1956 (2) TMI 62 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 36,094 being the refund of Indian excise duty on betel-nuts imported from Travancore State was assessable as profits of the accounting period for income-tax and excess profits tax.

Issue-wise Detailed Analysis:

1. Assessability of Rs. 36,094 as Profits for the Accounting Period:

The core issue was whether the refund of Rs. 36,094, which the assessee received as a refund of excise duty on betel-nuts imported from Travancore State, should be included in the assessee's income for the accounting period 1944-45.

Arguments and Tribunal's Findings:
- The Tribunal held that the Government of India's notification, which canceled the collection of excise duty from 14th November 1944 onwards, created a right for the assessee to receive the refund. The Tribunal viewed this refund as a trading surplus relating to the accounting year in question.
- The Tribunal's reasoning was that the debt due from the Government was a trading surplus and should be included in the income for the year of account.

High Court's Analysis:
- The High Court disagreed with the Tribunal's view that the levy of excise duty amounted to extortion by the Government. It clarified that the excise duty was lawfully collected under a valid enactment.
- The High Court emphasized that the Government of India's executive instructions to refund the excise duty did not create any legally enforceable rights for the assessee during the accounting year. These instructions were not communicated to the assessee or the dealers directly.
- The High Court noted that the assessee maintained his accounts on a mercantile basis, and there was no credit entry for the sum of Rs. 36,094 in the year of account. The Court questioned whether there was an ascertained liability with reference to this sum that would necessitate a credit entry.

Legal Precedents Cited:
- The High Court referred to the Supreme Court's observation in E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, which stated that income accrues when the assessee acquires a right to receive it. The High Court concluded that the assessee did not acquire such a right during the accounting year.
- The High Court also discussed the House of Lords' decision in Commissioners of Inland Revenue v. Newcastle Breweries Ltd., which dealt with the right to payment arising in the year of account. However, the High Court distinguished this case, stating that the refund in the present case was not analogous to a trade debt or remuneration for services rendered.
- The High Court further cited British Mexican Petroleum Co. Ltd. v. Jackson, where it was held that a subsequent release of liability could not be related back to the year of account.

Conclusion:
- The High Court concluded that the refund of Rs. 36,094 did not represent income that accrued to the assessee in the accounting year 1944-45. The remission of tax was not in the year of account, and subsequent releases could not be related back to that year.
- Therefore, the High Court answered the question referred to it in the negative and in favor of the assessee, holding that the sum of Rs. 36,094 was not assessable as profits for the accounting period for income-tax and excess profits tax.

Costs:
- The assessee was entitled to the costs of this reference, with counsel's fee fixed at Rs. 250.

Reference Answered Accordingly:
- The reference was answered in the negative, favoring the assessee.