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Issues: Liability to refund regarding customs duty and sales tax collected in earlier years, treatment of collected amounts as trading receipts, treatment of entertainment expenditure, applicability of Explanation to section 37(2B) retrospectively.
The judgment addressed the issue of liability to refund concerning customs duty and sales tax collected in earlier years. The court analyzed the contention that the collected amounts should not be treated as trading receipts subject to tax in the relevant year. The court noted that the collection was not pursuant to any court order or statutory provision mandating refund, and the assessee had not refunded the amounts, indicating they were trading receipts. Referring to previous Supreme Court decisions, the court emphasized that the true nature of a receipt determines its treatment, regardless of how it is recorded in account books. The court concluded that the collected amounts were indeed trading receipts and should be treated as such, rejecting the assessee's argument against taxing them. Regarding the treatment of entertainment expenditure, the court considered the claim of Rs. 25,062 as allowable. It referenced a Supreme Court decision stating that the Explanation to section 37(2B) was not clarificatory and applied prospectively, not to the relevant assessment year. Consequently, the court ruled in favor of the assessee on this issue. In conclusion, the court held that the customs duty and sales tax dues collected in earlier years should be treated as income of the assessee, dismissing the assessee's argument against taxing them. However, the court ruled in favor of the assessee regarding the treatment of entertainment expenditure, allowing the claim. The court also clarified that the Explanation to section 37(2B) did not apply retrospectively, supporting the assessee's position on this matter.
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