TMI Blog1980 (10) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... event occurs only when the last instalment is paid and the sale is completed as aforesaid, in practice the assessee collects from the customer an amount equal to the sales tax liability on the entire price of the lorry as though the property passes to the customer even at the time when the agreement is entered into. During the accounting years 1958-59 to 1964-65 the sales tax department had assessed the assessee on such transactions to sales tax to the tune of Rs. 13,04,025 and against those assessments, the assessee had paid a sum of Rs. 8,55,355 to the Government. This court, however, on challenge by the assessee in writ petitions, set aside those assessment orders, directing a fresh assessment to be made according to law; consequently an amount of Rs. 8,52,686 was received by the assessee by way of refund during the period relevant for the assessment year 1971-72. The practice of the assessee during the material time was to credit the amount equal to the sales tax liability collected from the customers as aforesaid to an account called " deposit against contingent liability " without it being credited to the profit and loss account. So also, the payment to the sales tax depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated January 20, 1976, disposing of I.T.As. Nos. 354 and 371. The question sought to be referred to this court for opinion in both the reference applications was the same, and that reads as follows: "Whether, on the facts and in the circumstances of the case and also considering the method of accounting maintained by the assessee in the matter of sales tax, the Income-tax Appellate Tribunal is right in law in holding that the sum of Rs. 8,52,686, being the sales tax refund received during the year, is not assessable to income-tax ? " The Appellate Tribunal, having been satisfied that a question of law did arise, drew up a statement of the case, but did not, however, refer the question suggested by the department as, in its opinion, it was widely worded; instead the following question of law, which is the subject-matter of I.T.Rs. Nos. 16 and 17 of 1977, was referred to this court under s. 256(1) of the Act: " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that no expenditure towards payment of sales tax was allowed by the department in the assessment years 1959-60 to 1964-65 and, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the counsel for the assessee on the following observation of Shah J., as he then was, in the Supreme Court case in Benares State Bank Ltd. v. CIT [1970] 75 ITR 167 at p. 170 : " There can be no doubt that for the purpose of the Income-tax Act the same income cannot be received more than once." The facts of that case were as follows: The appellant, whose year of account was the calendar year, had its registered office in the Benares State which merged with the Indian Union on December 1, 1949. The company which had its head office at Ramnagar in the Benares State and in which the appellant had shares declared dividend on July 25, 1949. Cheques issued in favour of the appellant for Rs. 69,000 in payment of the dividend were encashed by the appellant on December 31, 1949. There was no material on record as to when the cheques were handed over to the appellant even though the High Court had observed in its judgment that dividend warrants were delivered to the appellant on August 3, 1949. It was contended that the appellant could not be assessed to tax in respect of the dividend which accrued to it at a time when it was a non-resident. On the facts and in the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,302, less the permitted deductions under s. 10 of the Indian I.T. Act, 1922, was income of the assessee liable to income-tax. The passage relied on by the counsel for the assessee is the following sentences in the judgment of Kania J., at page 39 of the report: "It cannot be disputed that the words used in section 4(1)(a) relate to the first receipt after the accrual of income. Once it is received by the party entitled to it, in respect of any subsequent dealing with the said amount, it cannot be said to be 'received' as income on that occasion." This observation, again, in our opinion, does not advance the case of the assessee. Refund of sales tax, stated simply, could be considered as recoupment of the whole or part of the amount collected from the assessee without legal authority and what was regarded as an outgoing and, therefore, a deduction from the profits. It represents the receipt of what had gone out of the business, not what was received earlier. The question of subsequent dealing with the amount does not arise at all in this case. The observation of the Full Bench of the Bombay High Court in the case cited, taken out of context, has absolutely no relevance to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were made in the books of account at Petlad : they had merely accrued or arisen to it and so far as the receipt thereof is concerned, they were first received in British India when they were received by M/s. Jagmohandas Ramanlal Co., or by the various banks or shroffs in British India; the first receipt of the moneys was, therefore, when they were paid as such by the merchants to M/s. Jagmohandas Ramanlal Co., or to the various banks or shroffs as above. What Bhagwati J. observed in the penultimate paragraph of the judgment (at pp. 242 and 243 of the report), extracted below, we believe, is of considerable assistance for applying the correct principle to the peculiar facts of the case on hand : " Mr. Kolah pressed into service the argument based on section 13 of the Act that the mercantile system of accounting regularly adopted by the assessee was obligatory on the income-tax authorities for computation of his income. While agreeing generally with that submission in case of residents, we doubt whether that position would be available to a nonresident, who maintains his books of account outside British India according to the mercantile system. The section would only be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re his receiving the sales refund, treated the amount as trade receipt in the course of business. The assessee cannot be allowed to blow hot and cold at the same time and to escape from tax liability with respect to an amount which has come to his hands as income in the course of business for which he had not been subjected to tax at any stage prior to the receipt of the refund. The legal position with respect to the taxability of the amount obtained on refund in that particular assessment year cannot be different from that of the amount recovered out of what was lost to the business due to embezzlement by the employees. It would be advantageous in this context to refer to the decision of the King's Bench Division in Gray (H.M. Inspector of Taxes) v. Lord Penrhyn [1937] 21 TC 252. In that case it was discovered in 1934 that officials employed at a slate quarry owned by the respondent (Lord Penrhyn) had misappropriated money from 1928 to 1934 by falsifying the wages accounts. The respondent's auditors admitted negligence on the part of their staff in not making certain enquiries, and paid over to him in November, 1934, a sum equal to the amount misappropriated since their first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1937-38, the assessee recovered from the heirs of the employee a sum of Rs. 8,790 from the amount embezzled, and the I.T. authorities, after deducting the law charges and certain other deductions from Rs. 8,790, included a net sum of Rs. 4,737 in the total income of the assessee for the assessment year 1938-39, on the ground that the assessee having treated the loss as revenue loss and obtained relief on that basis, any recovery made in respect of that loss must be regarded as a revenue gain as and when it occurred. On these facts and in the circumstances of the case it was held by the High Court that the sum of Rs. 4,737 out of the sum of Rs. 8,790 recovered from the heirs of the employee, being part of the amount embezzled by him, was a revenue gain and was assessable to tax as part of the total income of the assessee for the assessment year 1938-39. Beaumont C.J., who delivered the judgment, observed as follows (p. 25): "The embezzlement was, no doubt, substantially more than the income of that year. In a subsequent year a sum is found to have been recovered in respect of that embezzlement, and it seems to me that the assessee, having alleged that the embezzlement was an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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