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Issues Involved:
1. Whether the excess amounts of local fund cess received by the assessee and later refunded constituted his income liable to tax. 2. The effect of civil court and High Court decisions on the determination of the nature of the amounts received by the assessee. Issue-wise Detailed Analysis: 1. Whether the excess amounts of local fund cess received by the assessee and later refunded constituted his income liable to tax: The primary issue revolves around whether the excess amounts of local fund cess received by the assessee from the Syndicate, and later refunded under a court decree, should be considered as the assessee's taxable income. The assessee, an ex-Talukdar of Shivrajpur Estate, had leased lands for mining manganese ore. Under the lease agreement, the lessee was responsible for paying rents, royalties, and all public demands, except land revenue. During the assessment years 1954-55 to 1959-60, the assessee received both royalties and local fund cess from the Syndicate. The amounts received as local fund cess were significant, ranging from Rs. 81,335 to Rs. 1,12,924 annually. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) initially held that these amounts constituted the assessee's income. However, the Appellate Tribunal later found that the excess amounts received did not constitute real income, as they were received under a mistaken belief and were subsequently refunded. 2. The effect of civil court and High Court decisions on the determination of the nature of the amounts received by the assessee: A critical factor in determining the nature of these receipts was the series of legal proceedings that followed. The Syndicate filed a civil suit against the assessee, claiming that the excess cess was paid under a mistake. The Civil Court decreed that the assessee was not entitled to recover any amount beyond Rs. 204-7-3 per year as local fund cess, and ordered a refund of Rs. 7,02,664.85. This decision was upheld by the Gujarat High Court, which confirmed that the assessee had no right to recover the excess amounts as local fund cess. The Tribunal considered the civil court and High Court findings, noting that these decisions determined the nature of the receipts at the time they were received. The Tribunal concluded that the amounts received by the assessee, which were later refunded, could not be considered as income. This was because the legal determination by competent courts indicated that the assessee was not entitled to these amounts under the lease agreement. The Tribunal also referenced the Supreme Court's decision in CIT v. Shoorji Vallabhdas and Co., which held that income that is subsequently given up does not remain income if it was not rightfully received. The Tribunal found that the temporary receipts of the disputed amounts did not constitute real income, as the amounts were received under a mistaken belief and later refunded. In conclusion, the High Court upheld the Tribunal's decision, stating that the amounts received by the assessee as local fund cess, which were later refunded, did not constitute his income. The court emphasized that the determination of the nature of the receipts was influenced by the civil court and High Court decisions, which clarified that the assessee was not entitled to these amounts under the lease agreement. The question referred to the court was answered in the negative, in favor of the assessee, with the revenue ordered to pay the costs of the reference.
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