TMI Blog1988 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The judgment of the High Court is dated September 27, 1971 (Govindan v. State of Kerala [1971] KLT 910). The State took up the matter in appeals before the Supreme Court. The order passed by the High Court was affirmed by the Supreme Court on November 7, 1974 (State of Kerala v. K. P. Govindan [1974] KLT 876). The petitioner-firm received refund of the administrative surcharge on tapioca collected and paid by it from the Government on May 28, 1973. These facts will show that the levy of administrative surcharge on export of tapioca was struck down and refund ordered by the High Court on September 27, 1971 (accounting period ending on March 31, 1972), that the order passed by the High Court was upheld by the Supreme Court on November 7, 1974 (accounting period ending on March 31, 1975) and refund was made to the petitioner on May 28, 1973 (accounting period ending on March 31, 1974). These will respectively fall within the assessment years 1972-73, 1975-76 and 1974-75. While making the assessment for the year 1974-75 (accounting period ending on March 31, 1974), the Income-tax Officer invoked section 41 (1) of the Income -tax Act, 1961, and included the refund obtained by the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act is as follows "41. Profits chargeable to tax. -(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. Exhibits P-1 and P-3 orders proceed on the basis that the collections originally made by the assessee and remitted to the Government were allowed as an expenditure in the assessment orders for the years concerned. Exhibits P-1 and P-3 also proceed on the basis that the method of accounting adopted by the petitioner-firm is "mercantile". Since deduction has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. v. CIT [1978] 114 ITR 853 (Kar). The remission or cessation of the liability is deemed to be the income of the assessee and it is chargeable to income-tax as income of the previous year. In this case, "remission of liability" does not arise nor was it emphasised. What was emphasised is the "cessation of the liability". It is common ground that the assessee maintains its books of account on "mercantile basis". On these facts, the question arises as to the time when the income could be said to "accrue" or "arise" to an assessee for the purpose of the Income-tax Act. This has been explained by the Supreme Court in E. D. Sassoon and Co. v. CIT [1954] 26 ITR 27. What was said in the above case was stated lucidly in a recent judgment of the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 at p. 527, thus : "In the majority judgment delivered by N. H. Bhagwati J., it was explained that the words 'arising or accruing' describe a right to receive profits, and that there must be a debt owed by somebody. 'Unless and until there is, created in favour of the assessee a debt due by somebody', it was observed, 'it cannot be said that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts on "mercantile" basis. The requisition of the land was made by a notice dated December 27, 1952. The Land Acquisition Officer awarded a sum of Rs. 24,97,249 as compensation. Dissatisfied with the amount of compensation, the company filed an appeal before the arbitrator. The arbitrator made an award dated July 29, 1955, and fixed the amount of compensation at Rs. 30,10,873. From the aforesaid decision of the arbitrator, the State Government filed an appeal to the High Court. During the pendency of the appeal, on April 25, 1956, the Government deposited Rs. 7,36,691 which the assessee was permitted to withdraw on May 9, 1956, on furnishing security. For the assessment year 1956-57, the relevant accounting period ending on March 31, 1956, the Income-tax Officer brought to tax a sum of Rs. 7,24,914 as the income of the assessee. The Income-tax Officer treated the sum as liable to income-tax during that year on the basis that the income accrued to the assessee on the date of the award. In second appeal, the Income-tax Appellate Tribunal held that the sum of Rs. 7,24,914 was not taxable in the assessment year 1956-57. At the instance of the Revenue, the matter was taken to the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
