MOTILAL AMBAIDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

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

(2.) THE facts leading to this reference are as follows : We are concerned with the asst. year 1965 66, the relevant previous year being Samvat year 2020. The assessee is a registered partnership firm consisting of three partners. It deals in tobacco including tobacco imported from other States. Its principal place of business is at Sayama in Cambay Taluka of Kaira District. The accounts of the assessee firm are maintained on mercantile basis. The assessee had effected some sales in Madhya Pradesh. The Madhya Pradesh Government imposed sales tax on tobacco imported from other States of India under the Madhya Bharat Sales Tax Act. This sales tax was levied only for the period April 1, 1950, to June 30, 1957. The assessee was charging sales tax separately in respect of such tobacco sold in Madhya Pradesh but the sales tax was not credited to the trading account. It was taken to a separate sales tax account and the sales tax was paid to the State Government by debiting this account. Thus, the receipt of sales tax was not shown on the credit side in the accounts nor was the payment of the sales tax shown on the debit side in the accounts. The assessee challenged the levy of the sales tax in the Madhya Pradesh High Court. The Madhya Pradesh High Court by judgment dated December 16, 1959 (Bhailal Bhai vs. State of M.P. (1960) 11 STC 511 (MP)) held that this particular levy of sales tax was unconstitutional and invalid. As a result of this, the assessee got a refund of the sum of Rs. 42,263 in the year 1961. This refund was from the Madhya Pradesh Government. At the same time, the Government of Madhya Pradesh went in appeal to the Supreme Court against the decision of the Madhya Pradesh High Court. The Supreme Court by its judgment dated January 20, 1964 (State of Madhya Pradesh vs. Bhailal Bhai (supra)) confirmed the decision of the Madhya Pradesh High Court. The refund of the sum of Rs. 42,263 was credited in the books of account of the assessee firm in Samvat year 2020 but the actual amounts were received as follows : A sum of Rs. 34,490 was actually received in the course of Samvat year 2020 and the balance amount of refund, namely, Rs. 7,773, was received by the assessee firm in the course of Samvat year 2021. The ITO concerned assessed this amount of Rs. 42,263 received by way of sales tax refund on three alternative bases and he made the assessments in three alternative years by way of protective assessment. Samvat year 2015, corresponding to asst. year 1960 61, was the year in the course of which the Madhya Pradesh High Court announced its judgment. Samvat year 2016 was the year in which the sales tax was directed to be refunded and the accounting year, Samvat year 2020, was the accounting year in which the judgment of the Supreme Court was pronounced confirming the judgment of the Madhya Pradesh High Court. The assessments for the three years, asst. yrs. 1960 61, 1961 62 and 1965 66, were reopened and the same amount was brought to tax in each of these three assessment years in three separate assessment proceedings.

(3.) AGAINST the decision of the AAC the assessee went in appeal before the Tribunal. The Tribunal held that the transaction came within the mischief of S. 41(1) of the IT Act, 1961, when the assessee got refund of the sales tax paid. At the same time, relying on the decided cases, it held that this refund could not be treated as income under S. 41(1) until the matter was completely finalised and that this was done when the Supreme Court passed the final order in the matter and the Tribunal took the view that the amount was rightly taxed in the asst. year 1965 66. Thereafter, at the instance of the assessee, the questions set out hereinabove have been referred to us for our opinion.