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Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the refund of excise duty paid in the accounting year, but received only in later years, was assessable as income of the relevant accounting period for income-tax and excess profits tax.
Analysis: The assessee maintained mercantile accounts, but no credit entry was made in the relevant year and no legally enforceable right to receive the refund arose during that year. The Government's directions were only executive instructions to departmental officers and did not create a debt owed to the assessee or a promise enforceable against the Government. The amount was therefore not a trading debt, nor something analogous to a trading debt, and the later remission and repayment could not be related back to the accounting period. Income can accrue only when a right to receive it has arisen, and that test was not satisfied here.
Conclusion: The sum of Rs. 36,094 did not accrue as income in the accounting period and was not assessable in that year.
Final Conclusion: The reference was answered in favour of the assessee, holding that the later refund of the excise duty could not be brought into the taxable profits of the earlier accounting year.
Ratio Decidendi: A refund arising from remission of a lawfully levied tax does not accrue as income in the year of payment unless, during that year, the assessee acquires a legally enforceable right to receive it or a debt is created in his favour.
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