1975 (2) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 2,68,545 credited to the Pakistan duty account can be assessed as income for the assessment year 1955-56.

Summary:

Issue 1: Assessment of Rs. 2,68,545 as Income for the Assessment Year 1955-56

In this reference u/s 66(1) of the Indian Income-tax Act, 1922, the primary question was whether the sum of Rs. 2,68,545, credited to the Pakistan duty account, could be assessed as income for the assessment year 1955-56 due to its distribution among the partners in the relevant previous year. The assessee, a registered firm following the mercantile system of accounting, had realized and paid increased prices due to duty on raw jute exported from Pakistan in the years relevant to the assessment years 1948-49 and 1949-50. These sums were entered in a separate "Pakistan Duty Account" and not included in the profit and loss account of those years. The business in Pakistan was closed, and the amount was distributed among the partners in 2011 R.N. year due to a partner's retirement.

The Income-tax Officer included this amount as income for the 2011 R.N. year, arguing that the nature of the amount as part of the sale proceeds was not altered by keeping it in a separate account. The first appeal by the assessee was dismissed by the Appellate Assistant Commissioner, who relied on the Judicial Committee's decision in Commissioner of Income-tax v. Maharajadhiraja Kameshwar Singh of Darbhanga [1933] 1 ITR 94 (PC). However, the Tribunal allowed the second appeal, following the principles from Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA), concluding that the sums were trading receipts of the earlier years and not income for the 2011 R.N. year.

The revenue argued that the sums were not treated as income in the earlier years and were only treated as such upon distribution in 2011 R.N. year. However, the court found that the principles from the Privy Council case did not apply, as there was no creditor-debtor relationship, and the sums were trading receipts of the earlier years. The court also referenced Debaprasanna Mukherji v. Commissioner of Income-tax [1951] 20 ITR 293 (Cal), where it was held that the nature of receipts could not be altered by bookkeeping entries.

The court emphasized that the sums were trading receipts when realized and could not be considered income for the assessment year 1955-56. The decision of the Tribunal was upheld, and the court answered the question in the negative, in favor of the assessee, with no order as to costs.

Conclusion:
The sum of Rs. 2,68,545 credited to the Pakistan duty account could not be assessed as income for the assessment year 1955-56, as it was a trading receipt of the earlier years. The Tribunal's decision was upheld, and the question was answered in favor of the assessee.