1973 (9) TMI 12 - HC - Income Tax

Whether the burden of proof that an amount of refund was actually allowed as deduction in an earlier year is on the department - Whether, on the facts of this case, section 10(2A) of the Act could be invoked in bringing the sum of Rs. 21,107 to tax ? - when the circumstances are capable of being construed either in favour of the department or in favour of the assessee, the rule is that they should be construed in favour of the assessee. The conclusion of the Tribunal that the amount in question had been allowed or deducted in any earlier assessment year is not based upon any evidence at all and is based on merely surmise and conjecture. We, therefore, hold that the amount of Rs. 21,107 is not includible in the assessee-company s income of this year under section 10(2A) of the Act. The question referred to us is answered in the negative, i.e., in favour of the assessee and against the department.

Issues:
Interpretation of section 10(2A) of the Indian Income-tax Act, 1922 regarding inclusion of a refunded amount in the assessee's income for a specific assessment year.

Detailed Analysis:

The case involved a dispute regarding the inclusion of a refunded amount of Rs. 21,107 in the assessee-company's income for the assessment year 1956-57 under section 10(2A) of the Indian Income-tax Act, 1922. The assessee-company had received this amount as a refund from the Government due to excess payment made for raw materials supplied under a contract. The Income-tax Officer sought to include this amount in the assessee's income for the year in question, contending that it fell under the purview of section 10(2A) of the Act. However, the Appellate Assistant Commissioner disagreed, stating that since the amount represented only reimbursement of expenses and was not previously claimed as a business expenditure, it could not be considered as income. The Tribunal, on appeal, reversed the decision and upheld the Income-tax Officer's stance, leading to further legal proceedings.

The crucial aspect under consideration was whether the refunded amount could be deemed as income under section 10(2A) of the Act. The provision stipulates that if an allowance or deduction has been made in a prior assessment year for any expenditure incurred by the assessee, and the assessee subsequently receives an amount in respect of that expenditure, it shall be treated as income for the year in which the amount is received. The Tribunal highlighted that the prerequisite for invoking this provision is that the expenditure in question must have been previously deducted for computing profits. In this case, the department failed to provide evidence demonstrating that the amount had been allowed as an expenditure in earlier assessment years. The burden lay on the department to prove such allowance, which it could not substantiate due to the unavailability of assessment records from previous years.

The Tribunal's decision was based on conjecture rather than concrete evidence. It inferred that the assessee should have claimed the extra price paid to the Government as an expense, despite the ongoing dispute and efforts to secure a refund. However, the Court rejected this reasoning, emphasizing that in cases where circumstances can be construed in favor of either party, the rule dictates interpreting them in favor of the assessee. The Court concluded that the refunded amount was not includible in the assessee's income for the relevant year under section 10(2A) of the Act due to the lack of evidence supporting its allowance as an expenditure in prior assessments.

In conclusion, the Court answered the referred question in the negative, ruling in favor of the assessee and against the department. The assessee-company was also awarded costs for the reference proceedings, with the counsel's fee fixed at Rs. 250.

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