1969 (11) TMI 13 - HC - Income Tax

In the beginning of 1948, the Govt. imposed additional excise duty on yarn - Whether the sum appropriated to the capital reserve account of the assessee in 1950 was not a business receipt assessable to income-tax in the assessment year 1951-52 - Held, no

Summary

Issues:
1. Whether the sum of Rs. 67,125 appropriated to the capital reserve account of the assessee in 1950 was not a business receipt assessable to income-tax in the assessment year 1951-52?

Detailed Analysis:

The judgment pertains to a reference under section 66 of the Indian Income-tax Act, 1922, for the assessment year 1951-52 involving a private limited company engaged in yarn manufacturing. The company supplied yarn to a Bombay party and requested payment towards anticipated additional excise duty. The Bombay party paid Rs. 74,361, but the company later determined no additional duty was due and retained the amount. The company credited Rs. 67,125 to its capital reserve account in 1950. The Income-tax Officer considered this amount as income for 1950, but the Appellate Tribunal disagreed, leading to the reference.

The Tribunal framed two key issues: whether the amount received from the Bombay party constituted a trading receipt, and if so, whether it was taxable in the year received or when credited to the capital reserve account. The Tribunal found the amount was not a trading receipt and even if it was, it was not income for the assessment year 1951-52.

The Commissioner challenged the Tribunal's finding, arguing that the receipt should be considered a trading receipt based on the communication between the parties and the provisions of section 64A of the Sale of Goods Act. While acknowledging the possibility that the receipt could be a trading receipt, the court emphasized that the nature of a receipt for income tax purposes is determined when it is received.

The court noted that the amount was received in 1948 but credited to the capital reserve account in 1950, with no further receipts in that year. The court also discussed the alleged consent of the Bombay party to the adjustment, concluding that even if consent existed, it did not impact the assessment. Ultimately, the court upheld the Tribunal's decision, ruling that the amount of Rs. 67,125 was not a business receipt assessable to income tax for the assessment year 1951-52, in favor of the assessee.

In conclusion, the court answered the question in favor of the assessee, directing the Commissioner of Income-tax, Lucknow, to pay the assessee costs of the reference.