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Issues: Taxability of refunded sales tax amount under section 41(1) of the Income-tax Act, 1961; Availability of statutory remedy under section 256 for reference; Additional issues raised by the petitioner before the Appellate Tribunal regarding the taxability of the refunded amount.
The High Court of Allahabad, in the case involving a limited company, addressed the issue of the taxability of a refunded sales tax amount under section 41(1) of the Income-tax Act, 1961. The petitioner had collected sales tax from customers, deposited it under protest, and later received a refund from the Sales Tax Department. The Income-tax Appellate Tribunal had a difference of opinion on the taxability of the amount, with the Accountant Member considering it taxable under section 41(1) due to remission of the liability, while the Judicial Member disagreed, citing lack of deductions in previous years. The Tribunal referred the matter to a third Member, who supported the Accountant Member's view, leading to upholding the taxability of the refunded amount. The Court noted the availability of a statutory remedy under section 256 for reference, emphasizing that the petitioner could challenge the taxability through this route rather than through a writ petition under article 226 of the Constitution. The petitioner raised additional issues before the Appellate Tribunal, arguing against the taxability of the refunded amount. These issues included the contention that the amount was held in trust for customers and was not taxable under section 41(1) and that the amount should not be taxed in the assessment year 1980-81. The petitioner claimed that since these issues were not addressed in the Tribunal's order, a reference under section 256 would not cover them, necessitating a writ petition. However, the Court rejected this argument, stating that the core question before the Tribunal was the taxability of the refunded amount, and any reasons given by the petitioner against taxability did not preclude a reference under section 256. The Court maintained that as long as a question of law arose from the Tribunal's decision on the taxability issue, the petitioner could seek redress through a reference. In conclusion, the Court held that no intervention under article 226 was warranted, as the petitioner had the avenue of reference under section 256 available. The writ petition was disposed of with this observation, affirming the statutory remedy for challenging the taxability of the refunded amount.
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