrued to the
assessee.

      21. In so far as the present case is concerned, even if it is
 assumed that the assessee was entitled to the benefits under C
 the advance licences as well as under the duty entitlement pass
 book, there was no corresponding liability on the customs
 authorities to pass on the benefit of duty free imports to the
 assessee until the goods are actually imported and made
 available for clearance. The benefits represent, at best, a D
 hypothetical income which may or may not materialise and its
 money value is therefore not the income of the assessee.

     22. In Godhra Electricity Co. Ltd. v. Commissioner of
 Income Tax, [1997) 225 ITR 746 (SC) this Court reiterated the       E
 view taken in Shoorji Vallabhdas and Morvi Industries.

      23. Godhra Electricity is rather instructive. In that case, it
 was noted that the High Court held that the assessee would be
 obliged to pay tax when the profit became actually due and that
 income could not be said to have accrued when it is based on F
 a mere claim not backed by any legal or contractual right to
 receive the amount at a subsequent date. The High Court
 however held on the facts of the case that the assessee had a
 legal right to.recover the consumption charge in dispute at the
 enhanced rate from the consumers.                                   G

      24. This Court did not accept the view taken by the High
  Court on facts. Reference was made in this context to
  Commissioner of Income Tax v. Bir/a Gwalior (P.) Ltd., [1973]
. 89 ITR 266 (SC) wherein it was held, after referring to Morvi      H
    500       SUPREME COURT REPORTS               [2013] 10 S.C.R.


A Industries that real accrual of income and not a hypothetical
  accrual of income ought to be taken into consideration. For a
  similar conclusion, reference was made to Poona Electric
  Supply Co. Ltd. v. Commissioner of Income Tax, [1965] 57
  ITR 521 (SC) wherein it was held that income tax is a tax on
B real income.

      25. Finally a reference was made to State Bank of
  Travancore v. Commissioner of Income Tax, [1986] 158 ITR
  102 (SC) wherein the majority view was that accrual of income
C must be real, taking into account the actuality of the situation;
  whether the accrual had taken place or not must, in appropriate
  cases, be judged on the principles of real income theory. The
  majority opinion went on to say:

                'What has really accrued to the assessee has to be
D         found out and what has accrued must be considered from
          the point of view of real income taking the probability or
          improbability of realisation in a realistic manner and
          dovetailing of these factors together but once the accrual
          takes place, on the conduct of the parties subsequent to
E         the year of closing an income which has accrued cannot
          be made "no income".

       26. This Court then considered the facts of the case and
  came to the conclusion (in Godhra Electricity) that no real
  income had accrued to the assessee in respect of the
F enhanced charges for a variety of reasons. One of the reasons
  so considered was a letter addressed by the Under Secretary
  to the Government of Gujarat, to the assessee whereby the
  assessee was "advised" to maintain status quo in respect of
  enhanced charges for at least six months. This Court took the
G view that though the letter had no legal binding effect but "one
  has to look at things from a practical point of view." (See R.B.
  Jodha Mal Kuthiala v. Commissioner of Income Tax, [1971]
  82 ITR 570 (SC)). This Court took the view that the probability
  or improbability of realisation has to be considered in a realistic
H manner and it was held that there was no real accrual of income
  COMMISSIONER OF INCOME TAX v. MIS EXCEL                        501
     INDUSTRIES LTD. [MADAN B. LOKUR, J.]
to the assessee in respect of the disputed enhanced charges             A
for supply of electricity. The decision of the High Court was,
accordingly, set aside.

     27. Applying the three tests laid down by various decisions
of this Court, namely, whether the income accrued to the                8
assessee is real or hypothetical; whether there is a
corresponding liability of the other party to pass on the benefits
of duty free import to the assessee even without any imports
having been made; and the probability or improbability of
realisation of the benefits by the assessee considered from a
realistic and practical point of view (the assessee may not have        C
made imports), it is quite clear that in fact no real income but
only hypothetical income had accrued to the assessee and
Section 28(iv) of the Act would be inapplicable to the facts and
circumstances of the case. Essentially, the Assessing Officer
is required to be pragmatic and not pedantic.                           D

     28. Secondly, as noted by the Tribunal, a consistent view
has been taken in favour of the assessee on the questions
raised, starting with the assessment year 1992-93, that the
benefits under the advance licences or under the duty entitlement       E
pass book do not represent the real income of the assessee.
Consequently, there is no reason for us to take a different view
unless there are very convincing reasons, none of which have
been pointed out by the learned counsel for the Revenue.
                                                                        F
     29. In Radhasoami Satsang Saomi Bagh v.
Commissioner of Income Tax, [1992] 193 ITR 321 (SC) this
Court did not think it appropriate to allow the reconsideration
of an issue for a subsequent assessment year if the same
"fundamental aspect" permeates in different assessment years.
In arriving at this conclusion, this Court referred to an interesting   G
passage from Hoystead v. Commissioner of Taxation, 1926
AC 155 (PC) wherein it was said:

     "Parties are not permitted to begin fresh litigation because
     of new views they may entertain of the law of the case, or         H
    502       SUPREME COURT REPORTS                  [2013] 10 S.C.R.


A         new versions which they present as to what should be a
          proper apprehension by the court of the legal result either
          of the construction of the documents or the weight of
          certain circumstances. If this were permitted, litigation
          would have no end, except when legal ingenuity is
B         exhausted . It is a principle of law that this cannot be
          permitted and there is abundant authority reiterating that
          principle. Thirdly, the same principle, namely, that of setting
          to rest rights of litigants, applies to the case where a point,
          fundamental to the decision, taken or assumed by the
c         plaintiff and traversable by the defendant, has not been
          traversed. In that case also a defendant is bound by the
          judgment, although it may be true enough that subsequent
          light or ingenuity might suggest some traverse which had
          not been taken."                         '
D       30. Reference was also made to Parashuram Pottery
    Works Ltd. v. Income Tax Officer, [1977] 106 ITR 1 (SC) and
    then it was held:

          'We are aware of the fact that strictly speaking res judicata
E         does not apply to income-tax proceedings. Again, each
          assessment year being a unit, what is decided in one year
          may not apply in the following year but where a fundamental
          aspect permeating through the different assessment years
          has been found as a fact one way or the other and parties
F         have allowed that position to be sustained by not
          challenging the order, it would not be at all appropriate to
          allow the position to be changed in a subsequent yea!_._

          "On these reasonings in the absence of any material
          change justifying the Revenue to take a different view of
G         the matter - and if there was no change it was in support
          of the assessee - we do not think the question should have
          been reopened and contrary to what had been decided by
          the Commissioner of Income Tax in the earlier
          proceedings, a different and contradictory stand should
H         have been taken."
 COMMISSIONER OF INCOME TAX v. MIS EXCEL                          503
    INDUSTRIES LTD. [MADAN B. LOKUR, J.]
       31. It appears from the record that in several assessment          A
years, the Revenue accepted the order of the Tribunal in favour
of the assessee and did not pursue the matter any further but
in respect of some assessment years the matter was taken up
in appeal before the Bombay High Court but without any
success. That being so, the Revenue cannot be allowed to flip-            8
flop on the issue and it ought let the matter rest rather than
spend the tax payers' money in pursuing litigation for the sake
of it.

     32. Thirdly, the real question concerning us is the year in
which the assessee is required to pay tax. There is no dispute            C
that in the subsequent accounting year, the assessee did make
imports and did derive benefits under the advance licence and
the duty entitlement pass book and paid tax thereon. Therefore,
it is not as if the Revenue has been deprived of any tax. We
are told that the rate of tax remained the same in the present            D
assessment year as well as in the subsequent assessment year.
Therefore, the dispute raised by the Revenue is entirely
academic or at best may have a minor tax effect. There was,
therefore, no need for the Revenue to continue with this litigation
when it was quite clear that not only was it fruitless (on merits)        E
but also that it may not have added anything much to the public
coffers.

     33. For the aforesaid reasons, we dismiss the civil appeals
with no order as to costs, but with the hope that the Revenue
                                                                          F
implements its litigation policy a little more practically and a little
more seriously.

K.K.T.                                         Appeals dismissed.


                                       ,,