TMI Blog1987 (12) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... or manufacture of vanaspati and sought for confirmation that this industrial unit, which they proposed to set up, would be entitled to sales tax holiday for a period of 3 years from the date it commenced production. The Director of Industries replied by his letter dated 14th October, 1968, confirming that "there will be no sales tax for three years on the finished product of your proposed vanaspati factory from the date it gets power connection for commencing production." The assessee thereupon started talking steps to contact various financiers for financing the project and initiated negotiations with manufacturers for purchase of machinery for setting up the vanaspati factory. The assurance given above was reiterated by the Chief Secretary that the assessee would be entitled to sales tax holiday in case the vanaspati factory was put up by it. The assurance was confirmed in writing on 22nd December, 1968. He, however, asked the assessee to obtain the requisite application form and submit a formal application to the Secretary to the Government in the Industries Department and in the meanwhile 'to go ahead with the arrangements for setting up the factory'. This was followed by anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were two such refunds, one of Rs. 13,71,251 and the other of Rs. 43,78,875. The first amount represented the deductions claimed by the assessee in various years and allowed in appeal, while the second amount represented the refunds of the sales tax, which, according to the assessee, had not been allowed in the computation of its income of the relevant years and which it was also bound to refund to its customers from whom they were collected. These refunds were received in the assessment year 1980-81 which is the year under consideration. 5. The question regarding the taxability of the above amounts also came up for the consideration of the Income-tax Officer in this year. The assessee did not object to the taxability of the amount of Rs. 13,71,251 under section 41(1) of the Income-tax Act, 1961 as it had already received deduction in respect thereof in the assessment years 1971-72 to 1973-74 and further it was also not required to refund any part thereof to its customers. The assessee, however, objected to the taxability of the other amount of Rs. 43,78,875 which it had collected from its customers and which was paid to the Government under protest in the assessment years.1971- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst was that on correct interpretation of section 41(1) of the Act and on a proper appreciation of the facts of the case, the amount of Rs. 43,78,875 was not taxable as the income of the assessee. The alternate submission was that, in any case, a deduction for the corresponding liability in favour of the assessee's customers for an equivalent amount had to be allowed. It was contended that on consideration of either of the above submissions, the assessee was not liable to tax on any part of the above amount. Detailed submissions were also placed before the Commissioner of Income-tax (Appeals) both in writing as well as orally. It was argued before him that section 41(1) of the Act did not apply to the case of the assessee as none of the conditions of the section had been satisfied. It was first contended that section 41(1) of the Act being a deeming provision had to be strictly construed. According to the learned counsel for the assessee, there were two such conditions. The first was that an allowance or deduction should have been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. The second was that subsequently durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake, if established, entitles the party paying the money to recover it back from the party reviving the same. No distinction in this respect can be made in respect of a tax liability and any other liability and, therefore, tax paid under the U.P. Sales Tax Act, 1948 by mistake of law, can also be recovered. The submission of the counsel for the assessee before the Commissioner of Income-tax (Appeals) on the basis of the above judgment was that the customers of the assessee had paid the amounts of sales tax under a mistake to the assessee and that they were entitled to its refund once that amount was found to have been collected illegally from them. It was also argued that in such a case there was an implied and constructive trust arising under section 3 of the Indian Trusts Act, 1982 in favour of the customers of the assessee. It was also submitted that there was an overriding title for the refund of the amount in favour of the customers of the assessee in view of the judgment of the Privy Council in the case of Raja Bijoy Singh Dhudhuria v. CIT [1933] 1 ITR 135. The argument was placed to point out that the various judgments relied on by the Income-tax Officer were distinguishable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or deduction on account of sales tax, the amount of receipt for sales tax would have been added to the income returned. By now doing so, actually deduction of the amount for sales-tax liability has been allowed to the assessee in earlier years. There could not be any other reason for not taxing such receipt in the past." "There is another way of looking at this matter. When an assessee collects sales tax and credits the amount to the sales tax account, which is later on debited by the amount paid to the Government, the amount is trading receipt, as held by the Supreme Court in 87 ITR 542 and 97 ITR 615. On the other hand, liability for sales tax is allowable under section 37 in view of Supreme Court's decision in 82 ITR 363. The fact that the assessee carries the difference between credit and debit side to the P L account does not affect the position. So it has to be held on facts of the case, that deduction for sales tax liability was actually allowed." In the opinion of the Commissioner of Income-tax (Appeals) the various decisions quoted by the learned counsel for the assessee either did not lay down any different principle or were distinguishable on their own facts. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its business under section 28(2) of the Act and, in any case, it was also taxable under section 28(iv) of the Act. He finally held that the entire amount of Rs. 43,78,875 was the income of the assessee and upheld its addition. 11. The assessee is now in appeal before us contending that the above amount of Rs. 43,78,875 had been wrongly brought to tax. On the other hand, the department has also taken cross-objections supporting the findings of the Commissioner of Income-tax (Appeals). The learned counsel for the assessee submitted before us that for applying the provisions of section 41(1) of the Act, it was necessary to show that an allowance or deduction had been made in the assessment of an earlier year, that subsequently there should have been a remission or cessation of the assessee's trading liability and that the assessee should also receive some benefit in respect of such trading liability. His contention was that in the case of the assessee none of these conditions were satisfied and, therefore, section 41(1) had no application. His next submission was that even the section was applicable, a corresponding deduction required to be made for the liability of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was that even though the assessee was in receipt of the refund from the sales tax department because of the judgment of the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd.'s case, yet it was liable to refund that amount to its customers for which a liability had been fastened under section 72 of the Contract Act and, therefore, it could not be said that a clear cessation of the liability had accrued in favour of the assessee or for its benefit. He argued that the liability had accrued in favour of the customers of the assessee and it was immaterial whether actual payment had or had not been made to them, particularly when it was shown as a liability in the balance sheet of the assessee. He finally submitted that the Commissioner of Income-tax (Appeals) had gone wrong in holding that even otherwise the amount was taxable either under section 28(i) or section 28(iv) of the Act. He further submitted that, in any case, the amount in question did not constitute real income of the assessee. 13. The counsel for the department, Dr. R. R. Mishra, on the other hand, submitted that the scheme of the U.P. Sales Tax Act, 1948 was entirely different than what was canvassed before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied in the present case. Relying on the order of the Commissioner of Income-tax (Appeals), he submitted that the assessee was, by implication, allowed deduction for the sales tax in all the earlier years. Here also, he referred to the above decision of the Gujarat High Court in Motilal Ambaidas's case, as also the decisions of Allahabad and Calcutta High Courts in Taj Gas Service's case and Ikrahnandi Coal Co.'s case a decision also relied on by the Income-tax Officer. His next contention was that there was no doubt that the assessee had received the refund of the sales tax by virtue of the decision of the Supreme Court in its case in Motilal Padampat Sugar Mills Co. Ltd.'s case. Referring to section 72 of the Contract Act, his submission was that there was no evidence on record that the customers were made aware that the sales tax was in dispute before the courts and that they were entitled to refunds. According to him, no customer had made any payment of sales tax to the assessee under any mistake, including a mistake of fact or of law. He further submitted that it was section 21 of the Contract Act which applied to the case. About the scheme of overriding title in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the learned counsel for the assessee was that such a deduction should actually be allowed with reference to the computation of income of an assessee in an assessment order. He submitted that in the present case, the assessee had kept a separate sales tax account to which the receipts from its customers were credited and the payments made to the Govt. were debited. He also pointed out that the net balance of this account of this account was not carried to the Profit and Loss Account. His contention, therefore, was that the assessee had not been allowed any deduction towards its liability for sales tax in any of the earlier years already referred to above and, therefore, section 41(1) of the Act had no application. He again referred to the decision of the Madras High Court in Thirumalaiswamy Naidu Sons' case. The facts of this case are no doubt similar to those of the assessee. We are, however, unable to follow it for the reasons already stated above, particularly when this judgment apparently went against the tenor of the judgment of the Allahabad High Court in Taj Gas Service's case as admitted by their Lordships at page 670 of the report itself. On the other hand, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund of sales tax as a result of an order of the Bombay Sales Tax authorities consequent on a decision of the Supreme Court. The income-tax authorities sought to assess this refunded amount as the income of the assessee. It was contended on behalf of the assessee that sales tax was collected by the assessee from the assessee's buyers and the same was under the statute to be paid to the sales tax authorities and when the money representing the sales tax was refunded by the sales tax authorities the identical money became refundable by the assessee to the assessee's buyers and, therefore, the refunded amount was not assessable as his income. The court held that the sum in question was assessable to income-tax as income of the assessee. Emphasis was laid by the learned counsel for the assessee on the observations of the Gujarat High Court itself as appearing at the top of page 148 in the case of Motilal Ambaidas. These observations are that, in case the assessee had to refund the sales tax to the original purchaser who purchased the goods from him, then the amount so refunded will also be deduction which he can claim and it must be granted to him, that being deduction on the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [1974] 96 ITR 438 and Bhagwat Prasad Co. v. CIT [1975] 99 ITR 111 merely lay down the principle that the burden lies upon the department to prove that an allowance or deduction had been given in the earlier assessment years. These decisions also, therefore, do not help the assessee. 18. We will now deal with the second aspect of section 41(1) as to whether there was any cessation or remission of any liability in favour of the assessee. Here it was submitted that although the assessee had become entitled to the refund of Rs. 43,78,875, but it was not an absolute receipt in its hands inasmuch as the assessee was liable to refund the amount to its customers from whom it was collected. It was submitted that the amount was in the nature of a trust in the hands of the assessee. We are unable to agree with this submission also. There is no doubt that by virtue of the judgment of the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd.'s case, the assessee became entitled to the above amount as a refund of sales tax. It was also received by the assessee in the year under appeal. We have already outlined the scheme and scope of the U.P. Sales Tax Act to point out that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1963] 49 ITR 578 has any relevance here. These aspects of the matter were considered in detail by the Calcutta High Court in Ikrahnandi Coal Co.'s case and by the Karnataka High Court in Kabbur Bros.' case. In the first case, the Court made the following observations at page 497 of the report : "As far as the buyers vis-a-vis the seller, namely, the assessee are concerned in the present case the answer is simple. If the assessee's case be that the amounts are refundable or will be refunded the assessee will be entitled to claim that as an amount refunded by the assessee to its buyers and will be entitled to claim that in the revenue account of the business. The potentiality of the money being refunded or the potentiality of the money being claimed by a buyer from the assessee could not destroy or alter the sale price in the present case or the real transaction between the parties that it was a case of sale and purchase of merchandise in the course of trade." In Kabbur Bros.' case, it was observed : "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from receipt of the refund which was to go to the person from whom the amount had actually been realised. This case is, therefore, no authority for the general proposition placed before us that the money was refundable to the customer from whom it was realised as it turned on the special provisions, as amended, of the Orissa Sales Tax Act. 21. We also do not think that section 72 of the Contract Act is of any assistance to the assessee. We have already stated above that the assessee would be entitled to claim as deduction any amount which is actually refunded to the customers. Section 72 merely states that a person to whom money has been paid or anything delivered, by mistake or made coercion, must repay or return it. It is not necessary for us to go into the question as to whether the sales tax was paid by the assessee's constituents under any mistake, as in our opinion, the claim for deduction can be made only when the amount is actually refunded to the constituents. This principle finds support from the decision of the Allahabad High Court in Swadeshi Cotton Mill Co. Ltd.'s case. The liability under section 72 of the Contract Act is obviously a contractual liability, if at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and it did not constitute any receipt much less a revenue receipt, in the year in which the amount of sales tax was recovered by the assessee from its customers. This decision is, therefore, against the view taken by the Madras High Court in the case of Thirumalaiswamy Naidu Sons. Specific reference may again be made to the decision of Allahabad High Court in Jagatnarain Durga Prasad's case. It was held in this case that as the sales tax had previously been allowed as a deduction in computing its business income and as the amount had now been refunded to the assessee, such amount was deemed to be profits and gains of business by sub-section (2A) of section 10 of the Act of 1922 corresponding to section 41(1) of the Act of 1961 and the assessee was liable to tax on the same. This decision of Allahabad High Court was followed by Karnataka High Court in the case of Kabbur Bros. 23. Another argument was placed by the learned counsel for the assessee that in view of the Price Fixation Order, the assessee was prohibited from treating the sales tax as part of its price. In this connection, he placed before us copies of the notifications issued by the Ministry of Food and Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the sales tax of Rs. 13,71,251. We have pointed out that the assessee had paid this amount as sales tax to the Govt. in different years without actually collecting any amount from its own customers. Along with the sum of Rs. 43,78,875, the above amount was also allowed as refund to the assessee. The assessee had claimed deduction of this amount in the years in which the payment was made to the Govt. It was not originally allowed by the Income-tax Officer, but claim was admitted by the Commissioner of Income-tax (Appeals). The assessee was, therefore, of the view that the above amount was taxable under section 41(1) of the Act inasmuch as not only the amount had been allowed in the earlier years, but that there was also a remission or cessation of the liability giving benefit to the assessee. 26. The department did not accept the order of the Commissioner of Income-tax (Appeals) allowing deductions to the assessee in the earlier years. It was submitted before us that it had filed appeals to the Tribunal which were pending for disposal. The assessee also, therefore, took a ground to the effect that in case the Tribunal reversed the order of the Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer. 30. The next contention relates to disallowance of Rs. 12,503 out of legal charges. The Income-tax Officer found that the assessee had incurred an expenditure of Rs. 5,502 in respect of the proceedings before the Income-tax authorities. Besides, the assessee had also paid Rs. 24,000 as retainers' fee to Dr. R. C. Vaish for the work done by him relating to income-tax matters as also for matters pertaining to audit, company law and industrial law. The Income-tax Officer was of the view that 80 per cent of this fee could be attributed to matters relating to income-tax. This came of Rs. 19,200. The aggregate amount relating to proceeding before income-tax authorities, in the opinion of the Income-tax Officer, was thus, Rs. 24,702. He held that the assessee was entitled to the deduction of only Rs. 5,000 out of the above amount under section 80VV of the Act. He, thus, worked out the disallowance of Rs. 19,702. He made a disallowance of another amount of Rs. 1,000. The total disallowance, thus, came to Rs. 20,702. The Commissioner of Income-tax (Appeals) deleted the disallowance of Rs. 1,000. He was further of the opinion that only 50 per cent of the retainers fee to Dr. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax (Appeals) agreed with this finding of the Income-tax Officer. 34. The assessee is now in appeal before us. In our view the assessee is entitled to the deduction. There is no dispute that in its foundry branch, the assessee manufactured steel ingots by melting iron scrap and then got these ingots rolled into rolls. The assessee was, therefore, in the line of manufacturing steel rolls. By obtaining a feasibility report, the assessee merely wanted to diversify the existing production of steel foundry in order to earn higher profits. The report related to steel castings and special steels in rolled section. From these facts, it cannot be said that the assessee wanted to establish or install any new line of business unconnected with its old business. The assessee's case is fully supported by the principles laid down by the Allahabad and the Gujarat High Courts in Prem Spg. Wvg. Mills Co. Ltd. v. CIT [1975] 98 ITR 20 and CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.). We, therefore, hold that the expenses incurred by the assessee are allowable as revenue expenses under section 37(1) of the Act. The assessee is, therefore, entitled to the relief of Rs. 30, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. The next contention in the assessee's appeal relates to its claim for deduction of a sum of Rs. 5,62,549. The assessee's claim before the Income-tax Officer was that it was liable to pay market fee under section 27(1) of the Bihar Agricultural Produce Markets Act, 1960 read with rule 82 of the Bihar Agricultural Produce Markets Rules, 1975. It was contended before the Income-tax Officer that the market fee payable under the above provisions was a statutory liability on the assessee and it was, therefore, allowable under section 37(1) of the Act in view of the principle laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The Income-tax Officer, however, disallowed the claim as he found that a similar claim of the assessee had not been admitted by the Commissioner of Income-tax (Appeals) in the assessment year 1976-77. The disallowance was also confirmed by the Commissioner of Income-tax (Appeals) following his earlier order referred to above. 38. The assessee is now in appeal before us. It would be relevant to refer to section 27 of the Bihar Agricultural Produce Markets Act, 1960. It reads as under : "27. Power to levy fees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer and the Commissioner of Income-tax (Appeals) in the year under appeal also rejecting the assessee's stand that its claim had been admitted by the Income-tax Officer himself in the assessment year 1978-79. It will, therefore, be necessary to refer to the stand of the Commissioner of Income-tax (Appeals) in the assessment year 1976-77. According to him, the market fee chargeable under sub-section (1) of the above Act was payable only by the buyer as laid down in sub-section (2) of section 27. Rule 82 of the Bihar Agricultural Produce Markets Rules, 1975 lays down the procedure for the collection of the levy. It states that if the buyer is a licensee, he shall deposit the market fee with the Market Committee, If the seller is a licensee and the buyer is not a licensee, the seller shall realise the market fee from the buyer and shall deposit it with the Market Committee. If neither the buyer nor the seller is licensee, the buyer shall deposit the fee with the Market Committee. In other words, it is the duty of buyer to make the payment. The responsibility of the seller comes only when the buyer is not a licensee and seller is a licensee. According to the Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the above section clarifies the position that the fee will be payable only by the buyer and in the manner prescribed in rule 82 of the Market Rules. Rule 82 of the Market Rules clarifies the position that the levy will be payable by a buyer only. The seller comes in the picture if the buyer is not a licensee and the seller is a licensee. In that situation only the seller is authorised to realise fee from the buyer and then deposit it with the Market Committee. Here also, therefore, the direct responsibility is of the buyer and not of the seller. In our opinion, therefore, the assessee will be liable to pay the fee only on the cane purchased by it in the market area. We also agree with the stand of the department that nobody, at lower level, made inquiries as to what was the amount of purchases made by the assessee in the market area. He directs the Income-tax Officer to investigate this aspect of the matter, determine the purchases of agricultural produce, such as, sugarcane purchased in the market area and determine the fee payable by the assessee with reference to such purchases. We, however, agree with the submission of the learned counsel for the assessee that it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax (Appeals), however, confined the disallowance only to a sum of Rs. 5,561. This represented the interest which the assessee was required to pay for late payment of the premium to the Life Insurance Corporation. The Commissioner of Income-tax (Appeals) found that the payment of this amount was required by the L. I. C. by a letter dated 11-4-1980. According to him, the payment of interest was, therefore, relevant for the succeeding assessment year and could not, therefore, be allowed in the year under appeal. 45. Here also the assessee is in appeal before us. The submission of the learned counsel for the assessee before us was that since the premium related to the year under appeal, the payment of the interest relating thereto was also a proper deduction out of the income of this year irrespective of the fact that it was demanded by the L. I. C. in the subsequent year. 46. After considering the facts of the case, we are of the opinion that this matter should also be restored to the file of the Income-tax Officer. We direct the Income-tax Officer to examine the relevant Act under which the interest has been demanded from the assessee and find out whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equal to one and one-fifth times the amount of such expenditure incurred during the previous year. Clause (b) of the section refers to fertilisers, seeds, pesticides, etc., for use by such cultivator, grower or producer as also to dissemination of information on, or demonstration of, modern techniques or methods of agriculture or advice on such techniques or methods. Besides, it also refers to such other goods, services or facilities as may be prescribed. We are not, in the present case, concerned with any such services. 50. The assessee claimed to have incurred an expenditure of Rs. 5,02,426 in regard to the development of cane farming in the zonal area in which its factory was located. It claimed development allowance under section 35C of the Act on the above expenditure. This included payment of Rs. 1,97,330 to Zonal Development Council Commission under the Govt. of Bihar's notification issued by virtue of the power conferred by section 48(1) of Bihar Sugarcane Act, 1969. It was, however, admitted that the Zonal Development Council Commission, to which commission had been paid, was not approved by the prescribed authority. Both the Income-tax Officer and the Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. 53. The department has also taken certain cross-objections to the assessee's appeal. We have examined them. They do not rise any new issue. Our findings with regard to the cross-objections will be the same, which we have given while dealing with the assessee's appeal. 54. In the result, both the appeal and the cross-objections are partly allowed. Per Shri A. K. Das, JM - I regret my inability to agree with my learned brother with regard to the conclusion as to the applicability of section 41(1) of the Income-tax Act, 1961 (herein-after referred to as the Act). As such I record briefly my reasons for differing with my learned brother on this point. I may, however, mention that I agree with his conclusions on other points as discussed in paragraphs 25 onwards of his order. 2. The facts involved in the case and the arguments advanced by the authorised representatives for the parties on this point have been elaborately set out by my learned brother in paragraphs 1 to 14 (both inclusive) of his order. As such, I refrain from repeating these except on occasions when the context requires it. 3. I agree with him that section 41(1) of the Act can apply only when an allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h we are now concerned a sum of Rs. 17,470 was paid to the employees as bonus in full settlement and the balance of Rs. 54,479 was credited to the profit and loss account. The Income-tax Officer treated the credit of Rs. 54,479 so made as income accruing in the year of account." 5. The Supreme Court laid down that -" That provision only applies when an allowance for deduction has been made in the assessment of any year in respect of any loss, expenditure or trading liability incurred by the assessee and, subsequently, during any previous year the assessee receives any amount in respect of such loss or expenditure or has obtained some benefit in respect of such trading liability by way of remission or cessation thereof in which event the amount received by him has to be deemed to be profits and gains. On the finding of the Tribunal the condition of section 10(2A) could not be said to have been satisfied and the addition of Rs. 54,479 made by the Income-tax Officer in the assessment for the year 1957-58 was not justified. It is apparent that the question whether the allowance had been granted or a deduction made in respect of a trading liability had to be decided by referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. THIRD MEMBER ORDER Per S. N. Rotho, Third Member - By order dated 24-2-1986, the following question has been referred to me under section 255(4) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the assessee was allowed a deduction within the meaning of section 41(1) of the Income-tax Act, 1961 in earlier years in respect of sales tax payable by it to the Government ?" 2. Dr. R. C. Vanish, the learned Representative for the assessee urged before me that a Miscellaneous Application Tribunal, A-Bench, which heard this appeal originally and that I should consider the said Miscellaneous Petition and reframe the aforesaid question as suggested in the said Miscellaneous Petition. Alternatively, he urged that the hearing by me may be postponed till the disposal of the said Petition by the A-Bench of the Allahabad Tribunal referred to above. Shri G. N. Srivastava, the learned representative for the department, on the other hand, opposed the aforesaid contentions of Dr. R. C. Vaish. He stated that the aforesaid Petition was not a Miscellaneous Petition because it does not relate to any order under there is and order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the conclusion arrived at by the learned Accountant Member went wrong. He urged that the assessee had paid a sum of Rs. 13,71,251 as sales tax out of its own funds without collecting the same from its customers. The assessee was following mercantile system of accounting. The assessee claimed this amount as deduction, but was disallowed by the Income-tax Officer. On appeal, the appellate authority allowed the claim of the assessee. Subsequently, the assessee won the case in the High Court and no sales tax was found to be payable by it. Hence, the aforesaid sum of Rs. 13,71,251 was brought to tax in the year in which the refund became due to the assessee. He points out that there was no dispute regarding this sum of Rs. 13,71,251. However, the dispute regarding this sum of Rs. 43,78,875 which was collected by the assessee from its customers as sales tax during the previous years relevant to the assessment years 1971-72 to 1974-75. These amounts were included in the sale proceeds but they were kept in a separate account. Payments of sales tax to the Government were made out of the said account and so such payments or the liability to make such payments was not debited to the Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the refund of sales tax received by the assessee has been kept as liability to its customers in the balance sheet. Next, he urged that section 41(1) of the Act created a fiction and so, it had to be construed strictly. The said section cannot be activated by mere implication or indirectly by inference. In this connection, he referred to the decision in the case of A. V. Fernadez v. State of Kerala [1957] 8 STC 561 (SC) and urged that the sales tax received as refund had to be returned to the customers. According to him, the various case laws cited before the learned Accountant Member have either been brushed aside without considering the same or their report have not been properly appreciated. According to him, the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. relied on by the learned Judicial Member in his differing order, applied to the facts of this case. In that case, it has been held that section 10(2A) of the 1922 Act cannot be applied by drawing inferences. The questions as to whether an allowance has been granted or not, has to be decided by referring to the assessment order. He also pointed out that in this order the decision of the Madras High Court in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Kabbur Bros., and Marikar (Motors) Ltd. He urged that none of those cases applied to the facts of the instant case and the learned Account Member erred in relying on those decisions to come to the conclusion against the assessee. Finally, he relied on the decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and urged that even if two reasonable interpretations are possible, the one in favour of the assessee is to be preferred. 5. Shri G. N. Srivastava, on the other hand, supported the order of the learned Accountant Member. He pointed out that the learned Judicial Member has relied on the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. which, according to him, is not applicable to the facts of the case. He pointed out that in the said case the book position has been ignored and an estimate was resorted to. Hence, that case was not applicable to the facts of the instant case where in the assessments have been made starting from the book results of the assessee. In this connection, he took me through the Paper Book containing 120 pages filed by him. Since the assessments have been made on the basis of the book figures in the instant case, it follows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in the Profit and Loss account and has taken it as deduction direct from the sales proceeds, section 41(1) will apply when the sales tax becomes refundable. He urged that the said decision is based on three supreme court decisions, namely, Chowringee Sales Bureau (P.) Ltd.'s case, Sinclair Murray and Co. (P.) Ltd.'s and Kedarnath Jute Mfg Co. Ltd.'s case and so this case should have preference over the other cases relied on by the assessee. 6. Dr. R. C. Vaish replied that the Income-tax officer was inconsistent when he disallowed the sum of Rs. 13,71,251 and held that the sum of Rs. 43,78,875 must be deemed to have been allowed in the earlier years. He stated that the decision in the case of Kedarnath Jute Mfg. Co. Ltd. has not applied by the Income-tax officer as the same was not applicable. In this connection, he referred to the decision in the case of Chandrakant D. Patel wherein the case of Chowringee Sales Bureau (P.) Ltd. has been clearly explained. regarding the decision of the Tribunal in the case of Abdul Masjid Paramjit Singh, he stated that the same was against the High Court decision - in Sharma and Co.'s case, Naubataram Nandaram's case and Bhagwat Prasad and Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not any statutory receipt. Further that decision rested on the other fact that the liability did not cease to exist by the unilateral entry made by the assessee in its books. It is true that section 41(1) creates a legal fiction, but the allowance of sales tax by way of direct deduction from the sale proceeds as has been done in the instant case is, in my opinion, not a fiction, but a fact. It is true that the burden of showing the applicability of section 41(1) is on the Revenue, but I find that the same has been amply discharged by pointing to the way the assessee maintained its accounts and the earlier assessments have been made. I also agree with the learned Representative for the department that the case of Motilal Ambaidas applies to the facts of this case and so the same has been rightly applied by the learned Accountant Member. Similarly I find that none of the cases cited by the learned counsel for the assessee helps the case of the assessee while the cases relied on by the learned Departmental Representative furthers that case of the department. The fact that the assessee has already taken deduction for sales tax liability in the earlier years is quite clear in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for purchase of machinery for setting up the vanaspati factory. The assurance given above was reiterated by the Chief Secretary that the assessee would be entitled to sales tax holiday in case the vanaspati factory was put up by it. The assurance was confirmed in writing on 22nd December, 1968. He, however, asked the assessee to obtain the requisite application from the submit a formal application to the Secretary to the Govt. in the Industries department and in the meanwhile to "go ahead with the arrangements for setting up the factory". This was followed by another letter dated 23rd January, 1969 to the same effect. Subsequently, the Govt. of U.P. announced that total exemption would not be given to the assessee, but that sales tax would be realised at a concessional rate. Still later, even this concession was withdrawn. Since the sales tax was demanded by the sales tax department from the assessee, the latter filed with petition in the High Court of Allahabad asking for a writ directing the State Govt. to exempt the sale of vanaspati manufactured by the assessee from the sales tax for a period of 3 years, commencing from 2nd July, 1970 by issuing a notification under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxability of the amount of Rs. 13,71,251 under section 41(1) of the Income-tax Act, 1961 as it had already received deduction in respect thereof in the assessment years 1971-72 to 1973-74 and further it was also not required to refund any part thereof to its customers. The assessee, however, objected to the taxability of the other amount of Rs. 43,78,875, which it had collected from its customers and which was paid to the Govt. under protest in the assessment years 1971-72 to 1974-75. It was submitted before the Income-tax Officer that the above amount could not be brought to tax as it was not a trading receipt in as much as it had not been collected from the customers in the assessment year 1980-81, but had been received as a refund from the sales tax department. It was further contended that even if it was to be treated as the income of the assessee, a deduction of a like amount was required to be allowed for the corresponding liability to return it to the persons from whom it was collected. Reliance in this connection was placed on the decision of the Calcutta High Court in Chowringhee Sales Bureau (P.) Ltd.'s case. The income-tax Officer thought that this case was distinguisha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny part of that amount to any of its constituents of customers from whom it had collected sales tax earlier. The provisions of section 41(1) of the Act are, therefore, clearly applicable to the common view of the various authorities cited at the Bar and discussed above and the assessee is, therefore, liable to income-tax on the entire amount of Rs. 43,78,875 in the year under appeal itself. We will, of course observe that as and when any part of the amount is refunded to any customer, the assessee will be entitled to its deduction in that year. These observations are made not with a view to give any direction for any subsequent year, but with a view to state the correct principles of law. Since in the year under appeal, no customer has made any claim, there is no question of deduction of any amount towards it. Further in the view we are taking that the provisions of section 41(1) of the Act are applicable to the present case, it is not necessary for us to discuss whether any other provision of the Act including section 28(i) or 28(iv) is also applicable to the assessee. This contention of the assessee, therefore, fails." The learned Judicial Member, on the other hand, did not agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87 was also filed before the Bench requesting for early fixation of the aforesaid Application date 29-8-1987. It was further stated in the application that the aforesaid application dated 29-8-1987 was neither heard nor disposed of by the Bench and the Hon'ble Third Member heard the matter on 19-10-1987 only on the specific aspect as to whether a deduction in respect of the aforesaid amount was allowed in earlier years. Other aspects about the corresponding liability in favour of the customers and the assessability of the amount ad income in the present assessment have not been heard upon by the Hon'ble Third Member. It was next stated that all the aforesaid aspects had been referred to by the Hon'ble Accountant Member in his order, whereas the decision of the Hon'ble Judicial Member or the third Member, is not available. Lastly, the applicant prayed as under : "(a) Before disposing the present appeal and before taking a final decision on the present matter about the taxability of the aforesaid sum of Rs. 43,78,875 in the present assessment, a hearing may be granted by the Hon'ble bench to the appellant-company on the aforesaid two aspects of the issues, i.e., the corresponding l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was entitled to be heard on the other aspects, of the matter which did not form part of the question referred by the Bench to the Third Member. As indicated earlier, the Accountant Member has dealt with those contentions-raised by the assessee on which the Judicial Member did I not express any separate opinion regarding liability to customers as well as the issue of real income. But hat would not mean, in our view, that the assessee was not on those aspects of the subject-matter or considered and dealt with, by the Appellate Tribunal before framing the question for referring to the Third Member. In fact, only a part of difference was incorporated in the question. In this view of the matter, we are of the opinion that at this stage we cannot re-open or review those issues. Even assuming that there is any point which was pleaded or argued before the Appellate Tribunal which remained to be dealt with,, it would have to be deemed that plea or argument had been considered and dealt with by the Appellate Tribunal. For this proposition, we may refer to the decision as In CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), CIT v. Burmah-Shell Oil Storage Distribution Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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