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TMI Blog1975 (12) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... eration is 1966-67, the previous year being Samvat year 2021. While processing the assessment for the assessment year 1966-67, a point arose for consideration before the Income-tax Officer whether the refund of sales tax which was allowed as a deduction in the respective assessment years was liable to be assessed as the income of the assessee in the year in which it was refunded to the assessee. In respect of sales of hessian during the period June 30, 1957, to December 31, 1959, the assessee had paid an aggregate amount of Rs. 42,945 as and by way of sales tax. On December 5, 1962, this High Court delivered the judgment in Commissioner of Sales Tax v. Sumatilal Popatlal Co. and it was held in that case that no sales tax could be levied on sales of hessian. After the pronouncement of this decision, the assessee applied for refund of sales tax aggregating to Rs. 42,945. On August 19, 1965, the Sales Tax Officer issued the refund order and the main controversy in the present reference is as to in which year this amount of refund should be included as part of the income of the assessee, that is, in 1965 being the previous year relevant to the assessment year 1966-67 or in the previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising from the refund of sales tax which had been previously paid, should be assessable in the assessment year 1964-65. Thereafter, at the instance of the revenue, the questions set out hereinabove have been referred to us for our opinion by the Tribunal. Before proceeding further with the discussion on the point, it will be necessary to refer to section 41(1) of the Act of 1961. That section is in these terms: "41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure is concerned in respect of which an allowance or deduction has been made in the past, what counts is obtaining of any amount in respect of such loss or expenditure. The amount may be received in any year or in any other manner whatsoever, but it must be "obtained" whereas, so far as the benefit in respect of trading liability is concerned, it must be by way of remission or cessation of the said liability and the relevant date is the date of accrual of such benefit. The value of the benefit is to be considered the income of the assessee as of the date of accrual of the benefit. We may point out that Sampath Iyengar in his Commentary on Income-tax Act, sixth edition, second volume, at page 1077, has observed in connection with section 41(1) as follows : "The words the assessee has obtained any 'amount' in the context of expenditure previously incurred by the assessee, would connote that a payment had already been made by the assessee to his creditor and that the creditor returns back the whole or a part thereof to the assessee. It might be that, earlier, an over-payment had been made by the assessee and that on a subsequent checking, the over-payment is discovered, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r means obtainable, or when the assessee became entitled to obtain the same? That is the question that we have to consider in the light of the sales tax law. It is true, as Mr. Patel has contended before us, that the decision of the Gujarat High Court in Commissioner of Sales Tax v. Sumatilal Popatlal Company was to the effect that under the law no sales tax was payable in respect of sales of hessian and it, therefore, became clear, according to this decision which was not challenged by way of further appeal to the Supreme Court, that the amount of Rs. 42,945 which the assessee had paid to the sales tax authorities in the earlier years had no basis in law so far as the Government was concerned and the amount had been collected from him without the proper authority of law in that behalf. Mr. Patel for the assessee has very strongly relied upon certain observations of Grover J. in Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax At page 366 of the report, Grover J., delivering the judgment of the Supreme Court, has observed: "Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax v. Chunilal V. Mehta Sons P. Ltd it must be borne in mind that in that case the Supreme Court was dealing with section 10(5A) of the Act of 1922. The facts of that case were that in about April, 1951, a large holding of the managed company was acquired by a group of shareholders hostile to the managing agents, that is, the assessee in that particular case. Thereafter, the relationship between the managing agents and the managed company became strained. On April 23, 1961, the directors of the managed company passed a resolution terminating the services of the assessee-firm as managing agents. This resolution was affirmed by the shareholders at their extraordinary general meeting held on May 23, 1951. Ultimately a suit was filed in the High Court regarding the remuneration to be paid to the assessee-firm and a decree in the sum of Rs. 2,34,000 was passed in favour of the assessee and the amount was received by the assessee-firm in December, 1955. Till the insertion of section 10(5A) in the Act of 1922 by the Finance Act, 1955, the compensation received by a managing agent for the termination of his agent was considered as a capital receipt but section 10(5A) provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court must take note of the mercantile system of account-keeping while applying the provisions of section 41(1). In our opinion, the only meaning that can be attached to the words "obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure" incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The cash may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual cash which is contemplated by the legislature when it used the words "has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past". In the context in which these words occur, no other meaning is possible so far as we are concerned. Under these circumstances the view taken by the Tribunal that the material date was December 5, 1962, when the Gujarat High Court pronounced its decision is not correct. It is no doubt true that by virtue of that judgment it became possible for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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