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Issues Involved:
1. Whether the sales tax refund of Rs. 76,918 is assessable for the assessment year 1971-72. 2. Whether the sales tax amount refunded, amounting to Rs. 76,918, was income in the hands of the assessee assessable to income-tax. Summary: Issue 1: Assessability of Sales Tax Refund for the Assessment Year 1971-72 The Tribunal held that the sales tax refund of Rs. 76,918 was not assessable for the assessment year 1971-72. The assessee followed the mercantile system of accounting, and the right to receive the refund accrued on March 17, 1969, when the Dy. CCT made the order. This fell within the accounting period relevant to the assessment year 1970-71. The Tribunal observed that the regular method of accounting could not be ignored merely because the assessee credited the amount in the books in the subsequent year. The High Court upheld this view, stating that the date of accrual cannot be postponed by the assessee at his own choice. The refund accrued within the previous year relevant to the assessment year 1970-71, not 1971-72. Issue 2: Taxability of Sales Tax Refund as Income The Tribunal rejected the contention that the refund was not taxable. It held that the amount collected by way of sales tax was a trading receipt, and the refund was part of this amount, making it taxable. The High Court agreed, citing the Supreme Court's decisions in Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murray and Co. P. Ltd. v. CIT, which held that amounts collected by way of sales tax by a dealer formed part of his trading receipt and were includible in the computation of total income. The High Court also noted that the liability to return the amount to the constituents was not a statutory liability but a potential claim, which did not constitute an existing liability for deduction. Conclusion: The High Court answered both questions in the affirmative. The sales tax refund was not assessable for the assessment year 1971-72, but it was taxable as income in the hands of the assessee.
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