V.G. Oak, C.J.
1. This is a reference under Section 66 of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act'). Messrs. Jagat Narain Durga Prasad, Kanpur, is the assessee. The assessment year is 1960-61. The previous year ended on October 30, 1959. The assessee-firm carried on forward business in several commodities. At one time it was believed that sales tax was leviable on forward contracts. Upon that belief, the assessee-firm collected sales tax from its constituents on forward contracts, and subsequently deposited the amount so collected into the Treasury. Subsequently, there was a decision of the High Court to the effect that no sales tax was leviable on forward contracts. The State Government, therefore, refunded an amount of Rs. 13,272.37 on account of sales tax unnecessarily deposited by the assessee-firm. When the Income-tax Officer took up the assessment for the year 1960-61, he examined the relevant account in the books of the assessee-firm. It was found that the opening balance in this account was Rs. 3,799.91. The amount received by refund was Rs. 13,272.37. The total amount indicated on the credit side was Rs. 17,072.28. The Income-tax Officer treated the entire amount of Rs. 17,072'28 as income during the previous year. Assessment was made accordingly. The assessee raised the question that this amount was not its income during the previous year. But this contention was repelled by the Appellate Assistant Commissioner, and the appeal was dismissed.
2. When the assessee took up the matter before the Appellate Tribunal, the Tribunal agreed with the assessee that the amount brought forward (Rs. 3,799.91) could not be treated as income during the previous year. But the Tribunal found against the assessee on the question of refund to the extent of Rs. 13,272.37. It was held that this amount ought to be treated as the assessee's income under Sub-Section (2A) of Section 10 of the Act. The appeal was, therefore, partly allowed.
3. At the instance of the assessee, the Tribunal has referred the following question of law to this court:
'Whether the sum of Rs. 13,272 has been properly included in the computation of the assessee's business income for the account year ended October 30, 1959, relevant to the assessment year 1960-61 ?'
4. The department relies upon Sub-Section (2A) of Section 10 of the Act. Section 10(2A) of the Act states:
'Where for the purpose of computing profits or gains under this section, an allowance or deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assessee and, subsequently during any previous year, the assessee has received, whether in cash or in any other manner whatsoever, 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, the amount received by him or the value of the benefit accruing to him shall be deemed to be profits and gains of business, profession or vocation and to have accrued or arisen during that previous year.'
5. Mr. K. M. Dayal, appearing for the assessee, raised two contentions before us. Firstly, he pointed out that the refund made by the State Government is on account of sales tax deposited by the assessee previously. Sales tax was never the income of the assessee. It was merely an amount collected by the assessee in order to deposit the amount with the State Government later. Secondly, it was urged for the assessee that the amount so refunded to the assessee would later be refunded by the assessee to the respective constituents.
6. As regards the possibility of refund of the sales tax to the constituents, the Tribunal entertained serious doubts. The Tribunal observed:
'The transactions took place long ago and part of the amounts refunded may relate to years as early as 1948-49 and 1949-50......We are, therefore, of the view that against the income receipts, there was no a certain liability in the material year on account of refund to constituents ...'
7. Thus, we cannot be sure that the assessee will refund this amount of Rs. 13,272.37 to its constituents. Further, the department would be willing to give the assessee credit for such payments subsequently. For, the Income-tax Officer observed in his assessment order :
'However, whenever any amount is positively proved to have been paid out of this amount the same will be allowed in the subsequent years.'
8. With this assurance from the Income-tax Officer, the assessee should have no serious objection to the amount of Rs. 13,272 being treated as income in the previous year relevant to the assessment year 1960-61.
9. The Tribunal stated that the amount previously deposited by the assessee in the Treasury was claimed by the assessee as a deduction in computing its business income under Section 10 of the Act, and the claim for deduction was allowed in former years. This position was not disputed by Mr. K. M. Dayal. Thus, the first part of Sub-Section (2A) of Section 10 of the Act is satisfied in the instant case. Admittedly, the assessee received the sum of Rs. 13,272.37 from the State Government by way of refund. So, the latter part of Sub-Section (2A) of Section 10 is also satisfied. It may be that the amount so received by the assessee is not income in the strict sense. But, we may point out that under Sub-Section (2A) of Section 10 of the Act, such receipts shall be deemed to be profits and gains of business, profession or vocation.
10. We thus agree with the Tribunal that the present case is covered by Sub-Section (2A) of Section 10 of the Act, and the assessee was liable to tax on this amount of 13,272.37.
11. We answer the question referred to the court in the affirmative, and against the assessee. The assessee shall pay the Commissioner of Income-tax U.P., Rs. 200 as costs of the reference.