Law:

Section:

Section 5 of the Income-tax Act, 1961-In-come-Accrual of-Under lease agreement lessee paid to lessor (assessee) substantial amounts towards "local fund cess" under the bombay local board Act-It transpired that assessee recovered more "cess" than his lawful entitlement and such excess was refunded under court's decree-Whether impugned excess constituted his income of respective assessment years liable to tax-held, on facts, no Facts On 11-12-1947, the assessee granted to a syndicate rights for mining manganese ore from lands in two villages. Under this lease agreement, the lessee undertook to pay in addition to the rents and royalties (at 8 per cent of the sale value of manganese ore), all taxes, rates, assessments and impositions in the nature of public demand, which might be charged upon or in respect of the mines or works of the lessee, except demands for land revenue. Besides rent and royalties, the assessee received during the assessment years 1952-53 and 1953-54 "local fund cess" of Rs. 16,309 and Rs. 39,515, respectively. The lessee paid these amounts believing that it was liable to reimburse the assessee a cess at the rate of 3 annas in the rupee of the amount of rent and royalties. The ITO brought these amounts to tax which, on appeal, was sustained by the Tribunal. The Tribunal, however, found that the "local fund cess" legally due from the assessee as payable to the State Government under the Bombay Local Board Act was Rs. 270.45 per year. The Bombay High Court whose decision was affirmed by the Supreme Court, held (i) that the balance surplus, even though recovery was made of more amount than what the assessee was entitled to from the syndicate, constituted his taxable income; and (ii) that the question whether the Local Board collected the amounts or the assessee paid the amounts to the Board was irrelevant. In view of the said decision of the High Court that the assessee had recovered more than what he was lawfully entitled, the syndicate filed a civil suit claiming a refund representing excess recovery of "cess". The suit was decreed against the assessee who was directed to refund (and who subsequently refunded) excess recovery of Rs. 7,02,664.85.…

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