SHEIKH RAHMAT ALI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal has referred the following question of law under Section 66(1) of the Income Tax Act :

(2.) The matter relates to the assessment of income-tax for the assessment year 1950-51, the accounting year being 1949-50. The assessee is a registered firm, and a licensed excise vendor carrying on the business of purchasing country spirit from the Excise Department of the State Government in bulk and selling it to consumers in bottles, and for this it has to pay licence fee. During the accounting year ending 31-3-1947, (assessment year 1947-48) the assessee paid several lacs of rupees as licence fee. During this period its liquor shops remained closed on account of the outbreak of communal riots. On its representation the Government, on account of the stoppage of the business due to circumstances beyond its control, allowed concession and refunded Rs. 26,328/- out of the licence fee paid in the accounting year ended 31-3-1950, that is to say, the year under reference. This amount has been treated by the Revenue Department as a trading receipt and has been brought into the computation for tbe assessment year in question. The assessee claims to deduct this amount from the income of the year under consideration, and whether it is entitled to deduct this sum denends upon whether or not it is properly attributable to capital or is chargeable against the revenue.

(3.) The facts are simple and lie in short compass. They can be gathered from the statement of the case submitted by the Appellate Tribunal. In respect of that assessment year, the assessee returned a loss of Rs. 2,11,956/-. In arriving at that amount of loss, licence fee paid to the Government amounting to Rs. 2,47,560/- together with other expenses like excise duty, purchase of molasses etc. and overhead charges in all amounting to Rs. 7,57,841/- was claimed by the assessee as business expenditure. The loss returned by the assesee was not accepted by the Department for various reasons. After an examination of the accounts, the department fixed the unexplained cash credit at Ps. 4,21.701/- and after setting off the loss of Rs. 2,11,956/- determined the nctt assessable income from business at Rs. 2,09,745/-. In determining the taxable income the Income-tax Officer considered this amount as tbe subject of income-tax and included it in the taxable income. He observed as follows :