1982 (2) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Whether the excess payment of Rs. 31,695 received by the assessee from the Pay and Accounts Officer, Calcutta, is a trading receipt and liable to tax in the assessment year 1971-72.
2. Whether the surplus sales tax amount of Rs. 11,523 received by the assessee is a trading receipt and liable to tax in the assessment year 1971-72.

Issue-wise Detailed Analysis:

1. Excess Payment of Rs. 31,695:
The assessee received an excess payment of Rs. 31,695 from the Pay and Accounts Officer, Calcutta, which was placed in a suspense account until it was brought to the profit and loss account in the assessment year 1971-72. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) treated this amount as taxable income for the assessment year 1971-72. However, the Income-tax Appellate Tribunal (ITAT) held that the payment was made under a mistake and could not be treated as a trading receipt. The Tribunal emphasized that the onus was on the Department to prove that the amount had acquired the character of a trading receipt, which the Department failed to establish.

The High Court agreed with the Tribunal's view that if the amount was initially received as a trading receipt, its character would not change merely because it was placed in a suspense account and later brought to the profit and loss account. The Court noted that the accounting system of the assessee was mercantile, where income accrues on the date it becomes due, regardless of actual receipt. Therefore, if the amount was a trading receipt, it should have been taxed in the year it was received, not in the year it was transferred to the profit and loss account.

2. Surplus Sales Tax Amount of Rs. 11,523:
The assessee charged sales tax at a higher rate than legally required, resulting in a surplus amount of Rs. 11,523, which was also placed in a suspense account until it was brought to the profit and loss account in the assessment year 1971-72. Both the ITO and AAC considered this amount as taxable income for the assessment year 1971-72. However, the Tribunal, relying on the Supreme Court's decision in Chowringhee Sales Bureau P. Ltd. v. CIT, held that the amount was a trading receipt but could not be taxed in the assessment year 1971-72 as it was received in the financial years 1964-65 and 1965-66.

The High Court affirmed the Tribunal's view, stating that the character of the receipt as a trading receipt remains unchanged regardless of its placement in the suspense account. The Court reiterated that the income should be taxed in the year it was received, not in the year it was transferred to the profit and loss account. The Court cited several precedents, including the Supreme Court's decision in Chowringhee Sales Bureau's case, which established that the initial character of the receipt is decisive.

Conclusion:
The High Court concluded that both amounts, Rs. 31,695 and Rs. 11,523, were trading receipts from the inception and should have been taxed in the years they were received. The Court held that merely transferring these amounts to the profit and loss account in the assessment year 1971-72 does not alter their character or make them taxable in that year. Therefore, the question was answered in the affirmative, and no order as to costs was made.