Law:

Section:

Section 41(1) of the Income-tax Act, 1961 [Corresponding to section 10(2A) of the Indian Income-tax Act, 1922] - Remission or cessation of trading liability - Assessment year 1960-61 - Upon belief that sales tax was levied on forward contracts, assessee collected sales tax from its constituents and deposited with treasury - Subsequently, there was a decision of High Court that no sales tax could be levied on forward contracts - Thus, State Government refunded amount to assessee - Amount previously deposited by assessee in Treasury was claimed as a deduction in computing its business income under section 10 of 1922 Act -Whether refunded amount should be treated as profits and gains of business, profession or vocation of assessee under section 10(2A) of 1922 Act and, therefore, assessee was liable to tax on said amount - Held, yes FACTS The assessee-firm carried on forward business in several commodities. The assessee believed that the sales tax was levied on the forward contracts and upon that belief it collected sales tax from its constituents on forwards contracts. The amount so collected was deposited by the assessee in the Treasury. Subsequently, there was a decision of the High Court in a case to the effect that no sales tax could be levied on the forward contracts. The State Government, therefore, refunded the amount to the assessee. The ITO treated the amount received by way of refund as business income of the assessee. The AAC and the Tribunal confirmed the order of the ITO. On reference: HELD It was not sure that the assessee could refund the amount to its constitutes. Further, the department would be willing to give the assessee credit for such payment subsequently. For, the ITO observed in his assessment order: "However, whenever any amount is positively proved to have been paid out of this amount the same will be allowed in the subsequent years." With this assurance from the ITO, the assessee should have no serious objection to the amount being treated as income in the previous year relevant to the assessment year 1960-61. The Tribunal stated that the amount previously deposited by the assessee in the Treasury was claimed by the assessee as a…

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