TMI Blog1980 (3) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... on referred is: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sales tax amount, refunded, amounting to Rs. 76,918 was income in the hands of the assessee assessable to income-tax ? " Few material facts not in dispute are : The amounts refunded to the assessee were in relation to the assessment years 1964-65, 1965-66 and 1966-67. The order of the Dy. CCT holding that the assessee was not liable to pay sales tax in respect of chilies that had been sold on commission basis was made on March 17, 1969. Pursuant thereto, the CCT wrote to the assessee on July 8, 1969, notifying him the result of the order of the. Dy. CCT and also asked the assessee to come and take the refund vouchers which were kept ready. The assessee, however, actually received the amount on December 12, 1969, so far as the assessment year 1964-65 was concerned and on December 26, 1969, in regard to the other two assessment years. In the return filed for the year 1971-72, the assessee had shown the amount of refund, viz., Rs. 76,918, in Part IV of the return and that it represented the sales tax refund. The assessee also wrote a letter to the ITO dated Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention based upon the method of accounting was the fact that the assessee had credited the amount on the basis of actual receipt and, therefore, the regular method of accounting followed by the assessee cannot be said to be mercantile system The Tribunal held that the departure made by the assessee would not destroy the system of accounting regularly followed and the I.T. authorities could not reject the regular method of accounting followed and bring to tax an item which has accrued in one year in a subsequent year merely on the ground that the assessee had entered it in the year relevant to the subsequent assessment year. The Tribunal, however, rejected the contention of the assessee that the amount was not taxable. The Tribunal noticing the decision of the Calcutta High Court in Ikrahnandi Coal Co.'s case [1968] 69 ITR 488, observed that the facts in the instant case were similar to the said case and held that the amount of refund was taxable. In view of that finding, it held that it was necessary to consider the applicability of s. 41 (1) of the I.T. Act, 1961. In the result, it allowed the appeal filed by the assessee holding that the amount of refund was not assessable f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made. Therefore, this amount was also received by the assessee in its character as a trader and it represented a trading receipt. The Supreme Court held in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542 and also in Sinclair Murray and Co. P. Ltd. v. CIT [1974] 97 ITR 615, in which the earlier decision was followed, that the amounts collected by way of sales tax by a dealer formed part of his trading receipt and were includible in the computation of the total income. The Supreme Court, in the decision in Rajputana Trading Co. Ltd. v. CIT [1969] 72 ITR 286, while considering the matter in relation to s. 10(2A) of the Indian I.T. Act, 1922, observed that where a creditor had waived his right to recover certain amount or debt, there is proximate relationship between what is deemed to have been received by the assessee in that behalf, and to the business which the assessee was carrying on and it would be illogical to treat the receipt as having a neutral source and not springing out of the same category of business which had led the assessee to incur loss or liability. Therefore, the view of the Tribunal that the refund amount represented trading receipt and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt. " In the case of T. M. M. Madalai Nadar Co. v. CIT [1956] 30 ITR 191, the High Court of Madras, observed thus (headnote); " If the assessee, who maintains his accounts on the mercantile basis, is bound to credit himself with an amount in the year of account itself, his omission to make the credit entry would not absolve him of his liability. " The High Court of Gujarat in the case of Motilal Ambaidas v. CIT [1977] 108 ITR 136 has observed thus (headnote): " Nextly, as to in which particular assessment year the amount could be brought to tax. The assessee was maintaining its accounts on mercantile basis, and therefore, it is the date of the accrual of the right to receive the amount that is material and not the date of the actual payments by the Government to the assessee." In the instant case, the order of the Dy. CCT was made on March 17, 1969, and the assessee became entitled to the refund of the amount. Assuming that the actual calculation had not been made, the communication by the CTO, consequent upon the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that the liability even though it has not actually been paid up, can be claimed where the assessee is maintaining his account according to the mercantile system. The other decisions cited by the learned counsel for the assessee virtually follow the decision of the Supreme Court in the aforesaid case. But the circumstances in the instant case are somewhat different. The liability claimed to exist to make payment to the constituents is not a statutory liability. The provisions of the Sales Tax Act do not contemplate any such actual return of the amount to the customer by the dealer. The amount refunded was not on the condition that it should be returned to the customer. It is also not clear that there was any contract between the customer and the assessee to return any such amount. All that can be said is, on the facts and circumstances, that the customer may have a claim against the dealer for refunding the amount of sales tax wrongly collected from him or which was found subsequently not to be payable by him. A mere claim of such a nature cannot be said to be an existing liability which is bound to be met at a future point of time. The stand of the assessee was clear, as i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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