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Tractor and Equipment Corpn. Ltd. Vs. Income-tax Officer. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIT APPEAL NOS. 1303 AND 1373 (DELHI) OF 1983 [ASSESSMENT YEAR 1979-80]
Reported in[1984]9ITD132(Delhi)
AppellantTractor and Equipment Corpn. Ltd.
Respondentincome-tax Officer.
Cases ReferredCorpn. of Calcutta v. Hindusthan Constructions Co. Ltd.
Excerpt:
- - harnam shankar, drew our attention to the provisions of section 41(1) and urged that the said provisions were attracted if the following conditions were satisfied, namely :(i) the amount in question should have been received by an assessed by way of remission or cessation of a trading liability; these conditions, according to the learned counsel for the assess, were not satisfied in the present case, inasmuch as the refund of the amount in question, pursuant to the order of the assistant commissioner of sales tax appeals dated 16-8-1977 did not bring about the cessation of a trading liability. 2,32,090 under section 41(1) namely, the one involving the cessation of the liability, is not satisfied in the present case......expenditure or trading liability incurred by the assessed and subsequently during any previous year the assessed 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 cession 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. a perusal of this section, thus, shows that the following two conditions must coexist before an amount can be.....
Judgment:
ORDER

Per Shri R. L. Segal, Judicial Member - IT Appeal No. 1303 (Delhi) of 1983 by the assessed, Tractor & Equipment Corpn. Ltd., (in voluntary liquidation), New Delhi and IT Appeal No. 1373 (Delhi) of 1983 by the revenue arising out of the order of the Commissioner (Appeals) dated 6-1-1983 have been consolidated, heard together and are being disposed of by a common order for the sake of convenience. The year of assessment involved is 1979-80, for which the previous year ended 24-3-1979.

2. IT Appeal No. 1303 (Delhi) of 1983 : Grounds 2 and 3 reading as under, were not pressed at the time of the hearing of the appeal :

'2. The learned Commissioner (Appeals) has erred in upholding the disallowance of legal and professional expenses of Rs. 12,451 having been incurred wholly and exclusively for the purpose of business.

3. The learned Commissioner (Appeals) has erred in upholding the disallowance in respect of unrecovered sales tax in the sum of Rs. 5,150.'

As such and for the reasons stated by the Commissioner (Appeals), with which we agree, we uphold his order on these points.

3. Ground No. 1 in the appeal by the assessed and the only ground in the appeal by the revenue are inter-connected and so they are being dealt with in the manner stated hereinafter. The admitted facts in this connection are that the assessed in the year under consideration on 20-11-1978 received a sum of Rs. 2,32,090 as a refund from the sales tax authorities. The sales tax refund pertains to the period from 31-10-1960 to 31-3-1963. The ITO assessing the assessed for the year under consideration, in view of the said refund, called upon it to explain as to why the above refund should not be taxed under section 41(1) of the Income-tax Act, 1961 (the Act). In reply, the stand taken by the assessed was that the said sum having not been charged to the profit and loss account as refund was not taxable under section 41(1) and, secondly, that the said amount was repayable by the assessed to the Director General Supplies and Disposal (DGSD), after waiting for the statutory period for initiation of revision proceedings by the Commissioner of Sales Tax under section 57 of the Bombay Sales Tax Act, 1959 (the 1959 Act). These contents were, however, negative by the ITO, who has charged the above sum of Rs. 3,32,090 to tax under section 41(1)

4. Aggrieved by the said addition by the ITO, the assessed brought the matter by way of appeal before the Commissioner (Appeals), who has agreed with the ITO that the above amount was to be charged to tax under section 41(1). At the same time, the Commissioner after going through the contract between the assessed and the DGSD, came to the conclusion, in view of the provisions of section 72 of the Indian Contract Act, 1872, as also the fact that the assessed followed mercantile system of account, that the said sum of Rs. 2,32,090 being the sales tax not legally livable had to be refunded to the DGSD. That is why the appeals both by the revenue and the assessed. The assessed in the appeal has challenged the correctness of the order of the Commissioner (Appeals) on the ground that he has erred in not accepting the stand of the assessed that the sum of Rs. 2,32,090 received by way of sales tax refund was not its income under section 41(1), as there was no final cessation of the said sales tax liability, during the year under consideration. In the appeal by the revenue, they have urged that the Commissioner (Appeals) had erred in deleting the addition of Rs. 2,32,090 made by the ITO on the ground that the said amount being refundable to the DGSD, the assessed was entitled to get the deduction of that amount in computing its total income for the year under consideration.

5. In the appeal by the assessed, the learned counsel for the assessed, Mr. Harnam Shankar, drew our attention to the provisions of section 41(1) and urged that the said provisions were attracted if the following conditions were satisfied, namely :

(i) the amount in question should have been received by an assessed by way of remission or cessation of a trading liability; and

(ii) that the said trading liability had already been allowed as a deduction while computing the total income of the assessed in any preceding assessment year.

These conditions, according to the learned counsel for the assess, were not satisfied in the present case, inasmuch as the refund of the amount in question, pursuant to the order of the Assistant Commissioner of Sales Tax Appeals dated 16-8-1977 did not bring about the cessation of a trading liability. The cessation of the liability of the assessed in this behalf was not full and final, in view of the provisions of section 57 of the Bombay Sales Tax Act. there under, the Commissioner had the power for suo moto revision of the order of the lower authority including the order passed in appeal within the period of three years from the date of the communication of the order sought to be revised. That period, according to the learned counsel for the assessed, had not elapsed in the year under consideration. In support of these arguments, the learned counsel for the assessed, Mr. Harnam Shanker, relied on the decision of the Allahabad High Court in J. K. Synthetics Ltd. v. O. S. Bajpai, ITO : [1976]105ITR864(All) . These arguments have been controverter by the departmental representative, who has relied on the orders of the tax authorities.

6. In the appeal filed by the revenue, the departmental representative took us through the orders of the tax authorities and urged that the Commissioner (Appeals) has erred in deleting the sum of Rs. 2,32,090 representing sales tax refund from the computation of total income of the assessed while upholding simultaneously the finding of the assessing officer charging the said amount is under section 41(1). In reply, the learned counsel for the assessed took us through the contract between the assessed and the DGSD at pages 1 to 8 of the paper book filed by the assessed, more particularly, to the condition in the contract that the prices were exclusive of excise duty and sales tax which would be paid extra if legally livable and on production of documentary proof. The learned counsel for the assessed urged that the DGSD had paid the sales tax to the assessed on production of the documentary proof. The said amount is legally refundable by the assessed to the DGSD because the amount of sales tax levied by the STO, in view of the order of the Assistant Commissioner of Sales Tax (Appeals) was not legally leviable. In support of this stand, the learned counsel for the assessed took us through the opinion of Orr Dignam & Co., dated 27-11-1982, at pages 9 to 19 of the paper book filed by it. He also referred to the provisions of section 72 of the Indian Contract Act, as also various decisions of the Supreme Court and the Calcutta High Court referred to in the opinion of the said solicitors and the impugned order of the Commissioner (Appeals). Mr. Shanker, thereforee, urged that the Commissioner (Appeals) was correct in holding that the said amount of Rs. 2,32,090 being refundable by the assessed to DGSD, which liability the assessed had admitted in their letter dated 5-12-1978 addressed to DGSD, was deductible in computing its income for the year under consideration, more so when the assessed follows mercantile system of accounting.

7. We have given consideration to the above arguments. Section 41(1) lays down that where a deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessed and subsequently during any previous year the assessed 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 cession 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. A perusal of this section, thus, shows that the following two conditions must coexist before an amount can be deemed to be the profit and gains of business of the assessed :

1. An allowance or deduction had not made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessed

2. Subsequently during any previous year the assessed has obtained any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission of cessation thereof.

Though at this stage there is no dispute before us that the assessed in the earlier years had obtained deduction in respect of the sales tax paid in its assessments for those years and that pursuant to the order of the Assistant Commissioner of Sales Tax (Appeals) the assessed has received the above amount of Rs. 2,32,090, the short point for our decision is as to whether the refund of the amount in question, as the facts stood in the year under consideration, was by way of cessation of the said trading liability.

8. This takes us to section 57(1) of the 1959 Act. Sub-section (1) of section 57 lays down that subject to the provisions of section 56 of the 1959 Act and to any rules which may be made in this behalf, the Commissioner may, of his own motion, call for and examine the record of any order passed (including an order passed in appeal) under this Act or the rules made there under by any officer or person subordinate to him and made such order therein as he thinks just and proper. The proviso thereto further lays down that no notice in the prescribed form shall be served by the Commissioner under the said sub-section after the expiry of three years from the date of the communication of the order sought to be revised and no order in revision shall be made by him hereunder after the expiry of five years from such date. The provisions of section 57(1) (a), being stated hereinbefore, the order of the Assistant Commissioner of Sales Tax (Appeals), which resulted in the sales tax refund of Rs. 2,32,090 to the assessed, as the position stood in the year under consideration is not final so as to say that there was cessation of that liability. The appellate order of the Assistant Commissioner of Sales Tax (Appeals) in question could be revised by the Commissioner under section 57(1) (a) within a period of three years from the date of the communication of the said order. A cessation of liability for the purposes of section 41(1), as laid down by the Allahabad High Court in J. K. Synthetics Ltd.s case (supra) at page 881 means irrevocable cessation so that there was no possibility of the liability being revived in future. Such a situation, as stated hereinbefore, did not arise in the year under consideration. The cessation of liability pursuant to the order of the Assistant Commissioner of Sales Tax (Appeals) mentioned hereinbefore, the same being receivable under section 57(1) (a) was not an irrevocable cessation so that there was no possibility of the liability being revived in future. The condition precedent for taxing the said amount of Rs. 2,32,090 under section 41(1) namely, the one involving the cessation of the liability, is not satisfied in the present case. The said amount of Rs. 2,32,090 could not, thereforee, be taxed under section 41(1).

9. Assuming without admitting that the said amount could be brought to tax under section 41(1), we now proceed to examine as to whether the assessed is entitled to the deduction of the said amount in computing its total income for the year under consideration, the said amount being repayable by it to DGSD. This takes us to the contract entered into by the assessed with DGSD. As already stated, a copy of the said contract is at pages 1 to 8 of the paper book filed by the assessed. One of the terms of the said contract is that the prices payable by DGSD in respect of the caterpillar, etc., to be supplied by the assessed to them were exclusive of excise duty and sales tax which would be payable extra if legally livable and on production of documentary proof. If is also in fact that the DGSD on production of the sales tax assessment orders of the assessed in respect of the goods supplied by it to them received salestax amount of Rs. 2,32,090 from DGSD. The said amount, in view of the order of the Assistant Commissioner of Sales Tax (Appeals) who reversed the assessment order by the STO, has been refunded on the ground that sales tax in question was not legally leviable. This order of the Assistant Commissioner of Sales Tax (Appeals), as already stated above, is subject to the power of revision with the Commissioner of Sales Tax under section 57(1) (a). Since in the year under consideration, there was no order of the Commissioner of Sales Tax under section 57(1) (a) of the 1959 Act and the assessed follows mercantile system of accounting, the liability of the assessed on the facts and in the circumstances of the case and the provisions of section 72 of the Indian Contract Act, which is in the following terms, accrued in the year under consideration, inasmuch as the sales tax being not legally livable was refundable to the DGSD :

'72. Liability of person to whom money is paid or thing delivered, by mistake or under coercion. - A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.'

Tax paid under an error of law has always been held to be recoverable in accordance with the principles contained in section 72.

The DGSD having paid the amount of sales tax originally to the assessed under a mistaken notion of the legality of such payment, in view of the order of the STO, were, pursuant to the order of the Assistant Commissioner of Sales Tax (Appeals) referred to above, in law entitled to get the refund received by the assessed from the sales tax authorities. In this connection, it may be added that the assessed in the letter dated 5-12-1978 addressed to DGSD has expressed the intention to make over the refund to them after the lapse of the period of three years mentioned in section 57(1) (a) of the 1959 Act. The legal entitlement of DGSD of the above amount is supported by the ratio of the decision of the Calcutta High Court in Corpn. of Calcutta v. Hindusthan Constructions Co. Ltd. AIR 1972 Cal. 420. We, thereforee, on the facts and in the circumstances of the case and the above discussion, agree with the Commissioner (Appeals) that the assessed was entitled to he deduction of Rs. 23,2,090 being the amount payable by the assessed to DGSD, even is the said amount is taxable under section 41(1) of the 1961 Act, while computing its total income for the year under consideration.

10. In the result, the appeal by the assessed is partly allowed and the appeal by the revenue fails and is hereby dismissed.


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