1979 (12) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Nature of the amount of Rs. 12,697 credited in the Royalty account.
2. Applicability of Section 41 of the IT Act.
3. Taxability of the amount in the year of receipt or in the years of collection.

Detailed Analysis:

1. Nature of the amount of Rs. 12,697 credited in the Royalty account:

The appellant, a partnership firm engaged in the manufacture and sale of bricks, was assessed for the year 1972-73, with the previous year ending on 30th June 1971. The primary dispute was regarding a sum of Rs. 12,697 appearing as a credit balance in the Royalty account. The Income Tax Officer (ITO) initiated proceedings under Section 148 of the IT Act due to the unsatisfactory explanation provided by the assessee regarding this credit. The ITO concluded that the sum represented a revenue receipt and added it to the income of the assessee for the assessment year 1972-73, relying on the Gujarat High Court's decision in CIT vs. Rashmi Trading.

The Appellate Assistant Commissioner (AAC) disagreed with the applicability of the Gujarat High Court decision but held that the amount was a trading receipt based on the decision of the Punjab & Haryana High Court in CIT Saraswati Industrial Syndicate Ltd. The AAC reasoned that the amount was charged to customers along with the sale price and thus formed part of the trading receipts, dismissing the assessee's contention that it was either payable to the government or refundable to customers.

The Tribunal, after considering the arguments, concluded that the royalty amounts collected were part of the sale price realized for the bricks sold and thus formed part of the trading receipts. The Tribunal rejected the assessee's argument that the amount was held in trust for customers and not a liability of the assessee, citing the Supreme Court decisions in Chowringhee Sales Bureau (P) Ltd. and Sinclair Murray Ltd.

2. Applicability of Section 41 of the IT Act:

The AAC applied Section 41 of the IT Act, arguing that the amount was indirectly allowed as a deduction. However, the Tribunal found no material to support this conclusion and held that Section 41 was not applicable since the amounts were never claimed nor allowed as an expenditure or loss in any of the earlier previous years.

3. Taxability of the amount in the year of receipt or in the years of collection:

The assessee's counsel contended that the amount should be taxable in the years when collected, not in the year under appeal. The Tribunal agreed with this alternative plea, holding that the royalty receipts should be taxable as income in the respective years of their collection: Rs. 1,075 in 1967-68, Rs. 2,879 in 1968-69, and Rs. 8,742 in 1969-70. The Tribunal directed the ITO to take appropriate action to bring these amounts to charge in the respective assessment years in accordance with the law.

Conclusion:

The appeal was partly allowed, with the Tribunal deleting the addition of Rs. 12,697 from the income of the assessee for the assessment year 1972-73, and directing the amounts to be taxed in the years they were collected.