COMMISSIONER OF INCOME TAX Vs. RASHMI TRADING

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following two questions have been referred to us for our opinion by the Tribunal :

(2.) THE facts leading to this reference are as follows : The assessment year under consideration is 1966 67, the previous year being Samvat year 2021. While processing the assessment for the asst. year 1966 67, a point arose for consideration before the ITO whether the refund of sales tax which was allowed as a deduction in the respective assessment years was liable to be assessed as the income of the assessee in the year in which it was refunded to the assessee. In respect of sales of hessian during the period 30th June, 1957, to 31st Dec., 1959, the assessee had paid an aggregate amount of Rs. 42,945 as and by way of sales tax. On 5th Dec., 1962, this High Court delivered the judgment in CST vs. Sumatilal Popatlal & Co. (supra) and it was held in that case that no sales tax could be levied on sales of hessian. After the pronouncement of this decision, the assessee applied for refund of sales tax aggregating to Rs. 42,945. On 19th Aug., 1965, the Sales tax Officer issued the refund order and the main controversy in the present reference is as to in which year this amount of refund should be included as part of the income of the assessee, that is, in 1965 being the previous year relevant to the asst. year 1966 67 or in the previous year relevant to the asst. year 1964 65. The assessee contends that this amount of Rs. 42,945 being the refund of sales tax should be included in his income in the asst. year 1964 65 whereas the Department insists that it should be included in the asst. year 1966 67. It may also be pointed out that after the receipt of the amount the assessee filed a revised return for the asst. year 1964 65, showing the amount of Rs. 42,945 as part of his income but this revised return was not accepted by the ITO and ultimately he included the amount as part of the income of the assessee in the asst. year 1966 67. It is common ground between the parties that the assessee's books of account are kept on the mercantile system of accounting as distinguished from cash or receipt basis. It is also common ground that, apart from applying for refund of sales tax after the decision of this High Court in CST vs. Sumatilal Popatlal & Co. (supra), the assessee had not initiated any proceedings in connection with his sales tax liabilities. The assessee contends that the right to refund arose on 5th Dec., 1962, when the Gujarat High Court held that sales tax was not leviable on hessian and according to the assessee on that date the right to refund accrued to the assessee and it is that date which should be taken into consideration for the purpose of deciding in which assessment year the amount of Rs. 42,945 should be included. The ITO relied upon S. 41(1) of the IT Act, 1961, for the purpose of holding that the amount should be included in the income for the asst. year 1966 67. Against the decision of the ITO, the assessee went in appeal before the AAC. The AAC relied upon the decision of the Allahabad High Court in Jagatnarain Durga Prasad vs. CIT (1970) 76 ITR 214 (All) : TC19R.215 and he confirmed the order of the ITO. Against the decision of the AAC, the matter was taken in further appeal before the Tribunal by the assessee. The Tribunal held that the right to receive the refund came into existence on the date when the judgment was delivered by the Gujarat High Court, that is, on 5th Dec., 1962, in the case of CST vs. Sumatilal Popatlal & Co. (supra) and, therefore, the income arising from the refund of sales tax which had been previously paid, should be assessable in the asst. year 1964 65. Thereafter, at the instance of the Revenue, the questions set out hereinabove have been referred to us for our opinion by the Tribunal.

(3.) WE may point out that Sampath Iyengar in his Commentary on Income tax Act, sixth edition, second volume, at page 1077, has observed in connection with S. 41(1) as follows :