Court rules sales tax refund assessable in 1966-67 under Income-tax Act. Refund receipt crucial.

The High Court held that the sales tax refund amounting to Rs. 42,945 was assessable in the assessment year 1966-67, emphasizing the actual receipt of the refund as the crucial factor under section 41(1) of the Income-tax Act, 1961. The court ruled against the assessee, stating that the refund was obtained only after the Sales Tax Officer passed the refund order on August 19, 1965. Consequently, the court did not address the determination of the right to receive the sales tax refund, and the assessee was directed to bear the costs of the reference to the Commissioner.

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Issues Involved:
1. Taxability of sales tax refund in the assessment year 1966-67.
2. Determination of the right to receive sales tax refund u/s 41(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Taxability of Sales Tax Refund in the Assessment Year 1966-67
The Tribunal was questioned on whether the sales tax refund amounting to Rs. 42,945 was liable to be taxed in the assessment year 1966-67. The assessee argued that this amount should be included in the assessment year 1964-65, while the department insisted on the assessment year 1966-67. The High Court held that the amount was assessable in the previous year relevant to the assessment year 1966-67. The court emphasized that u/s 41(1), the crucial factor is the actual receipt of the refund amount, not merely the accrual of the right to receive it. The refund was obtained only after the Sales Tax Officer passed the order of refund on August 19, 1965, making it assessable in the assessment year 1966-67.

Issue 2: Determination of the Right to Receive Sales Tax Refund u/s 41(1)
The Tribunal had held that the right to receive the sales tax refund arose on the date when the Gujarat High Court delivered its judgment in Commissioner of Sales Tax v. Sumatilal Popatlal & Co. (December 5, 1962), and not on the date when the Sales Tax Officer passed the refund order. The High Court disagreed, stating that the right to receive the refund does not equate to the actual receipt of the refund. The court clarified that u/s 41(1), the term "obtained" refers to the actual receipt of the amount, whether in cash or any other manner. Therefore, the refund amount was obtained only when the Sales Tax Officer issued the refund order on August 19, 1965.

Conclusion:
The High Court answered the first question in the negative, in favor of the revenue and against the assessee, holding that the sales tax refund was taxable in the assessment year 1966-67. Consequently, the court declined to answer the second question as it was deemed unnecessary. The assessee was ordered to pay the costs of the reference to the Commissioner.

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