TaxTMI 
TaxTMI 
1971 (11) TMI 19
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....was liable to be taxed as deemed profit under section 10(2A) of the Indian Income-tax Act, 1922?" The facts relevant for our purpose, as stalled in the statement of the case, may shortly be stated as under: The assessee is a Hindu undivided family. The assessment year is 1958-59, for which the account year is Samvat year 2014, Diwali 1956 to Diwali 1957. The assessee carried on various businesses. One of them was exploiting forests and selling timber extracted therefrom. In 1955 (Samvat 2010), the assessee obtained a long lease of a forest from the Raja of Dharamjaigarh. The consideration for the lease was Rs. 2,45,000. A portion of the forest was given by the assessee on a sub-lease to someone for a consideration of Rs. 30,000 ....
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....nt estimated the sales at Rs. 3,02,000 and profits at 20% for the assessment year 1956-57 and at Rs. 1,50,000 and 20% for the assessment year 1957-58. In the assessment year 1958-59 (Samvat 2014), the assessee obtained a remission from his lessor, the Raja of Dharamjaigarh, of Rs. 79,000 made up of the following items : Rs. 50,000 ... reduction in the lease consideration on account of the area being about 590 acres which at Rs. 331 per acre worked out the lease consideration at Rs. 1,95,000 instead of Rs. 2,45,000. Rs. 24,000 ... difference in royalty. Rs. 5,000 ... reversal of a wrong entry made in 1953. The Income-tax Officer claimed to tax the aforesaid amount treating it as profit under section 10(2A) of the A....
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....entry in respect of it was merely by way of reversal of a wrong entry made in 1953. The Appellate Assistant Commissioner, on appeal, upheld the taxability of the amount, inter alia, saying- "The trading account was rejected not because the amount of royalty amounting to Rs. 2,15,000 was unverifiable but because there was no check over the timber extracted from the forest nor was there any check over the extraction expenses debited in the accounts. When a gross profit is estimated at a certain rate it is understood that reasonable and verifiable expenses debitable to the trading account have been allowed. As the amount of royalty paid to the Ruler of Dharamjaigarh was fully verifiable, it was clear that even though the gross profit was....
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....e proportion of Rs. 2,45,000 to Rs. 2,15,000. Before we answer the question referred to us for decision, we may briefly examine the provisions of section 10(2A) of the Act. Section 10(2A) of the Act reads as under: "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 ....
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....t been granted earlier because the department then merely taxes as income what it had earlier allowed as deductions or allowances. In the instant case, the assessee had not maintained any profit and loss account in respect of the forest contract in question. As stated by the Appellate Assistant Commissioner in his remand report (annexure "D") which forms part of the case, the assessee had "merely debited the expenses as incurred in a particular year and credited the sales of timber obtained from this forest". Consequently, no profit or loss was ascertained on the basis of the account maintained in this fashion. Again, in the words of the Appellate Assistant Commissioner in annexure "D", "in the strict sense of the term, there was no ques....
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....ey was not actually allowed or deducted in the assessment of the assessee in any of the years in question as trading expenditure or cost incurred, the lease money figured in the estimation of percentage of profits as one of the data and that consequently it (the lease money) should be taken to have been allowed as a deduction or allowance within the meaning of section 10(2A) of the Act. In our opinion, the contention cannot be accepted. In the first place, sub-section (2A) of section 10 of the Act envisages an actual allowance or deduction and not a notional one and, in so far as there was no actual allowance or deduction in the assessment for any year in question, the sub-section shall have no application to the facts of the case. Secon....