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TMI Blog1963 (7) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and the fuller statement of the case submitted to this court are as follows: The assessee was an excise contractor. He had liquor shops at Mahabubnagar, Macherala, Raichur and Narayanpettah. The kist due from him for Faslis 1357 and 1358 was O.S. 10,75,629. Out of this amount, the assessee paid O.S. 9,81,308 and claimed deduction of the same as revenue expenditure in the assessment years 1949-50 and 1950-51. Because of the Razakar troubles and the police action in the then Hyderabad State at the material time, the assessee could not tap all the trees allotted to him. On representation by the assessee, the Government agreed to refund a portion of the kist paid. The assessee claimed O.S. 4,26,122 as being refundable to him. The Government determined the refund due at O.S. 3,19,541. The refund order was passed in June, 1953. Out of this amount O.S. 1,00,689 was set off towards the amount due from the assessee (according to the assessee, it was only O.S. 94,384). The balance of O.S. 2,18,852 (the rupee equivalent being ₹ 1,87,577) was adjusted towards the kist due from the assessee for the months of June and July, 1953. The assessee credited this amount in his accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t basis cannot later turn round and say that the receipt is not a revenue receipt when that amount or a portion thereof is recouped. The decision of the Patna High Court in Sheik Rahamat Ali v. Commissioner of Income-tax.[1960] 39 I.T.R. 506 does, in our opinion, completely cover the point under discussion. Therein, the assessee who was an excise contractor, deducted from profits of his business, some out-goings including the licence fee of ₹ 2,47,560 during the assessment year 1947-48. The deduction claimed in this regard was allowed, while computing his income, profits and gains for the year in question. But during the accounting year ending March 31, 1950, the assessee received back a sum of ₹ 26,328 from the Government, on his representation that during the accounting year ending March 31, 1947 (assessment year 1947-48 referred to above), certain liquor shops of his were closed on account of communal riots. This amount was received in the accounting year 1949-50. This amount represented a part of the licence fee paid by the assessee during the said year. In the assessment year 1950-51, the Income-tax Officer included that amount as revenue receipt. The question for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bread; the relief was definitely referable to a trading contract, even though the payment was not the result of any contract but was the outcome of a unilateral act of the Government ex gratia, it was analogous to the payment of a trade debt. The court held that the principle of the decision in Severne v. Dadswell [1954] 35 Tax Cas. 649; [1954] 1 W.L.R. 1204 applied to the facts of the case. Therefore, it was held that the assessee's accounts for the accounting year ending March 31, 1949, had to be reopened and the receipt credited therein. According to their Lordships the receipt had properly to go into the year of transaction, viz., the accounting year ending March 31, 1949, and that the department had no option in the matter. They held that the amount could not be included in the assessment for the year 1951-52. With this second answer we are not concerned in this case. Some assistance may be taken from the decision of the King's Bench in A.W. Nesbitt Ltd. v. Mitchell. [1926] 11 Tax Cas. 211. Therein, the appellant company having sustained heavy losses in the accounting period, 1st May to 24th November, 1920 (on which date it went into liquidation and ceased trading) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a sum which has fallen from the skies; it is a sum which is repaid because there was too large a sum paid by the company to the revenue authorities over the whole period during which excess profits duty was paid, and that sum means and is intended to represent a repayment of a sum which was paid by them in respect of the duty charged upon the excess profits of their trading. It comes back, therefore, not having lost its character but being still the repayment of a sum--too much, it is true,--but a sum taken out of the profits which were made by the company in the course of its trading, profits which at the time they were made were subject to income-tax and subject to excess profits duty, and that is the character of the repayment that has been made..." Though the above observations are apposite for our present purpose, it must be stated that the decision turned on the interpretation of the relevant English statute. The decision in Gray v. Lord Penrhyn [1937] 21 Tax Cas. 252 also supports the revenue. The facts of that case as set out in the decision are as follows: "In 1934 it was discovered that officials employed at a slate quarry owned by Lord Penrhyn (the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption that the two things, so to speak, balance; that is to say, looking at it first from the point of view of Lord Penrhyn, that since as an outgoing to these fraudulent people it was allowed, so, when that outgoing is made good, the thing ought to be cancelled out and that ought to be done, if not by the reopening of previous years, then, as I prefer because it is simpler, by the bringing in of the receipt when it comes in. Looked at from the point of view of the chartered accountants and Lord Penrhyn, it seems to me that as the sum is an outgoing of the chartered accountants, so, looking at it from the other side, it is a receipt on the part of Lord Penrhyn." The learned counsel for the revenue tried to take support from the decision of the Supreme Court in McGregor and Balfour Ltd. v. Commissioner of Income-tax [1959] 36 I.T.R. 65; [1959] Supp. 2 S.C.R. 355. But that decision turned on the interpretation of section 11(14) of the Finance Act, 1946. During the relevant period we had no provision similar to the said section 11(14). Hence, no assistance can be taken from that decision. Sri Srinivasan, the learned counsel for the assessee, strenuously contended that till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the effect of remissions, but while amending the law, the legislature thought it desirable to cover the whole field. Therefore, it was said that while section 10(2A) is an amendment in so far it deals with remissions and methods of accounting are concerned, it is a mere declaration of the law in the case of refunds. Let us now examine the correctness of these rival submissions. In Mohsin Rehman Penkar v. Commissioner of Income-tax [1948] 16 I.T.R. 183 the court was called upon to consider the effect of maintaining accounts according to the mercantile system of accounts-keeping. In that case, the assessee mortgaged certain properties to secure payment of ₹ 17,500 found due and owing to his mortgagee; the assessee kept his accounts on accrual basis and in the returns submitted by him from 1932 onwards he claimed, as a permissible deduction, interest which was payable by him on this sum of ₹ 17,500 and those deductions were allowed to him by the income-tax department; the total amount due to the mortgagee on the foot of the mortgage was found to be ₹ 29,059-6-6; in the accounting year the assessee paid a sum of ₹ 15,000 to the mortgagee who accepted that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, who kept his accounts on the mercantile basis, incurred a loss in forward share dealings which was allowed to be deducted by the income- tax authorities from the business receipts of that year; in the subsequent year the assessee settled this liability by paying a certain sum and the creditor agreed to forego his claim for the balance; the income-tax authorities treated the sum remitted by the creditor as income of the assessee liable to tax. The court held that it could not be said that the sum remitted by the creditor had been received by the assessee as income and it was not, therefore, liable to income-tax. This decision followed the decision in Mohsin Rehman Penkar's case* and the decision in Agarchand Chunnilal's case** referred to earlier. The learned Chief Justice who delivered the judgment of the court distinguished the decision of that very High Court in Union Bank of Bijapur and Sholapur's case*** thus: "That was a decision of Sir John Beaumont, and in that case the bank claimed a certain amount as loss by reason of embezzlement on the part of an employee and the loss claimed was allowed. In a subsequent year the bank recovered a portion of the sum e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State which were subject to excise duty of the Travancore State and of the Government of India; in the accounting year 16th August, 1944, to 16th August, 1945, the assessee paid sums of excise duty to the Government of India amounting to ₹ 36,094 and debited its accounts with those payments; on December 29, 1944, the Government of India, by certain executive instructions, directed the excise authorities not to enforce payment of excise duty on arecanuts imported from Travancore and on June 2, 1945, directed them to refund such excise duty paid by the traders; on November 27, 1945, and November 17, 1946 (viz., in the succeeding accounting year of the assessee) certain amounts were ordered to be refunded to the assessee; these amounts included ₹ 36,094 which the assessee had paid in his accounting year 1944-45; the department included this amount in the assessee's income for 1944-45 though there were no credit entries in its accounts for that year; the Tribunal, on appeal, confirmed the assessment holding that the assessee had acquired a right to refund of the duties on the dates of the executive instructions and that they were debts due from the Government. On a ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... released should be brought into account in computing the appellant company's profits for purposes of income-tax and corporation profits tax, either in the account for the eighteen months to the 31st December, 1922, or, alternatively, in the account for the year to the 30th June, 1921, that account being re-opened for the purpose; the Special Commissioners held that the amount released should be brought into the profit and loss account of the company for the eighteen months to the 31st December, 1922. The House of Lords held that the amount remitted should not be included as a receipt in the account for the eighteen months to the 31st December, 1922, and that the account for the year to the 30th June, 1921, should not be reopened and adjusted by reference to the remission. This decision lays down the very principle enunciated by the Bombay High Court in Mohsin Rehman Penkar's case*. We have earlier seen how that case is distinguishable from the facts of the present case. In our judgment, none of the decisions cited by Sri Srinivasan, the learned counsel for the assessee, is apposite for our present purpose. They deal with a different branch of the law. Now we can easily ..... X X X X Extracts X X X X X X X X Extracts X X X X
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