A ARUMUGAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was carrying on the business styled as Anand benefit Scheme as a proprietary concern. THE said proprietary concern was taken over by a firm on and from 1st April, 1976, consisting of three partners including the assessee on the basis of a deed of partnership dt. 1st April, 1976. THE assessee while he was running the business as a proprietary concern, has been collecting sales-tax from the customers and paying the same to the government. THE amount of sales-tax paid to the Government was allowed as deduction in the individual assessment of the assessee. Subsequently, this court in the case of Srinivasa Sales Circulation vs. State of Tamil Nadu 1976 (33) STC 359 (Mad) has taken a view that the circulation scheme adopted by the assessee were not liable to be taxed under the provisions of the Tamil Nadu gen. ST Act and on the basis of the decision of this Court, the assessee got a refund in his name a sum of Rs. 97, 845 during the previous year relevant to the assessment year ended on 31st March, 1977. In the assessment made on the assessee, the ITO held that the amount was liable to be assessed in the hands of the assessee under the provisions of s. 41 (1) of the IT Act, 1961. THE assessee contended before the AO that the amount actually belonged to the firm and cannot be considered as the assessee's income and further the provisions of s. 41 (1) of the IT Act, 1961, were not applicable to the facts of the case. THE ito however, held that the sales-tax refund received by the assessee was the property of the proprietary concern of the assessee and it did not belong to the firm and the assessee after the receipt of the refund, made over the same to the firm and, therefore, the assessee alone was assessable to tax. THE ITO also invoked the provisions of s. 41 (1) of the Act and held that the said amount was assessable in the assessee's hand

(2.) THE assessee preferred an appeal before the AAC and according to the AAC there was an effective alienation of the sales-tax refund in favour of the firm and hence the refund could not be assessed as the assessee's income

(3.) WE have carefully considered the submissions of learned counsel for the Revenue as well as learned counsel for the assessee. The fact remains that the Tribunal while considering the alternative argument advanced by the assessee directed the ITO to verify the question whether the amount was properly assessable to tax under the provisions of s. 41 (1) of the act and adjudicate on the assessee's alternative claim with reference to the taxability of the refund of sales-tax received by the assessee. The ITO gave effect to the order of the Tribunal and in the order passed by him on 28th march, 1985, for the asst. yr. 1977-78 he excluded the refund of the sales-tax amounting to Rs. 97, 845 from the assessee's total income and held that it was not assessable in the assessment year as assessee's income. In view of the subsequent order passed by the ITO, the issue as to whether the amount is properly assessable under the provisions of s. 41 (1) of the Act has become academic as the ITO has not assessed the refund as income at all in the order passed by him to give effect to the order passed by the Tribunal. In view of the definite stand taken by the Department in the subsequent proceedings, we are of the view that it is unnecessary for us to consider the question whether the amount received was the income of the assessee or that of the firm. Furthermore, the Supreme Court in the case of State of Tamil Nadu vs. Sri Srinivasa sales Circulation (supra) has held that the circulation scheme adopted by the assessee has all the attributes of the sale and the assessee is liable to pay sales-tax. The decision of the Supreme Court makes it clear that the liability to the sales-tax is attracted and to amount of refund the assessee received is not assessable as the income of the assessee. Therefore, we are of the view that it is not necessary to answer the questions of law referred to us in view of the subsequent development in the case and hence we return the reference without answering the questions of law but at the same time, recording the fact that the ITO in the proceedings has accepted the assessee's case that the amount was not assessable to income under the provisions of the IT Act. In view of the order of the ITO, we are not answering the questions of law and we are returning the questions of law unanswered. No costs. .