1969 (10) TMI 7 - HC - Income Tax

Refunded amount deemed as income under Indian Income-tax Act

Jagatnarain Durga Prasad Versus Commissioner of Income-Tax, Uttar Pradesh

Jagatnarain Durga Prasad Versus Commissioner of Income-Tax, Uttar Pradesh - [1970] 76 ITR 214 Issues:1. Whether the amount refunded by the State Government to the assessee should be considered as income for the assessment year 1960-61.2. Interpretation of sub-section (2A) of section 10 of the Indian Income-tax Act, 1922 regarding the treatment of refunded amounts.Detailed Analysis:Issue 1:The case involved a reference under section 66 of the Indian Income-tax Act, 1922, where the assessee firm received a refund of Rs. 13,272.37 from the State Government on account of sales tax collected on forward contracts. The Income-tax Officer treated the entire refunded amount as income during the previous year, leading to an assessment. The Appellate Tribunal agreed that the amount brought forward could not be treated as income but held that the refunded amount should be treated as the assessee's income under sub-section (2A) of section 10 of the Act. The question arose whether the refunded amount should be included in the computation of the assessee's business income for the relevant assessment year.Issue 2:The interpretation of sub-section (2A) of section 10 of the Act was crucial in determining the tax liability on the refunded amount. The section states that if an assessee receives any amount in respect of a loss or expenditure previously allowed as a deduction, it shall be deemed as profits and gains of business. The contention raised was that the refunded sales tax was not income but an amount collected for later deposit with the State Government. Additionally, it was argued that the refunded amount would be repaid to the constituents in the future.Analysis:The Tribunal considered the possibility of the assessee refunding the amount to its constituents but noted uncertainties regarding the timing and recipients of such refunds. The Income-tax Officer assured that any amount proven to be refunded to constituents would be allowed as deductions in subsequent years. The Tribunal found that the assessee had previously claimed the deposited amount as a deduction in computing business income under section 10, satisfying the conditions of sub-section (2A). Despite the nature of the refunded amount not strictly being income, the Tribunal held that it should be deemed as profits and gains of business under the Act.Conclusion:The Court affirmed the Tribunal's decision, stating that the case fell under sub-section (2A) of section 10, making the assessee liable to pay tax on the refunded amount. The question was answered in the affirmative, ruling against the assessee and directing them to pay costs of the reference to the Commissioner of Income Tax.