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Income Tax Appellate Tribunal - Allahabad

M.P. Udyog Ltd. vs Income-Tax Officer on 30 December, 1987

Equivalent citations: [1989]28ITD85(ALL)

ORDER

Prakash Narain, Accountant Member

1. The assessee is a limited company, which was primarily engaged in the business of manufacture and sale of sugar. It also had a cold storage plant and a steel foundry. On 10th October, 1968, a news item appeared in the National Herald in which it was stated that the State of Uttar Pradesh had decided to give exemption from sales tax for a period of 3 years under Section 4A of the U.P. Sales Tax Act to all new industrial units in the State with a view to enabling them 'to come on firm footing in developing stage'. This item was based upon a statement made by the then Secretary in the Industries Department of the Government. The assessee, on the basis of this announcement, addressed a letter dated 11th October, 1968 to the Director of Industries stating that in view of the sales tax holiday announced by the Government, it intended to set up a hydrogenation plant for manufacture of vanaspati and sought for confirmation that this industrial unit, which they proposed to set up, would be entitled to sales tax holiday for a period of 3 years from the date it commenced production. The Director of Industries replied by his letter dated 14th October, 1968, confirming that "there will be no sales tax for three years on the finished product of your proposed vanaspati factory from the date it gets power connection for commencing production." The assessee thereupon started taking steps to contact various financiers for financing the project and initiated negotiations with manufacturers for purchase of machinery for setting up the vanaspati factory. The assurance given above was reiterated by the Chief Secretary that the assessee would be entitled to sales tax holiday in case the vanaspati factory was put up by it. The assurance was confirmed in writing on 22nd December, 1968. He, however, asked the assessee to obtain the requisite application form and submit a formal application to the Secretary to the Government in the Industries Department and in the meanwhile 'to go ahead with the arrangements for setting up the factory'. This was followed by another letter dated 23rd January, 1969 to the same effect.

2. Subsequently, the Government of U.P. announced that total exemption would not be given to the assessee, but that sales tax would be realised at a concessional rate. Still later, even this concession was withdrawn. Since the sales tax was demanded by the sales tax department from the assessee, the latter filed a writ petition in the High Court of Allahabad asking for a writ directing the State Government to exempt the sale of vanaspati manufactured by the assessee from the sales tax for a period of 3 years commencing from 2nd July, 1970 by issuing a notification under Section 4A of the Sales Tax Act and not to collect or charge sales tax for the said period of 3 years. The writ was, however, rejected by the High Court. The assessee thereupon preferred an appeal to the Supreme Court. The Supreme Court decided the matter in favour of the assessee. The case is Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] 118 ITR 326 (SC).

3. The Commissioner of Income-tax (Appeals) found that initially the assessee had not collected sales tax from its customers under the belief that no such amount was payable to the Government. Subsequently, when the Government demanded payment, the assessee started collecting the amounts from the customers and paid them over to the Government under protest. For the period when no such collections were made by the assessee from Its customers, a total amount of Rs. 13,71,251 was demanded, by the sales tax department. Thereafter amounts aggregating to Rs. 43,78,875 were collected fey the assessee during the assessment years 1971-72 to 1974-75 and the same were paid over to the Government under protest. The aforesaid sum of Rs. 13,71,251 was claimed as deduction by the assessee in the assessment years 1971-72, 1972-73 and 1973-74. The claim was disallowed by the Income-tax Officer but was allowed by the Appellate Assistant Commissioner. The sums collected by the assessee from its customers amounting to Rs. 43,78,875 were credited to a separate account styled 'U.P. Sales Tax account'. The payments, as and when they were made to the Government were debited to this account.

4. As a result of the decision of the Supreme Court, which was rendered on December 12, 1978, the assessee became entitled to the refunds of the taxes already paid to the Government. It appears that there were two such refunds, one of Rs. 13,71,251 and the other of Rs. 43,78,875. The first amount represented the deductions claimed by the assessee in various years and allowed in appeal, while the second amount represented the refunds of the sales tax, which, according to the assessee, had not been allowed in the computation of its income of the relevant years and which it was also bound to refund to its customers from whom they were collected. These refunds were received in the assessment year 1980-81 which is the year under consideration.

5. The question regarding the taxability of the above amounts also came up for the consideration of the Income-tax Officer in this year. The assessee did not object to the taxability of the amount of Rs. 13,71,251 under Section 41(1) of the Income-tax Act, 1961 as it had already received deduction in respect thereof in the assessment years 1971-72 to 1973-74 and further it was also not required to refund any part thereof to its customers. The assessee, however, objected to the taxability of the other amount of Rs. 43,78,875 which it had collected from its customers and which was paid to the Government under protest in the assessment years 1971-72 to 1974-75. It was submitted before the Income-tax Officer that the above amount could not be brought to tax as it was not a trading receipt inasmuch as it had not been collected from the customers in the assessment year 1980-81, but had been received as a refund from the Sales Tax Department. It was further contended that even if it was to be treated as the income of the assessee, a deduction of a like amount was required to be allowed for the corresponding liability to return it to the persons from whom it was collected. Reliance in this connection was placed on the decision of Calcutta High Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1977] 110 ITR 385. The Income-tax Officer thought that this case was distinguishable as it related to the liability of a businessman towards the sales tax department and not towards its own customers. The Income-tax Officer also noticed that no part of the above amount had been refunded to any of the assessee's customers and, in fact, not a single claim had been made against the assessee by any of them till the passing of the assessment order. The Income-tax Officer was of the view that the sales tax formed part of the assessee's trading receipt in view of the principles settled by the Supreme Court in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615. According to him, the receipt of refund of such an amount from the sales tax department was the income of the assessee taxable under Section 41(1) of the Act in view of the following decisions:

1. CIT v. Kabbur Bros. [1981] 128 ITR 43 (Kar.)

2. Ikrahnandi Coal Co. v. CIT [1968] 69 ITR 488 (Cal.)

3. Jagatnarain Durga Prasad v. CIT [1970] 76 ITR 214 (All.)

4. CIT v. Taj Gas Service [1980] 122 ITR 1034 (AIL).

He also observed that the assessee had been regularly following the mercantile system of accounting and, therefore, the taxability of the above amount under Section 41(1) of the Act could not be postponed by making any entries in its books of account. It may be mentioned here that the above addition was made by the Income-tax Officer by seeking the direction of the Inspecting Assistant Commissioner under Section 144B of the Act.

6. The assessee appealed to the Commissioner of Income-tax (Appeals). Two broad submissions were placed before the latter on behalf of the assessee. The first was that on correct interpretation of Section 41(1) of the Act and on a proper appreciation of the facts of the case, the amount of Rs. 43,78,875 was not taxable as the income of the assessee. The alternate submission was that, in any case, a deduction for the corresponding liability in favour of the assessee's customers for an equivalent amount had to be allowed. It was contended that on consideration of either of the above submissions, the assessee was not liable to tax on any part of the above amount. Detailed submissions were also placed before the Commissioner of Income-tax (Appeals) both in writin as well as orally. It was argued before him that Section 41(1) of the Act did not apply to the case of the assessee as none of the conditions of the section had been satisfied. It was first contended that Section 41(1) of the Act being a deeming provision had to be strictly construed. According to the learned counsel for the assessee, there were two such conditions. The first was that an allowance or deduction should have been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. The second was that subsequently during any previous year the assessee should have obtained any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. The argument of the learned counsel for the assessee was that the assessee had not been given any allowance or deduction in the assessment for any year in respect of expenditure or trading liability incurred by it. It was submitted that the assessee had realised the sales tax from, its customers, credited it to a separate sales tax account to which the payments made to the Government had also been debited. On these premises, it was submitted that the sales tax had not been allowed in the determination of the assessee's income of any of its previous years. It was argued that the view of the Income-tax Officer that mere adjustment of the sales tax to the above account amounted to its allowance in the assessment, created a second fiction which was not permitted within the fiction contemplated by Section 41(1) itself. According to the learned counsel for the assessee this created double fiction, which was not legally tenable. It was next submitted that since the assessee was liable to refund the entire amount to its customers there was no final remission or cessation of any liability in its favour. The argument of the counsel before the Commissioner of Income-tax (Appeals), therefore, was that Section 41(1) of the Act was not applicable to its case as none of the above two conditions were satisfied in the assessee's case.

7. The learned counsel for the assessee in support of his above contentions relied on several authorities. The first was of the Allahabad High Court in J.K. Synthetics Ltd. v. O.S. Bajpai, ITO [1976] 105 ITR 864 to point out that the remission or cessation for applying the provisions of Section 41(1) of the Act must be complete and there should be no possibility of the liability being revived in future. Another decision was of Supreme Court in Sales Tax Officer v. Kanhaiya Lal Makund Lal Saraf [1958] 9 STC 747. In this case, the provisions of Section 72 of the Indian Contract Act were considered. It was held that if one party under a mistake, whether of fact or law pays to another money, which is not due by contract or otherwise, that money must be repaid. The mistake lies in thinking that the money paid was due when in fact it was not due and that mistake, if established, entitles the party paying the money to recover it back from the party receiving the same. No distinction in this respect can be made in respect of a tax liability and any other liability and, therefore, tax paid under the U.P. Sales Tax Act, 1948 by mistake of law, can also be recovered. The submission of the counsel for the assessee before the Commissioner of Income-tax (Appeals) on the basis of the above judgment was that the customers of the assessee had paid the amounts of sales tax under a mistake to the assessee and that they were entitled to its refund once that amount was found to have been collected illegally from them. It was also argued that in such a case there was an implied and constructive trust arising under Section 3 of the Indian Trusts Act, 1882 in favour of the customers of the assessee. It was also submitted that there was an overriding title for the refund of the amount in favour of the customers of the assessee in view of the judgment of the Privy Council in the case of Raja Bejoy Singh Dhudhuria v. CIT [1933] 1 ITR 135. The argument was placed to point out that the various judgments relied on by the Income-tax Officer were distinguishable on their own facts and that none of them was applicable to the case of the assessee, particularly when they did not deal with the question of cessation of liability to be final and irrevocable. Several other judgments were also placed before the Commissioner of Income-tax (Appeals).

8. The Commissioner of Income-tax (Appeals) was of the view that the following three issues arose for his adjudication:

(i) Whether or not on facts of the case by invoking provision of Section 41(1) the amount of remission granted to the assessee can be brought to tax in this year ?

(ii) If the answer to the abovementioned question is against the assessee and in favour of the department, whether or not deduction for the corresponding amount of liability claimed to arise in favour of the customers is allowable ?

(iii) The third issue, which has not been specifically brought out either by the ITO or on behalf of the appellant, is whether or not if the amount is not assessable under Section 41(1) of the IT Act, 1961, it is assessable in this year for any other reason in terms of any other provision of the Act ?

He agreed with the submissions of the counsel for the assessee that provisions of Section 41(1) could be applied only when an allowance or deduction had been made in an earlier assessment year and that the remission or cessation of the liability was final and irrevocable. However, in his opinion, both these conditions were satisfied in the present case. In his opinion, maintaining of a separate sales tax account by the assessee clearly amounted to taxability of the receipts and the corresponding' deduction for the sales tax in the respective years. The Commissioner of Income-tax (Appeals) was of the view that the form of the accounts or their maintenance in any particular, way did not affect the legal position. He observed:

What has happened factually in this case is that receipts on account of sales tax was not credited to the trading' account. Necessarily, therefore, corresponding debit entry on account of sales tax liability could not be made in Profit & Loss account. But so far as the actual position is concerned, apart from the form, in which the accounts have been maintained, that part of the receipts has not been credited to the accounts because of the claim that there was corresponding liability for the sales tax, the net effect of which is that had there been allowance or deduction on account of sales tax, the amount of receipt for sales tax would have been added to the income returned. By now doing so, actually deduction of the amount for sales-tax liability has been allowed to the assessee in earlier years. There could not be any other reason for not taxing such receipts in the past.

There is another way of looking at this matter. When an assessee collects sales tax and credits the amount to the sales tax account, which is later on debited by the amount paid to the Government, the amount is trading receipt, as held by the Supreme Court in 87 ITR 542 and 97 ITR 615. On the other hand, liability for sales tax is allowable under Section 37 in view of Supreme Court's decision in 82 ITR 363. The fact that the assessee carries the difference between credit and debit side to the P&L account does not affect the position. So it has to be held on facts of the case, that deduction for sales tax liability was actually allowed.

In the opinion of the Commissioner of Income-tax (Appeals) the various decisions quoted by the learned counsel for the assessee either did not lay down any different principle or were distinguishable on their own facts. He further held that there was also final and irrevocable remission or cessation of the liability in the sense that it had been finally decided by the Supreme Court that the assessee was not liable to any sales tax to the extent of Rs. 43,78,875. In his opinion, the judgment of Allahabad High Court in J.K. Synthetics Ltd. 's case (supra) was clearly distinguishable as in that case, an appeal had been filed against the judgment of the High Court and, therefore, the finality of the decision had been destroyed. On the other hand, he found that the liability of the assessee had finally ceased in view of the aforesaid decision of the Supreme Court.

9. The Commissioner of Income-tax (Appeals) then dealt with the assessee's liability towards its customers. He held that so far as the payment of the sales tax was concerned the assessee alone was liable for it and the cessation of that liability resulted in an income to the assessee under Section 41(1) of the Act, which was independent of its obligation towards its customers. About the obligation to the customers, he held that no such liability had been crystallised, by filing of any suit by any customer against the assessee, which was a necessary condition for determination of liability under Section 72 of the Contract Act. According to him, if there was any such liability, it was contingent in nature. In this connection, he also observed that the duty of repayment of money received under a mistake did not arise until notice of the mistake had been given and demand made for repayment. He also relying on the decisions of Allahabad High Court and Calcutta High Court in Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33 and CIT v. Soorajmull Nagarmull [1981] 129 ITR, 169 held that in the case of a contractual liability which admittedly was between the assessee and. its customers, the liability arose only when the dispute was finally settled. Since in the present case, there was no settlement of any such dispute between the assessee and its customers, the question of allowing any such liability also did not arise in view of the principles laid down in the above two cases.

10. The Commissioner of Income-tax (Appeals) held that even otherwise independent of Section 41(1) of the Act, the refund received by the assessee from the sales tax department of the sales tax earlier paid was in the nature of an income being profits and gains of its business under Section 28(2) of the Act and, in any case, it was also taxable under Section 28(iv) of the Act. He finally held that the entire amount of Rs. 43,78,875 was the income of the assessee and upheld its addition.

11. The assessee is now in appeal before us contending that the above amount of Rs. 43,78,875 had been wrongly brought to tax. On the other hand, the department has also taken cross-objections supporting the findings of the Commissioner of Income-tax (Appeals). The learned counsel for the assessee submitted before us that for applying the provisions of Section 41(1) of the Act, it was necessary to show that an allowance or deduction had been made in the assessment of an earlier year, that subsequently there should have been a remission or cessation of the assessee's trading liability and that the assessee should also receive some benefit in respect of such trading liability. His contention was that in the case of the assessee none of these conditions were satisfied and, therefore, Section 41(1) had no application. His next submission was that even the section was applicable, a corresponding deduction required to be made for the liability of the assessee towards its customers. He pointed, out that the Commissioner of Income-tax had admitted that there was such a liability, but that it was only contingent in nature. He, contended that such a liability was not contingent, but, in fact, there was an overriding title in favour of the customers. He also argued that Section 41(1) of the Act required strict construction as it was a deeming section as also a charging section in a taxing statute. Relying on certain authorities, he submitted that no tax could be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter, but that a case must be covered within the four corners of the provisions of a taxing statute. He, of course, admitted that this principle applied to a taxing provision and not to all the provisions in a taxing statute. He submitted that Section 41(1) of the Act was a taxing provision in the Income-tax Act and, therefore, the above principle was applicable to it.

12. Regarding the deduction allowed in an earlier year, the counsel for the assessee submitted that it must be clearly shown that a deduction had been allowed in an assessment order, and that the burden of proof to show that it had been so allowed, was on the department. About the cessation of the liability, his submission was that it must be final and irrevocable and not subject to any conditions. About the beneficial interest, his claim was that it must clearly accrue to the assessee. In this connection, he referred to a number of decided authorities. Elaborating his argument, he submitted that the Income tax Officer had not allowed by way of deduction the sales tax in any of the earlier years in the assessment orders. In this connection, he invited our attention to the fact that the Income-tax Officer had not even allowed deduction of the sum of Rs. 13,71,251 and that it was allowed only by the Commissioner of Income-tax (Appeals), which was also in challenge by the department in an appeal, before the Tribunal. By pointing out the above fact, he intended to submit that the Income-tax Officer had no intention to allow any of the above amounts, neither the sum of Rs. 13,71,251 paid by the assessee out of its own pocket nor the sum of Rs. 43,78,875, which the assessee had collected from its customers. About the cessation of the liability his submission was that even though the assessee was in receipt of the refund from the sales tax department because of the judgment of the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd.'s case (supra), yet it was liable to refund that amount to its customers for which a liability had been fastened under Section 72 of the Contract Act and, therefore, it could not be said that a clear cessation of the liability had accrued in favour of the assessee or for its benefit. He argued that the liability had accrued in favour of the customers of the assessee and it was immaterial whether actual payment had or had not been made to them, particularly when it was shown as a liability in the balance sheet of the assessee. He finally submitted that the Commissioner of Income-tax (Appeals) had gone wrong in holding that even otherwise the amount was taxable either under Section 28(i) or Section 28(iv) of the Act. He further submitted that, in any ca,se, the amount in question did not constitute real income of the assessee.

13. The counsel for the department, Dr. R.R. Mishra, on the other hand, submitted that the scheme of the U.P. Sales Tax Act, 1948 was entirely different than what was canvassed before us by Dr. Vaish, on behalf of the assessee. He pointed out that Section 3 of the U.P. Sales Tax Act imposed tax on every dealer on the turnover of sales during an assessment year. According to him, therefore the liability to pay sales tax was on the dealer and there was no liability on the purchasers. under Section 8A(2)(b) of the U.P. Sales Tax Act a registered dealer has been given the right to recover from its customers an amount equivalent to sales tax payable by him, but he is not obliged to do so. The liability to pay tax is solely of the dealer whether he realises such tax from its customers or not. Therefore the tax charged by the dealer from its customer is in reality a part of the sale price and as such a revenue receipt. Where a dealer collects sales tax as such from its customers, but pays only a portion of that amount to the sales tax department, the balance of that amount will be revenue income in its hands chargeable to income-tax. As and when this amount is paid to the Government, it will be allowed to the assessee as a deduction. This is the principle laid down by the Allahabad High Court itself in the case of C1T v. Sheo Nath Prasad Hari Kishan [1974] 93 ITR 282. This decision follows the principles laid down by the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case (supra) and Tata Iron & Steel Co. Ltd. v. State of Bihar [1958] 9 STC 267. Dr. Mishra thus submitted that the customer did not come in the picture at all. He further submitted that this facility of realising the tax from the customer was not extended to an unregistered dealer. According to him, in view of this principle, the theory of the trust for the customer, as propounded by the other side, fell through. In this connection, in particular he invited our attention to the judgment of Gujarat High Court in Motilal Ambaidas v. CIT [1977] 108 ITR 136. We will have occasion to deal with all these issues in detail subsequently. On the basis of these principles, he submitted that a customer had no right of any refund of the sales tax from the dealer once it was lawfully collected from him. According to him, the mere fact that the amount was otherwise refundable to the customers was an irrelevant consideration in deciding its nature in the hands of a dealer.

14. The counsel for the department further submitted, that all the conditions laid down in Section 41(1) of the Act had been satisfied in the present case. Relying on the order of the Commissioner of Income-tax (Appeals), he submitted that the assessee was, by implication, allowed deduction for the sales tax in all the earlier years. Here also, he referred to the above decision of the Gujarat High Court in Motilal Ambaidas's case (supra), as also the decisions of Allahabad and Calcutta High Courts in Taj Gas Service's case (supra) and Ikrahnandi Coal Co.'s case (supra) a decision also relied on by the Income-tax Officer. His next contention was that there was no doubt that the assessee had received the refund of the sales tax by virtue of the decision of the Supreme Court in its case in Motilal Padampat Sugar Mills Co. Ltd.'s case (supra). Referring to Section 72 of the Contract Act, his submission was that there was no evidence on record that the customers were made aware that the sales tax was in dispute before the courts and that they were entitled to refunds. According to him, no customer had made any payment of sales tax to the assessee under any mistake, including a mistake of fact or of law. He further submitted that it was Section 21 of the Contract Act which applied to the case. About the scheme of overriding title in favour of the customers, his submission was that there must be material for such a claim and that no such material had been placed before either of the lower authorities. His further submission was that the true character of the money in the hands of the assessee was a business receipt and it was, therefore, also includible in the assessee's income under Section 28(i) and 28(iv) and further it was also liable to tax on its income from other sources in view of the principle laid down by the Kerala High Court in CIT v. Marikar (Motors) Ltd. [1981] 129 ITR 1.

15. We have carefully considered the submissions placed before us. We will now deal with the various issues involved in the case in somewhat detail. We will first deal with the nature of sales tax in the hands of a dealer. In this case, we will refer to the decision of Allahabad High Court in Sheo Nath Prasad Hari Kishan's case (supra). We have already given the gist of this decision while dealing with the arguments of the learned counsel for the department. Following this decision, we have no hesitation in holding that the tax charged by the dealer from its customer is in reality a part of the sale price and, as such, it would be a revenue receipt. This decision being of Allahabad High Court deals with the U.P. Sales Tax Act and is also binding upon us. The decision of Madras High Court in CIT v. Thirumalaiswamy Naidu & Sons [1984] 147 ITR 657 taking a somewhat different view cannot be accepted by us for certain obvious reasons. In the first place, the court itself observed in para 1 of its order "In many jurisdictions, collection of sales tax is regarded as part of the sale price, and it required a specific Explanation 1A in Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959, to keep the collection of sales tax outside the concept of price or turnover". The Tamil Nadu General Sales Tax Act, 1959, therefore, appears to be different from the U.P. Sales Tax. Act, 1948. In the second place, this decision specifically did not agree with the view taken by the Allahabad High Court in Taj Gas Service's case (supra).

16. We will now examine the ingredients of Section 41(1) of the Act with reference to the facts of the assessee's case. Section 41(1) can apply only if an allowance or deduction has been made in the assessment of any earlier year in respect of any expenditure or trading liability incurred by the assessee. The submission of the learned counsel for the assessee was that such a deduction should actually be allowed with reference to the computation of income of an assessee in an assessment order. He submitted that in the present case, the assessee had kept a separate sales tax account to which the receipts from its customers were credited and the payments made to the Govt. were debited. He also pointed out that the net balance of this account was not carried to the Profit and Loss Account. His contention, therefore, was that the assessee had not been allowed any deduction towards its liability for sales tax in any of the earlier years already referred to above and, therefore, Section 41(1) of the Act had no application. He again referred to the decision of the Madras High Court in Thirumalaisioamyj Naidu & Sons' case (supra). The facts of this case are no doubt similar to those of the assessee. We are, however, unable to follow it for the reasons already stated above, particularly when this judgment apparently went against the tenor of the judgment of the Allahabad High Court in Taj Gas Service's case (supra) as admitted by their Lordships at page 670 of the report itself. On the other hand, we find that there are other judgments which support the case of the department. The first is of Gujarat High Court in Motilal Amhaidas's case (supra). In this case also the assessee had not shown the collection of sales tax on the credit side of his account nor payments made to sales tax authorities were shown on the debit side of the account and, therefore, there was no question of any deduction having been made in the assessment for any earlier assessment year as was contended before the court. On this basis, the counsel had contended that the condition precedent for the applicability of Section 41(1) of the Act had not been satisfied. This contention was repelled by the court. It was observed at page 146 of the report that if a receipt was a trading receipt, the fact that it was not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt. The court further observed on page 148 that the fact that no such entries showing credits and debits in respect of sales tax collected and sales tax paid were made by the assessee-firm did not alter the real substance of the transaction nor did it alter the real character of what was required to be done by the assessee in this case. This case is, therefore, a complete answer to the argument of the learned counsel for the assessee. The other case is of the Calcutta High Court in Ikrahnandi Coal Co.'s case (supra). In this case also collection and payments of sales tax were shown in the separate account styled Bombay Sales Tax Account. Sales tax collected from the buyers was credited by the assessee to the Bombay Sales Tax Account while payment of sales tax to the sales tax authorities of Bombay was debited to the same account and not to the sales account. The collections and payments of sales tax were not also shown in the Profit and Loss account with the result that in none of the preceding assessments, the balance left after adjustment of payments was included in the assessee's total income. In spite of this it was held that the amount of sales tax, even though shown separately in the transaction of sale as sales tax, was a part of the consideration that the seller charged for the transfer of the property. The fact that the statute provided that the seller may collect sales tax did not rob the transaction of its trading character. In this case also the assessee had received refund of sales tax as a result of an order of the Bombay Sales Tax authorities consequent on a decision of the Supreme Court. The income-tax authorities sought to assess this refunded amount as the income of the assessee. It was contended on behalf of the assessee that sales tax was collected by the assessee from the assessee's buyers and the same was under the statute to be paid to the sales tax authorities and when the money representing the sales tax was refunded by the sales tax authorities the identical money became refundable by the assessee to the assessee's buyers and, therefore, the refunded amount was not assessable as his income. The court held that the sum in question was assessable to income-tax as income of the assessee. Emphasis was laid by the learned counsel for the assessee on the observations of the Gujarat High Court itself as appearing at the top of page 148 in the case of Motilal Ambaidas (supra). These observations are that, in case the assessee had to refund the sales tax to the original purchaser who purchased the goods from him, then the amount so refunded will also be deduction which he can claim and it must be granted to him, that being deduction on the expenditure side. In our opinion, these observations do not go to show that the refund itself is not a trading receipt in the hands of the assessee. The observations only show that the amount if and when refunded should be allowed as a deduction. That principle will apply to the present case also. The assessee will be entitled to the deduction of the amount if and when it is paid to any of its customers as a refund of their collections. In this connection, it will also be relevant to refer to the decision of Kerala High Court in Marikar (Motors) Ltd.'s case (supra). It was held in this case that the amount was taxable even as income from 'other sources' in the year in which the refund was received by the assessee.

17. The learned counsel for the assessee relied on a number of other authorities for the proposition that a deduction must have been allowed in respect of an expenditure or a trading liability incurred by the assessee in any of the earlier years before applying Section 41(1) of the Act. In our opinion none of those decisions are of any relevance in the context we are dealing with the matter. We will, however, briefly refer to them here. The first is of Supreme Court in Tirunelveli Motor Bus Service Co. (P.) Ltd. v. CIT [1970] 78 ITR 55. The facts of this case are entirely different and, therefore, it is unnecessary to discuss them here. We may observe here that there cannot be any quarrel over the principle enunciated by the Supreme Court in this case. The other case is of Allahabad High Court in Sharma & Co. v. ITO [1972] 86 ITR 741. The facts of this case were also different. Similarly, the facts of Naubatram Nandram v. CIT [1972] 86 ITR 805 (Mys.), a decision of Madhya Pradesh High Court, are also entirely different. In the case of CIT v. Nathuabhai Desabhai [1981] 130 ITR 238 (MP), the finding of fact was that the sales tax had not been allowed as deduction in any of the earlier years. The High Court gave the finding after accepting the finding of fact arrived at by the Tribunal as stated above. This case, therefore, cannot be taken as an authority for the general proposition that the refund of sales tax cannot be treated as the income of the assessee, only because it was earlier collected from the customers before making payment to the sales tax department. The other two decisions of Delhi and Allahabad High Courts in the cases of Steel & General Mills Co. Ltd. v. CIT [1974] 96 ITR 438 and Bhagwat Prasad & Co. v. CIT [1975] 99 ITR 111 merely lay down the principle that the burden lies upon the department to prove- that an allowance or deduction had been given in the earlier assessment years. These decisions also, therefore, do not help the assessee.

18. We will now deal with the second aspect of Section 41(1) as to whether there was any cessation or remission of any liability in favour of the assessee. Here it was submitted that although the assessee had become entitled to the refund of Es. 43,78,875, but it was not an absolute receipt in its hands inasmuch as the assessee was liable to refund the amount to its customers from whom it was collected. It was submitted that the amount was in the nature of a trust in the hands of the assessee. We are unable to agree with this submission also. There is no doubt that by virtue of the judgment of the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd.'s case (supra), the assessee became entitled to the above amount as a refund of sales tax. It was also received by the assessee in the year under appeal. We have already outlined the scheme and scope of the U.P. Sales Tax Act to point out that it does not recognise the collection of sales tax as a separate item. That position might be possible under the Tamil Nadu Sales Tax Act, as found by us in the case in Thirumalaiswamy Naidu & Sons' case (supra). At least the U.P. Sales Tax Act does not give any separate identity to the collection of sales tax by a dealer from its customers. It is an integral part of its sale price even though it might ha,ve been stated as a separate item of charge in the bills issued to the customers. This position is clear from the judgment of the Allahabad High Court in Sheo Nath Prasad Hari Kishan's case (supra). It will be necessary to remember here the two judgments of the Hon'ble Supreme Court in the cases of Chowringhee Sales Bureau (P.) Ltd. (supra) and Sinclair Murray & Co. (P.) Ltd. (supra). The same principle was reiterated by the Hon'ble Supreme Court in the case of Tata Iron & Steel Co. Ltd. (supra). The Court observed as under:

From the point of view of the economist and as an economic theory sales tax may be an indirect tax on the consumers, but legally it need not be so. Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax.

The Punjab High Court in CIT v. Saraswati Industrial Syndicate Ltd. [1973] 91 ITR 501 had also held that under the Sales Tax Act the dealer, who sold, goods was liable to pay the tax. The purchasers were not responsible for payment of the tax to the authorities. The seller did not levy tax on the purchaser or collect tax from him, what he did was to increase the price of the article so as to ensure that he was not a loser by paying the sales tax. The amount of sales tax even though shown separately in the transaction is a part of the consideration which the seller charges on the transfer of property.

19. On the basis of the above authorities, it has to be held that a consumer or a purchaser has no locus standi with regard to the payment of sales tax or receipt of its refund by a dealer. Its authority to receive back the amount paid, if the circumstances so warrant, has to be found elsewhere. We do not think that the decision of the Bombay High Court in Kohinoor Mills Co. Ltd. v. CIT [1963] 49 ITR 578 has any relevance here. These aspects of the matter were considered in detail by the Calcutta High Court in Ikrahnandi Coal Co.'s case (supra) and by the Karnataka High Court in Kabbur Bros.' case (supra). In the first case, the Court made the following observations at page 497 of the report:

As far as the buyers vis-a-vis the seller, namely, the assessee are concerned in the present case the answer is simple. If the asses-see's case be that the amounts are refundable or will be refunded the assessee will be entitled to claim that as an amount refunded by the assessee to its buyers and will be entitled to claim that in the revenue account of the business. The potentiality of the money being refunded or the potentiality of the money being claimed by a buyer from the assessee could not destroy or alter the sale price in the present case or the real transaction between the parties that it was a case of sale and purchase of merchandise in the course of trade.

In Kabbur Bros.' case (supra), it was observed:

The liability claimed to exist to make payment to the constituents is not a statutory liability. The provisions of the Sales Tax Act do not contemplate any such actual return of the amount to the customer by the dealer. The amount refunded was not on the condition that it should be returned to the customer. It is also not clear that there was any contract between the customer and the assessee to return any such amount. All that can be said is, on the facts and circumstances, that the customer may have a claim against the dealer for refunding the amount of sales tax wrongly collected from him or which was found subsequently not to be payable by him. A mere claim of such a nature cannot be said to be an existing liability which is bound to be met at a future point of time.

The Calcutta High Court in the above case also rejected the theory of overriding title. In this connection, it will also be relevant to refer to the decision of CIT v. Chandajee Khubajee & Co. [1983] 143 ITR 365 (AP). It was held in this case that if the assessee which received the refund, is the same assessee, which paid the tax, the refund constitutes its income under Section 41(1) and it is immaterial what it does with that income later. Similarly, the theory of real income laid down by the Supreme Court in the case of CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 so strenuously canvassed before us has also no application to the present case.

20. We also do not think that there is anything in the decision of Allahabad High Court in the case of J.K. Synthetics Ltd. (supra), which could lead us to hold that there was anything lacking in the finality of the cessation of the liability in farvour of the assessee. The facts of this case, in fact, are entirely different and have no application to the present case. Similarly, reliance on the decision of the Supreme Court in the Orient Paper Mills Ltd. v. State of Orissa [1961] 12 STC 357 is also not relevant. In this case the State Legislature had passed the Orissa Sales Tax (Amendment) Act retrospectively amending the Act by Inserting a new Section 14A, which provided that a refund of the amount or any part thereof could be claimed only by the person from whom the dealer had actually realised such amount whether by way of sales tax or otherwise. The only contention before the Supreme Court was that the amendment was beyond the competence of the State Legislature. The amendment deprived the dealer from receipt of the refund which was to go to the person from whom the amount had actually been realised. This case is, therefore, no authority for the general proposition placed before us that the money was refundable to the customer from whom it was realised as it turned on the special provisions, as amended, of the Orissa Sales Tax Act.

21. We also do not think that Section 72 of the Contract Act is of any assistance to the assessee. We have already stated above that the assessee would be entitled to claim as deduction any amount which is actually refunded to the customers. Section 72 merely states that a person to whom money has been paid or anything delivered, by mistake or made coercion, must repay or return it. It is not necessary for us to go into the question as to whether the sales tax was paid by the assessee's constituents under any mistake, as in our opinion, the claim for deduction can be made only when the amount is actually refunded to the constituents. This principle finds support from the decision of the Allahabad High Court in Swadeshi Cotton Mill Co. Ltd.'s case (supra). The liability under Section 72 of the Contract Act is obviously a contractual liability, if at all there is any, between the assessee and its constituents. The above decision lays down that if the liability is based on some contractual obligation, it arises only when it is ascertained. Unless the liability has become an ascertained sum of money, it no doubt exists, but proceedings have yet to be taken to determine the exact amount. A vague liability to make a payment cannot be entered in the accounts. Once we accept this principle, the various arguments bearing on Section 72 of the Contract Act and based on other decisions will lose their significance. It is, therefore, not necessary for us to discuss the case of Supreme Court in Kanhaiya Lal Makund Lal Saraf's case (supra). This case merely explains the provisions of Section 72 with which we have no dispute. Similar observations will apply to the decision of Allahabad High Court in STC v. Sada Sukh Vyopar Mandal [1959] 10 STC 57 (All.). It is also unnecessary for us to deal with the contention of the learned counsel for the department that it was Section 21 of the Contract Act which applied to the case or that Section 72 had no application. We also do not think that merely because the assessee has shown it as a liability in its balance sheet, it can lead us to by-pass the principle laid down by the Allahabad High Court in the case of Swadeshi Cotton Mill Co. Ltd. (supra).

22. We also do not think that the receipt of the amount by the assessee in the year under appeal as a refund fromt he sales tax department cannot be treated as a business receipt, but only as a receipt arising out of a fiscal transaction, as was held by the Madras High Court in the case of Thirumalaiswamy Naidu & Sons (supra) we have already stated above why that case is not acceptable to us. In any case, contrary view has been expressed in several other cases relied on by the Income-tax Officer, namely, those in Kabbur Bros.' case (supra), Jagatnarain Durga Prasad's case (supra), Taj Gas Service's case (supra) and Ikrahnandi Coal Co.'s case (supra) to which reference has been made by us above. We will again refer, even at the risk of repetition, to the decision of Kerala High Court in the case of Marikar (Motors) Ltd. (supra). Similar view was expressed by the M.P. High Court in Addl. CIT v. Chandrakant D. Patel [1983] 139 ITR 233. It was held in this case that the refund of sales tax was in the nature of a revenue receipt in the year in which the Supreme Court eventually upheld the claim of the assessee and it did not constitute any receipt much less a revenue receipt, in the year in which the amount of sales tax was recovered by the assessee from its customers. This decision is, therefore, against the view taken by the Madras High Court in the case of Thirumalaiswamy Naidu & Sons (supra). Specific reference may again be made to the decision of Allahabad High Court in Jagatnarain Durga Prasad's case (supra). It was held in this case that as the sales tax had previously been allowed as a deduction in computing its business income and as the amount had now been refunded to the assessee, such amount was deemed to be profits and gains of business by Sub-section (2A) of Section 10 of the Act of 1922 corresponding to Section 41(1) of the Act of 1961 and the assesses was liable to tax on the same. This decision of Allahabad High Court was followed by Karnataka High Court in the case of Kabbur Bros, (supra).

23. Another argument was placed by the learned counsel for the assessee that in view of the Price Fixation Order, the assessee was prohibited from treating the sales tax as part of its price. In this connection, he placed before us copies of the notifications issued by the Ministry of Food and Agriculture from time to time. The Govt. by these notifications fixed the prices of the vegetable oil products under the various Control Orders. The submission of the learned counsel for the assessee was that the assessee was not entitled to charge more than what was laid down in these notifications. We do not agree with this submission. The notes below the notifications clarify the position. They state that the price limits for sales were exclusive of excise duty, sales tax, octroi, terminal tax and similar other local taxes. In other words, the charge of the sales tax is not a part of the price fixed by the Govt.

24. Our findings, therefore, are that the assessee had been allowed a deduction in earlier years in respect of the sales tax payable by it to the Govt., that the assessee in the assessment year under appeal had obtained a refund of Rs. 43,78,875 in respect of such a trading liability and that the receipt was because of remission or cessation of the liability to sales tax. We also hold that the refund had resulted in a benefit to the assessee inasmuch as there was no liability on the assessee to repay any part of that amount to any of its constituents or customers from whom it had collected sales tax earlier. The provisions of Section 41(1) of the Act are, therefore, clearly applicable to the case in view of the various authorities cited at the Bar and discussed above and the assessee is, therefore, liable to income-tax on the entire amount of Rs. 43,78,875 in the year under appeal itself. We will, of course, observe that as and when any part of the amount is refunded to any customer, the assessee will be entitled to its deduction in that year. These observations are made not with a view to give any direction for any subsequent year, but with a view to state the correct principles of law. Since in the year under appeal, no customer has made any claim, there is no question of deduction of airy amount towards it. Further, in the view we are taking that the provisions of Section 41(1), of the Act are applicable to the present case, it is not necessary for us to discuss whether any other provision of the Act including Section 28(z) or 28(iv) is also applicable to the assessee. This contention of the assessee, therefore, fails.

25. The next contention relates to the claim for not charging to tax the sum of Rs. 13,39,998. We have already discussed the matter relating to the sales tax of Rs. 13,71,251. We have pointed out that the assessee had paid this amount as sales tax to the Govt. in different years without actually collecting any amount from its own customers. Along with the sum of Rs. 43,78,875, the above amount was also allowed as refund to the assessee. The assessee had claimed deduction of this amount in the years in which the payment was made to the Govt. It was not originally allowed by the Income-tax Officer, but claim was admitted by the Commissioner of Income-tax (Appeals). The assessee was, therefore, of the view that the above amount was taxable under Section 41(1) of the Act inasmuch as not only the amount had been allowed in the earlier years, but that there was also a remission or cessation of the liability giving benefit to the assessee.

26. The department did not accept the order of the Commissioner of Income-tax (Appeals) allowing deductions to the assessee in the earlier years. It was submitted before us that it had filed appeals to the Tribunal which were pending for disposal. The assessee also, therefore, took a ground to the effect that in case the Tribunal reversed the order of the Commissioner of Income-tax (Appeals) and did not allow the claim of the assessee for deduction of the payments in the earlier years, its claim in the year under appeal would be that the said amount was not liable to tax. The claim, however" is restricted to only Rs. 13,39,998. The'Commissioner of Income-tax (Appeals), however, rejected the claim of the assessee as it was only contingent in nature by observing that the assessee had received deductions as per his order in the earlier years.

27. The assessee is now in appeal before us. So far as the present position goes, the assessee has been allowed deductions for the payment of sales tax in the earlier years and, therefore, the department is entitled to tax the above amount under Section 41(1) of the Act for which there is also no dispute before us. That being the position it is premature to consider the claim of the assessee on the presumption that it will not be allowed deduction in the earlier years by the Tribunal. Apparently, the assessee's claim has to fail in the circumstances prevailing at this time. However, in case any situation adverse to the assessee arises, it will be at liberty to come to the Tribunal under Section 254(2) of the Act. The case will then be considered on its own merits. We may make it clear that we are not dealing with the issue on merits at all as to whether in case the assessee is not allowed any deduction in the earlier years, the amount will or will not be liable to tax. We are keeping that point open in case there arises any necessity to discuss that position in future.

28. The next contention relates to disallowance of Rs. 10,000 in the Head Office Set. The assessee claimed deduction of a sum of Rs. 10,000, which it had paid to J.K. Organisation. The Income-tax Officer disallowed the claim observing that there was no record of any services having been rendered by that organisation, without any particular consideration therefor or in the relevant period. He also observed that similar claim was not accepted in the earlier years. The disallowance was confirmed by the Commissioner of Income-tax (Appeals).

29. Here also the assessee is in appeal before us. This issue had also come up for the consideration of the 'B' Bench of the Tribunal in the case of the assessee itself in ITA Nos. 522 and 2083 (AUd.)/ 1981. We direct that the decision in these appeals should be followed here also by the Income-tax Officer.

30. The next contention relates to disallowance of Rs. 12,503 out of legal charges. The Income-tax Officer found that the assessee had incurred an expenditure of Rs. 5,502 in respect of the proceedings before the income-tax authorities. Besides, the assessee had also paid Rs. 24,000 as retainers' fee to Dr. R.C. Vaish for the work done by him relating to income-tax matters as also for matters pertaining to audit, company law and industrial law. The Income-tax Officer was of the view that 80 per cent of this fee could be attributed to matters relating to income-tax. This came to Rs. 19,200. The aggregate amount relating to proceedings before income-tax authorities, in the opinion of the Income-tax Officer, was thus, Rs. 24,702. He held that the assessee was entitled to the deduction of only Rs. 5,000 out of the above amount under Section 80VV of the Act. He, thus, worked out the disallowance of Rs. 19,702. He made a disallowance of another amount of Rs. 1,000. The total disallowance, thus, came to Rs. 20,702. The Commissioner of Income-tax (Appeals) deleted the disallowance of Rs. 1,000. He was further of the opinion that only 50 per cent of the retainers fee to Dr. Vaish could be treated as relating to income-tax proceedings. According to him, therefore, only Rs. 17,502 related to the proceeding's under the Income-tax Act. After allowing Rs. 5,000 under Section 80VV, he sustained a disallowance of Rs. 12,502.

31. The above disallowance is contested in appeal before us. It was submitted before us that the retainers fee paid to Dr. Vaish was for various consultations and not for any specific income-tax appearance. It was pointed out to us that for such appearances, separate payments were made.

32. In our opinion, there is merit in the above contention of the assessee. Section 80VV only relates to any expenditure incurred by an assessee in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to determination of any liability under the Income-tax Act. The retainers fee was not for any such proceeding. It was for consultations offered by Dr. Vaish on various matters. The sum. of Rs. 24,000, therefore, did not fall within the scope of Section 80VV. It was only Rs. 5,502, which came within the above section. Out of this Rs. 5,000 is to be allowed. The disallowance, therefore, will come to Rs. 502 only. We direct accordingly.

33. The assessee debited a sum of Rs. 30,000 as sales promotion expenses in its steel foundry set. The payment was made to Tata Economic Consultancy Services for report on market survey and on production of special steel rolled bars and castings. The assessee wanted to enter into a new line of production within the investment limit of about Rs. 25 lakhs to Rs. 30 lakhs. The Income-tax Officer treated the expenditure on capital account as referred to in Section 35D of the Act. This section refers to an expenditure in connection with the extension of the assessee's industrial undertaking or in connection with his setting up of a new industrial unit. The Income-tax Officer also found that the undertaking for which the feasibility report was prepared had never commenced. He, therefore, refused to consider the assessee's claim even under the above section. He also did. not accept the assessee's claim under Section 37(1) of the Act mainly because he thought the expenditure to be on capital account and also because the expenditure falling under Section 37(1) should not be the expenditure of the nature described in Sections 30 to 36 of the Act. The Commissioner of Income-tax (Appeals) agreed with this finding of the Income-tax Officer.

34. The assessee is now in appeal before us. In our view the assessee is entitled to the deduction. There is no dispute that in its foundry branch, the assessee manufactured steel ingots by melting iron scrap and then got these ingots rolled into rolls. The assessee was, therefore, in the line of manufacturing steel rolls. By obtaining a feasibility report, the assessee merely wanted to diversify the existing production of steel foundry in order to earn higher profits. The report related to steel castings and special steels in rolled section. From these facts, it cannot be said that the assessee wanted to establish or install any new line of business unconnected with its old business. The assessee's case is fully supported by the principles laid down by the Allahabad and the Gujarat High Courts in Prem Spg. & Wvg. Mills Co. Ltd. v. CIT [1975] 98 ITR 20 and CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.). We, therefore, hold that the expenses incurred by the assessee are allowable as revenue expenses under Section 37(1) of the Act. The assessee is, therefore, entitled to the relief of Rs. 30,000.

35. The assessee incurred an expenditure of Rs. 31,756 including Rs. 18,770 on account of alteration charges in maintaining a fiat at Bombay. The Income-tax Officer was of the view that it was in the nature of a Guest House and, therefore, the expenditure was not allowable as deduction in terms of Section 37(4) of the Act. This section states that no allowance shall be made in respect of any expenditure incurred by the assessee after 28-2-1970 on the maintenance of any residential accommodation in the nature of a Guest House. It was submitted before the Income-tax Officer (that the flat at Bombay was not in the nature of a Guest House as it was meant for the stay of the directors, officers and staff of the company when visiting Bombay for the purpose of the company's business. This argument was repelled by the Income-tax Officer in view of the provisions of Section 37(5) of the Act inserted by the Finance Act, 1983 with retrospective effect from 1-4-1979. It states that any accommodation, by whatever name called, maintained, hired, reserved or otherwise arranged by the assessee for the purpose of providing lodging or boarding and lodging to any person including any employee or any director of a company on tours or visit to the place at which such accommodation is situated, is accommodation in the nature of a Guest House within the meaning of Sub-section (4) of Section 37. The disallowance was confirmed by the Commissioner of Income-tax (Appeals) in view of Section 37(5) of the Act.

36. The assessee is now in appeal before us. It was not disputed before us that the assessee was not entitled to the deduction of any expenditure in view of the retrospective amendment of Section 37(4) by Section 37(5) of the Act. Its submission, however, was that even the office of the assessee-company was located in the Bombay flat and, therefore, some part of the expenditure required to be allowed. We find no merit in this contention. There is no evidence on record that any office of the assessee was located in the fiat. The contention before the lower authorities was that it was being used only by the employees, officers and directors of the assessee-company when visiting Bombay. In that view of the matter, the assessee is not entitled to the deduction of any expenditure in view of the prohibition contained in Section 37(5) of the Act. This contention, therefore, fails.

37. The next contention in the assessee's appeal relates to its claim for deduction of a sum of Rs. 5,62,549. The assessee's claim before the Income-tax Officer was that it was liable to pay market fee under Section 27(1) of the Bihar Agricultural Produce Markets Act, 1960 read with Rule 82 of the Bihar Agricultural Produce Markets Rules, 1975. It was contended before the Income-tax Officer that the market fee payable under the above provisions was a statutory liability on the assessee and it was, therefore, allowable under Section 37(1) of the Act in view of the principle laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. The Income-tax Officer, however, disallowed the claim as he found that a similar claim of the assessee had not been admitted by the Commissioner of Income-tax (Appeals) in the assessment year 1976-77. The disallowance was also confirmed by the Commissioner of Income-tax (Appeals) following his earlier order referred to above.

38. The assessee is now in appeal before us. It would be relevant to refer to Section 27 of the Bihar Agricultural Produce Markets Act, 1960. It read's as under:

27. Power to levy fees.--(1) The Market Committee shall,levy and collect market fees on the agricultural produce bought or sold in the market area, at the rate of Rupee one per Rs. 100 worth of agricultural produce.

Explanation: All notified produce leaving a market area, shall unless the contrary is proved be presumed to have been bought or sold in such area:

Provided that, when any agricultural produce bought in any market area for the purpose of processing or export is not processed or exported therefrom as the case may be or any such produce processed in the market area is not exported therefrom within twentyone days from the date of its arrival therein, it shall until the contrary is proved, be presumed to have been bought or sold in the market area, and shall be liable for the levy of fees under this section, as if, it had been so bought or sold.

(2) The market fee chargeable under Sub-section (1) shall be payable by the buyer, in the manner prescribed.

(3) The fee chargeable under Sub-section (1) shall not be levied more than once on a notified agricultural produce in the same notified area.

By a notification dated 9-9-1974, the application of the above section was extended to sugarcane-gur, sugar and molasses to Bettiah Sub-Division of the district of Champaran in the State of Bihar, where the activities of the assessee with reference to its purchase of sugarcane and sale of its products were confined. The assessee's claim, therefore, was that it was liable to pay market fee on the purchase of the sugarcane as also on the sale of sugar and molasses manufactured by it, which were bought or sold in Bettiah market area. In the year under appeal, the assessee had purchased cane worth Rs. 1.93 crores. On the other hand, it also sold sugar worth Rs. 3.69 crores. The assessee calculated market fee at the rate of Re. 1 per Rs. 100 on the above purchases and sales. The aggregate came to Rs. 5,62,149. It was this amount, which was claimed as an allowable deduction in the computation of the assessee's income as it was submitted that the assessee was liable to pay the above amount to the Market Committee in terms of Section 27(1) of the Bihar Agricultural Produce Markets Act, 1960.

39. As stated above, the assessee's claim was not admitted by the Commissioner of Income-tax (Appeals) in the assessment year 1976-77 and it was this order which was followed by the Income-tax Officer and the Commissioner of Income-tax (Appeals) in the year under appeal also rejecting the assessee's stand that its claim had been admitted by the Income-tax Officer himself in the assessment year 1978-79. It will, therefore, be necessary to refer to the stand of the Commissioner of Income-tax (Appeals) in the assessment year 1976-77. According to him, the market fee chargeable under Sub-section (1) of the above Act was payable only by the buyer as laid down in Sub-section (2) of Section 27. Rule 82 of the Bihar Agricultural Produce Markets Rules, 1975 lays down the procedure for the collection of the levy. It states that if the buyer is a licensee, he shall deposit the market fee with the Market Committee. If the seller is a licensee and the buyer is not a licensee, the seller shall realise the market fee from the buyer and shall deposit it with the Market Committee. If neither the buyer nor the seller is licensee, the buyer shall deposit the fee with the Market Committee.. In other words, it is the duty of buyer to make the payment. The responsibility of the seller comes only when the buyer is not a licensee and seller is a licensee. According to the Commissioner of Income-tax, (Appeals), therefore, the assessee was liable to pay duty only in his capacity as a buyer and not in his capacity as a seller. The capacity of the assessee as a buyer was only with reference to the purchase of the cane and not with reference to the sale of sugar and molasses or other products. The Commissioner of Income-tax (Appeals) was, therefore, of the view that the fee, if at all, was payable only with reference to the purchase of the sugarcane. In the assessment year 1976-77, he further held that unless it was demanded by a notice of demand, the responsibility of the assessee did not arise for making any such payment.

40. The learned counsel for the assessee submitted before us that since Section 27(1) of the Act referred to the agricultural produce bought or sold in the market, the assessee was liable to pay market fee on the entire amount including purchase price of the sugarcane as well as the sale price of its products, namely, sugar and molasses etc. His second submission was that it was not necessary for claiming a deduction that a demand notice should be received from the Market Committee inasmuch as it was a statutory liability and was admissible as a deduction in view of the principle laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra). It was further submitted that merely because the assessee had been disputing its liability was no ground for disallowing it in view of another principle decided in the above case by the Supreme Court.

41. On behalf of the department, it was submitted that in the first place the assessee was not liable to any such fee and, in any case, it has to be first ascertained whether the purchases of the sugarcane were made by the assessee in the market area. It was contended by Dr. R.R. Mishra, counsel for the department, that as per the assessee's own case before the court, where it was disputing the payment of levy, it had not made any purchases in the market areas.

42. We have carefully considered the submissions placed before us. We are inclined to agree with the stand of the department that the assessee is not liable to pay any market fee on the sale of its products including sugar and molasses. Section 27(1) of the Market Act no doubt authorises the Market Committee to levy and collect market fee on the agricultural produce bought or sold in the market area. However, Sub-section (2) of the above section clarifies the position that the fee will be payable only by the buyer and in the manner prescribed in Rule 82 of the Market Rules. Rule 82 of the Market Rules clarifies the position that the levy will be payable by a buyer only. The seller comes in the picture if the buyer is not a licensee and the seller is a licensee. In that situation only the seller is authorised to realise fee from the buyer and then deposit it with the Market Committee. Here also, therefore, the direct responsibility is of the buyer and not of the seller. In our opinion, therefore, the assessee will be liable to pay the fee only on the cane purchased by it in the market area. We also agree with the stand of the" department that nobody; at lower level, made enquiries as to what was the amount of purchases made by the assessee in the market area. He directs the Income-tax Officer to investigate this aspect of the matter, determine the purchases of agricultural produce, such as, sugarcane purchased in the market area and determine the fee payable by the assessee with reference to such purchases. We, however, agree with the submission of the learned counsel for the assessee that it is not necessary for the assessee to wait for a demand notice from the Market Committee. There cannot be any doubt that the fee is a statutory levy on the assessee under the relevant provisions of the above Act and, therefore, it has to be allowed in mercantile system of accounting followed by the assessee in view of the principle laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra). It was held in this ease that the moment a dealer made either purchases or sales which were subject to sales tax, the obligation to pay the tax arose. Although that liability could not be enforced till quantification was effected by assessment proceedings, the liability for payment of tax was independent of the assessment. The assessee which followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business liability to sales tax which arose on sales made by it during the relevant previous year. This principle equally applied to the payment of market fee with reference to the purchases of cane made by the assessee in the market area. The above decision also states that that liability did not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. We, therefore, do not agree with the finding of the Commissioner of Income-tax (Appeals) in the assessment year 1976-77 that the assessee was not liable to pay any market fee as it was disputing its levy before the higher authorities. With these observations, the matter is restored back to the file of the Income-tax Officer for ascertaining the amount payable by the assessee and then allowing it.

43. The next contention relates to taxability of the sum of Rs. 943 being the amount left with the assessee after making payment towards the market fee. Here, we agree with the finding of the lower authorities that it was in the nature of income of the assessee and was rightly brought to tax.

44. The next contention relates to allowability of a sum of Rs. 5,561. The assessee claimed insurance premium on Group Gratuity-cum-life insurance made. The amount claimed was Rs. 61,175. The Income-tax Officer disallowed Rs. 36,801 out of the above amount observing that the claim to this extent related to the earlier years and not to the year under appeal. The Commissioner of Income-tax (Appeals), however, confined the disallowance only to a sum of Rs. 5,561. This represented the interest which the assessee was required to pay for late payment of the premium to the Life Insurance Corporation. The Commissioner of Income-tax (Appeals) found that the payment of this amount was required by the L.I.C. by a letter dated 11-4-1980. According to him, the payment of interest was, therefore, relevant for the succeeding assessment year and could not, therefore, be allowed in the year under appeal.

45. Here also the assessee is in appeal before us. The submission of the learned counsel for the assessee before us was that since the premium related to the year under appeal, the payment of the interest relating thereto was also a proper deduction out of the income of this year irrespective of the fact that it was demanded by the L.I.C. in the subsequent year.

46. After considering the facts of the case, we are of the opinion that this matter should also be restored to the file of the Income-tax Officer. We direct the Income-tax Officer to examine the relevant Act under which the interest has been demanded from the assessee and find out whether it was in the nature of statutory liability allowable in view of the principle laid down by the Supreme Court in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) or it was a liability which could be said to have arisen only on 11-4-1980 when it was demanded from the assessee. Depending upon the principles of law relating to the subject, he will consider its admissibility afresh.

47. The learned counsel for the assessee did not press its claim with regard to the allowances of Rs. 3,522 on account of bad debts for repairs to furniture amounting to Rs. 8,522 and disallowance of Rs. 3,335 out of General Charges. The claim was given up mainly because the amounts were petty in nature. Whatever might be the reasons for giving up the claim since it was not pressed before us, it is deemed to have been rejected.

48. The assessee also claimed higher depreciation at the rate of 15% in regard to its plant and machinery as, according to it, it was coming into contact with corrosive chemicals. This was not admitted by the Income-tax Officer and the Commissioner of Income-tax (Appeals) in view of the decision of Punjab and Haryana High Court in CIT v. Saraswati Industrial Syndicate Ltd. [1982] 136 ITR 758. We agree with their view in view of above decision. It was held in this case that with the mixture of lime and acid with the sugarcane juice to filter" the latter, the juice itself was not converted into a chemical and, therefore, it also cannot be said to be a corrosive chemical. A similar claim was, therefore, disallowed by the Punjab and Haryana High Court in the above case. Following this decision, we find no merit in the contention of assessee and its claim is, therefore, rejected.

49. The last contention in the above appeal relates to the asses-see's claim under Section 35C of the Act. Section 35C of the Act states that where any company is engaged in the manufacture or processing of any article or thing, which is made from, or used in such manufacture or processing as raw materials, any product of agriculture, etc., and has incurred whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority, any expenditure in the provision of any goods, services or facilities specified in Clause (b) to a person who is a cultivator, grower or producer of such product in India, the company will be allowed a deduction of sum equal to one and one-fifth times the amount of such expenditure incurred during the previous year. Clause (b) of the section refers to fertilisers, seeds, pesticides, etc., for use by such cultivator, grower or producer as also to dissemination of information on, or demonstration of, modern techniques or methods of agriculture or advice on such techniques or methods. Besides, it also refers to such other goods, services or facilities as may be prescribed. We are not, in the present case, concerned with any such services.

50. The assessee claimed to have incurred an expenditure of Rs. 5,02,426 in regard to the development of cane farming in the zonal area in which its factory was located. It claimed development allowance under Section 35C of the Act on the above expenditure. This included payment of Rs. 1,97,330 to Zonal Development Council Commission under the Govt. of Bihar's notification issued by virtue of the power conferred by Section 48(1) of Bihar Sugarcane Act, 1969. It was, however, admitted that the Zonal Development Council Commission, to which commission had been paid, was not approved by the prescribed authority. Both the Income-tax Officer and the Commissioner of Income-tax (Appeals), therefore, held that the payment of commission of Es. 1,97,330 was not entitled to development allowance under Section 35C.

51. The assessee is now in appeal before us with regard to the above expenditure. We agree with the stand taken by the lower authorities. Section 35C contemplates either expenditure incurred directly by an assessee or through an association or body which has been approved for the purpose of the section by the prescribed authority. The payment of commission is an indirect expenditure made to Zonal Development Council Commission. Since the Commission is not an approved body for the purpose of Section 35C, the assessee was rightly denied weighted deduction on the commission paid to it.

52. The next item is of Rs. 1,84,019 relating to salary, wages and bonus paid to the assessee's cane development staff. The assessee has stated that it had employed the services of a Cane Development Officer, two Cane Development Inspectors, a Supervisor and other staff. The assessee had claimed proportionate expenses of the Development Officer and some other staff and the entire expenses of Inspectors, Supervisors and other persons, who in its opinion, were employed in the development of zonal area. Its contention was that it was entitled to development allowance on the entire expenditure under Section 35C of the Act. It appears that the lower authorities merely estimated the allowance of expenses at Rs. 25,000 out of this item. We do not know how such an estimate was made without actually going into the services rendered by the staff. We, therefore, set aside the orders of the lower authorities and restore the matter back to the file of the Income-tax Officer. We direct him to examine the work done by the Development Officer, Development Inspectors, Supervisor and other staff and then find out what proportion of the expenses incurred on their salaries, bonus, etc., actually qualify for development allowance under Section 35C. We give similar direction for expenses of Rs. 74,950 on conveyance. We are, however, of the view that expenses on other items qualify for development allowance except depreciation on jeeps. Depreciation cannot be treated as an expenditure and is not, therefore, entitled to development allowance. The Income-tax Officer will re-examine issue in regard to the salary, wages and bonus, etc., of the staff and expenditure on conveyance and then deal with the issue in accordance with law.

53. The department has also taken certain cross-objections to the assessee's appeal. We have examined them. They do not raise any new issue. Our findings with regard to the cross-objections will be the same, which we have given while dealing with the assessee's appeal.

54. In the result, both the appeal and the cross-objections are partly allowed.

A.K. Das, JM

1. I regret my inability to agree with my learned brother with regard to the conclusion as to the applicability of Section 41(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act). As such I record briefly my reasons for differing with my learned brother on this point. I may, however, mention that I agree with his conclusions on other points as discussed in paragraphs 25 onwards of his order.

2. The facts involved in the case and the arguments advanced by the authorised representatives for the parties on this point have been elaborately set out by my learned brother in paragraphs 1 to 14 (both inclusive) of his order. As such, I refrain from repeating these except on occasions when the context requires it.

3. I agree with him that Section 41(1) of the Act can apply only when an allowance or deduction has been made in the assessment of any earlier year in respect of any expenditure or trading liability incurred by the assessee as observed by him in paragraph 16 of his order. I am, however, unable to agree with him that the assessee had been allowed a deduction, in earlier years in respect of sales tax payable by it to the Govt. In coming to this conclusion my learned brother relied on the following decisions:

(1) Taj Gas Service's case (supra) (2) Motilal Ambaidas's case (supra) (3) Ikrahnandi Coal Co.'s case (supra) (4) Marikar (Motors) Ltd.'s case (supra) (5) Kabbur Bros.' case (supra) (6) Jagatnarain Durga Prasad's case (supra) (7) Chandajee Khubajee & Co.'s case (supra) (8) Chandrakant D. Patel's case (supra).

He declined to rely on the Supreme Court decision in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra), on the ground that "the facts of the case are entirely different and, therefore, it is unnecessary to discuss them here" though he, at the same time, observed that "there cannot be any quarrel over the principle enunciated by the Supreme Court in this case" (as observed at para 17 of his order).

4. In my opinion, my learned brother was not correct in observing that the facts in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra) are entirely different. The facts of the said case are (in the words of the Supreme Court) as follows:

The assessee is a private limited company. It runs a fleet of buses. For the assessment year 1950-51 the assessee returned an income of Rs. 14,555. The Income-tax Officer required the assessee to furnish various particulars and documents under Section 22(4) of the Act. These were not furnished. Apart from committing a default under Section 22(4) it committed a default under Section 23(2). The Income-tax Officer made an assessment under Section 23(4) estimating the assessee's income at Rs. 1,80,000. On appeal to the Appellate Assistant Commissioner it was reduced to Rs. 1,30,000.

In the accounts relating to the assessment year 1950-51, the assessee had claimed a sum of Rs. 4,09,786 as establishment charges which included a sum of Rs. 71,949 representing the annual bonus payable to the employees. This amount had actually not been paid but had been shown on the debit side.

The assessee ran into financial difficulties and the bonus remained unpaid for some years. In the accounting year relevant to the assessment year 1957-58, with which we are now concerned a sum of Rs. 17,470 was paid to the employees as bonus in full settlement and the balance of Rs. 54,479 was credited to the profit and loss account.The Income-tax Officer treated the credit of Rs. 54,479 so made as income accruing in the year of account.

5. The Supreme Court laid down that--

That provision only applies when an allowance for deduction has been made in the assessment of any year in respect of any loss, expenditure or trading liability incurred by the assessee and, subsequently, during any previous year the assessee receives 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 in which event the amount received by him has to be deemed to fee profits and gains. On the finding of the Tribunal the condition of Section 10(2.4) could not be said to have been satisfied and the addition of Rs. 54,479 made by the Income-tax Officer in the assessment for the year 1957-58 was not justified. It is apparent that the question whether the allowance had been granted or a deduction made in respect of a trading liability had to be decided by referring to the order relating to the assessment year 1950-51 and it could not be determined by drawing inferences from what was done in respect of the assessment of an earlier year.

6. As such, in view of the above decision of the Supreme Court, any contrary principle of law cannot, be followed as correct law. The decisions relied upon by my learned brother lay down such a contrary principle of law and as such cannot be followed. In this connection it is to be noted that surprisingly enough the Supreme Court decision in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra) was not even considered in any of these judgments. Moreover, deduction was actually allowed in the cases of Taj Gas Service (supra), Jagatnarain Durga Prasad (supra), Chandajee Khubajee & Co. (supra) and Chandrakant D. Patel (supra). So in my opinion the decisions relied upon by my learned brother cannot take precedence over the decision of the Supreme Court in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra). As such, unless the assessment orders for the earlier years conclusively show that the assessee was allowed deduction in respect of these amounts of sales tax subsequently refunded, Section 41(1) of the Act does not come into play. Admittedly, the assessment orders for the earlier years 1970-71 to 1974-75 do not show that any deduction was allowed by the ITO in respect of sales tax. So, in my opinion one of the conditions for applying Section 41(1) of the Act is not present in the instant case and as such, this amount of Rs. 43,78,875 received as sales tax refund cannot be taxed under Section 41(1) of the Act.

7. In view of his conclusion my learned brother did not discuss whether the provisions of Section 28(i) or 28(iv) are applicable to the assessee. As such, I do not think I am called upon to record my opinion as to the applicability of these sections to the assessee.

ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 We have difference of opinion in the above case and therefore proceed to state the point of difference as follows:

Whether, on the facts and in the circumstances of the case, the assessee was allowed a deduction within the meaning of Section 41(1) of the Income-tax Act, 1961 in earlier years in respect of sales tax payable by it to the Government ?

2. We refer the above matter to the President of the Tribunal so that the matter can be decided by referring to one or more of the other Members of the Tribunal.

THIRD MEMBER ORDER S.N. Rotho, Third Member

1. By order dated 24-2-1986, the following question has been referred to me under Section 255(4) of the Income-tax Act, 1961:

Whether, on the facts and in the circumstances of the case, the assessee was allowed a deduction within the meaning of Section 41(1) of the Income-tax Act, 1961 in earlier years in respect of sales tax payable by it to the Government ?

2. Dr. R.O. Vaish, the learned Representative for the assessee urged before me that a Miscellaneous Application dated 29-8-1987 has been filed before the Income-tax Appellate Tribunal, A-Bench, which heard this appeal originally and that I should consider the said Miscellaneous Petition and reframe the aforesaid question as suggested in the said Miscellaneous Petition. Alternatively, he urged that the hearing by me may be postponed till the disposal of the said Petition by the A-Bench of the Allahabad Tribunal referred to above. Shri G.N. Srivastava, the learned representative for the department, on the other hand, opposed the aforesaid contentions of Dr. R.C. Vaish. He stated that the aforesaid Petition was not a Miscellaneous Petition because it does not relate to any order under Section 254(1) of the Income-tax Act. According to him, unless there is an order under Section 254, there cannot be a Miscellaneous Petition of rectification under Section 254(2) as is clear from a bare reading of the aforesaid section. There has been no order under Section 254(1) in this case as yet, hence, he urged that the aforesaid petition of the assessee addressed to the A-Bench of the Tribunal was no Petition. He referred to the case of Jan Mohammed v. CIT [1953] 23 ITR 15 (All.) and urged that the Third Member has no power to formulate a new question. Regarding the postponement of the hearing by him, he strongly opposed the same on the ground that the case has already been, adjourned twice in the past. Tax amounting to nearly Rs. 30 lacs has been stayed since 20-3-1984 and further postponement of hearing entailing the aforesaid stay would be to the prejudice of the Revenue. Above all, he urged that the ground on which the hearing is sought to be deferred by the assessee is not tenable because of the fact that the Petition of the assessee could neither be considered by the A-Bench of the Tribunal nor by the Third Member.

3. I have considered the contentions of both the parties. The powers of the Third Member have been explained in the case of Jan Mohammed (supra) and also in the recent decision in ITO v. Vice-President, ITAT [1985] 155 ITR 310 (Mad.). It is not for me to say as to whether the learned Members who originally heard the appeal or their successors in office are competent to modify the question already referred to, after they have become functus officio. Suffice it to say that I have no power to entertain the said Petition vide the two authorities referred to earlier. I also do not find any valid reason for postponement of the hearing by me. Hence, I reject both the contentions of the learned counsel for the assessee.

4. Dr. R.C. Vaish took me through the order of the learned Accountant Member passed in October 1984. He also took me through the order of the learned Judicial Member dated 4-12-1985. The learned Accountant Member has decided the question referred to me in favour of the Revenue while the learned Judicial Member has answered the same question in favour of the assessee. Dr. R.C. Vaish referred to all the decisions stated in the order of the learned Accountant. Member and urged that they have not been properly appreciated and consequently the conclusion arrived at by the learned Accountant Member went wrong. He urged that the assessee had paid a sum of Rs. 13,71,251 as sales tax out of its ' own funds without collecting the same from its customers. The assessee was following mercantile system of accounting. The assessee claimed this amount as deduction, but was disallowed by the Income-tax Officer. On appeal,. the appellate authority allowed the claim of the assessee. Subsequently, the assessee won the case in the. High Court and no sales tax was found to be payable by it. Hence, the aforesaid sum of Rs. 13,71,251 was. brought to tax in the year in which the refund became due to the assessee. He points out that there was no dispute regarding this sum of Rs. 13,71,251. However, the dispute related to the other sum of Rs. 43,78,875 which was collected by the assessee from its customers as sales tax during the previous years relevant to the assessment years 1971-72.to 1974-75. These amounts were included in the sale proceeds but they were kept in a separate account. Payments of sales tax to the Government were made out of the said account and so such payments or the liability to make such payments was not debited to the Profit and Loss account. As stated earlier, the assessee was declared as not liable to pay sales tax under the Van'aspati Oil Products Control Order, 1947. This Order fixed the price at which the assessee was allowed to sell its goods. However, the said Order also authorised the assessee to collect sales tax payable on the said sales over and above the price fixed in the Order. During the year under consideration, the sales tax collected by the assessee amounting to Rs. 43,78,875 was held to be, no longer payable by it. The said amount remained with the assessee. The Revenue has taxed the same as the assessee's income. The case of the assessee was that it could not be taxed under the provisions of Section 41(1) of the Income-tax Act, 1961, because this amount was never allowed in the past as a deduction while computing its business income. The question which arose before the learned Members, who heard the appeal and on which they differed, was whether the assessee has been allowed deductions of Rs. 43,78,875 as sales tax payable by it while computing its business income in the earlier years. Dr. R.C. Vaish urged before me that the Income-tax Officer has disallowed the sum of Rs. 13,71,251 claimed by the assessee as a deduction. At the same time, he has held that the other sum of Rs. 43,78,875 was allowed in the earlier years. According to him, the stand of the Revenue is inconsistent. He took me through the Paper Book filed by the assessee consisting of 32 pages and urged that in none of the earlier years, the assessee, even claimed the aforesaid sales tax as deduction and so the question of allowing the same never arose. In this connection, he urged that the prices of the goods sold by the assessee have been statutorily fixed by the aforesaid Vanaspati Oil Products Control Order, and the assessee could not collect anything more than that amount as its sale proceeds. The sales tax collected by it could not be a part of its sale proceeds and so there was no question of claiming the sales tax liability as a deduction in the earlier years. He stated that the assessee was following the aforesaid system of accounting for several years and it was never disturbed by the Revenue. He pointed out that the refund of sales tax received by the assessee has been kept as a liability to its customers in the balance sheet. Next, he urged that Section 41(1) of the Act created a fiction and so, it had to be construed strictly. The said section cannot be activated by mere implication or indirectly by inference. In this connection, he referred to the decision in the case of A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SO) and urged that the sales tax received as refund had to be returned to the customers. According to him, the various case laws cited before the learned Accountant Member have either been brushed aside without considering the same or their report have not been properly appreciated. According to him, the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra) relied on by the learned Judicial Member in his differing order, applied to the facts of this case. In that case, it has been held that Section 10(2A) of the 1922 Act cannot be applied by drawing inferences. The question as to whether an allowance has been granted or not, has to be decided by referring to the assessment order. He also pointed out that in this order the decision of the Madras High Court in the same case CIT v. Tirunelveli Motor Bus Service Co. (P.) Ltd. [1964] 52 ITR 563 (Mad.) has been reversed. The facts of Tirunelveli Motor Bus Service Co. (P.) Ltd.'s case (supra) were similar to those of the assessee in the case of Motilal Ambaidas (supra). Since the decision at Tirunelveli Motor Bus Service Co. (P.) Ltd.'s case (supra) has been reversed in Tirunelveli Motor Bus Service Co. (P.) Ltd.'s case (supra), he urged that the decision in Motilal Ambaida's case (supra), on which the learned Accountant Member has heavily relied, must also be deemed to have been equally reversed. Then, he referred to the decisions in the cases of Sharma & Co. (supra), Naubatram Nandram (supra) and Nathuabhai Desabhai (supra) for the proposition that unless an amount has been actually or specifically allowed, it cannot be assumed to have been notionally allowed for the purpose of invoking Section 41(1) of the Act. He also referred to the decision in the case of Steel & General Mills Co. Ltd. (supra) for the proposition that the burden to show that Section 41(1) applies is on the Revenue, which has not been discharged in this case. Then, he referred to the decision in the case of Bhagwat Prasjid & Co. (supra). He pointed out that in this case it has been decided that Section 41(1) creates a fiction and that only if an amount was allowed in an earlier year, it can be taken back later under Section 41(1), and that the burden is on the Revenue to show the applicability of the said section. He urged that the facts of the instant case are similar to those of Bhagwat Prasad & Co. (supra) and so the learned Accountant Member erred in his decision. Next, he referred to the decision in the case of Thlrumelaiswamy Naidu & Sons (supra), which rested on the finding of the Tribunal that the assessee had obtained the deduction earlier. Hence, he said that the aforesaid case should not have been applied against the assessee. In this connection, he pointed out that in the Head Note of the said case, it has been stated that the decision in the case of Taj Gas Service (supra) has been differed from, which was not correct. In the case of Taj Gas Service (supra), there was a claim for deduction in the earlier years and so, that case could not go against the assessee. Similarly, he stated that the other cases relied on by the learned Accountant Member were not applicable to the facts of this case. In particular, he referred to the cases of Jagatnarain Durga Prasad (supra), Chandajee Khubajee & Co. (supra), Ikrahnandi Coal Co. (supra), Kabbur Bros, (supra), and Marikar (Motors) Ltd. (supra). He urged that none of those cases applied to the facts of the instant case and the learned Accountant Member erred in relying on those decisions to come to the conclusion against the assessee. Finally, he relied on the decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) and urged that even if two reasonable interpretations are possible, the one in favour of the assessee is to be preferred.

5. Shri G.N. Srivastava, on the other hand, supported the order of the learned Accountant Member. He pointed out that the learned Judicial Member has relied on the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra) which, according to him, is not applicable to the facts of the case. He pointed out that in the said case the book position has been ignored and an estimate was resorted to. Hence, that case was not applicable to the facts of the instant case wherein the assessments have been made starting from the book results of the assessee. In this connection, he took me through the Paper Book containing 120 pages filed by him. Since the assessments have been made on the basis of the book figures in the instant case, it follows that the earlier assessments were made exactly according to the books of the assessee wherein sales tax payable was not included in the sale proceeds and not claimed as a deduction in the Profit and Loss account. He urged that the sales tax was permitted to be collected by the assessee under the aforesaid Vanaspati Oil Products Control Order. Such sales tax collected by the assetesee amounted to trading receipt in view of the decision in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) and Sinclair Murray & Co. (P.) Ltd. (supra). He stated that the liability to pay sales tax arose immediately on making the sales as decided in the case of Kedarnath Jute Mfg. Co. Ltd. (supra). According to him, merely because the assessee omitted to include an item in the sale proceeds and omitted to claim the said item in the Profit and Loss account, the said amounts did not lose their real commercial character. In this connection, he referred to a decision of the Tribunal in the case of Abdul Majid Paramjit Singh v. ITO [1985] 14 ITD 27 (Delhi). In this case, the Tribunal under similar circumstances, have considered the decision in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. (supra) and held that the said decision did not apply to a case where the assessee reduced its gross receipts by the amount of sales tax and did not claim the same as a deduction. Actually, the effect of such action by the assessee was claiming a dedixction and getting it allowed. Regarding the decision in the case of Bhagwat Prasad & Co. (supra), he stated that the said decision does not help the assessee because that was a case of an advance, which was not a statutory receipt and so it cduld not be an income. If it could not be an income, there was no question of its becoming a liability so that it could never have been allowed. Further, the said decision rested also on the fact that there was no cessation of liability. Referring to the decision in the case of CIT v. Motipur Sugar Factory (P.) Ltd. [1985] 154 ITR 259 (Pat.) he stated that whether or not the assessee makes entries in its books will not alter the true commercial character of an item of income or expense. Similarly, he stated that the decision in Motilal Ambaidas' case (supra) applied to the case of the assessee. The said decision has already considered the sales tax case in A.V. Fernandez's case (supra) and yet it was held that even where the assessee does not claim a deduction of the sales tax in the Profit and Loss account and has taken it as a deduction direct from the sale proceeds, Section 41(1) will apply when the sales tax becomes refundable. He urged that the said decision is based on. three Supreme Court decisions, namely, Chowringhee Sales Bureau (P.) Ltd.'s case (supra), Sinclair Murray & Co. (P.) Ltd.'s case (supra) and Kedarnath Jute Mfg. Co. Ltd.'s case (supra) and so this case should have preference over the other cases relied on by the. assessee.

6. Dr. R.C. Vaish replied that the Income-tax Officer was inconsistent when he disallowed the sum of Rs. 13,71,251 and held that the sum of Rs. 43,78,875 must be deemed to have been allowed in the earlier years. He stated that the decision in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) had not been applied by the Income-tax Officer as the same was not applicable. In this connection, he referred to the decision in the case of Chandrakant D. Patel (supra) wherein the case of Chowringhee Sales Bureau (P.) Ltd. (supra) has been clearly explained. Regarding the decision of the Tribunal in the case of Abdul Majid Paramjit Singh (supra), he stated that the same was against the High Court decisions in Sharma & Co.'s case (supra), Naubairam Nandram's case (supra) and Bhagivat Prasad & Co.'s case (supra).

7. I have carefully considered the contentions raised by both the parties. I have gone through each and every decision cited by the learned Members in their orders. I have also gone through the paper books filed before me. The short question that has been referred to me is whether the sum of Rs. 43,78,875 received as refund of sales tax by the assessee during the year under consideration was ever allowed in any of the earlier years as deduction while computing its business income. In view of the decision in the cases of Chowringhee Sales Bureau (P.) Ltd. (supra) and Sinclair Murray & Co. (P.) Ltd. (supra), sales tax collected by the assessee has to be credited to sale proceeds account. This is so even in the case of the instant assessee, where the aforesaid Vanaspati Oil Products Control Order does not prohibit the collection of sales tax in addition to the price fixed in that order. Sales tax payable under the mercantile system or paid under the cash system has to be claimed as a deduction in view of the decision in the case of Kedarnath Jute Mfg. Co. Ltd. (supra). If neither is done, it means that the sales tax payable has been claimed as expenses by way of direct deduction from the sale proceeds. Adding sales tax to the sale proceeds on the credit side of the trading account and claiming the same as deduction by debiting the same to the Profit and Loss account, is virtually the same thing as omitting both the items from either side, because the result remains the same arithmetically as well as according to commercial accounting procedure. In a case like the instant case, which follows the mercantile systems of accounting where the aforesaid items were omitted from both the sides of the account, it is evident that such an assessee has claimed the sales tax collected by it as expenses on accrual basis by way of direct deduction from the sale proceeds itself. If this has not been disturbed in the assessment orders, then it follows that the sales tax payable by the assessee has been allowed in the assessment by way of direct deduction from the sale proceeds without bringing them to the trading and Profit and Loss account at all. This is exactly what has been done in this case. Hence, I come to the conclusion which is in keeping with the conclusion of the learned Accountant Member.

8. The case of Bhagwat Prasad & Co. (supra) does not apply to the facts of the instant case, because it was a case of advances and not any statutory receipt. Further that decision rested on the other fact that the liability did not cease to exist by the unilateral entry made by the assessee in its books. It is true that Section 41(1) creates a legal fiction, but the allowance of sales tax by way of direct deduction from the sale proceeds as has been done in the instant case is, in my opinion, not a fiction, but a fact. It is true that the burden of showing the applicability of Section 41(1) is on the Revenue, but I find that the same has been amply discharged by pointing to the way the assessee maintained its accounts and the earlier assessments have been made. I also agree with the learned Representative for the department that the case of Motilal Ambaidas (supra) applies to the facts of this case and so the same has been rightly applied by the learned Accountant Member. Similarly I find that none of the cases cited by the learned counsel for the assessee helps the case of the assessee while the cases relied on by the learned Departmental Representative furthers the case of the department. The fact that the assessee has already taken deduction for sales tax liability in the earlier years is quite clear in the facts and circumstances of this case and there is no question of entertaining two reasonable views on the said point. Consequently, the case of Vegetable Products Ltd. (supra) has no application. For the above reasons, I answer the question referred to me as below:

On the facts and in the circumstances of the case, the assessee was indeed allowed deductions within the meaning of Section 41(1) of the Income-tax Act, 1961 in the earlier years in respect of the sales tax payable by it to the Government.

The case will now go back to the Bench, which originally heard the appeal for being disposed of in accordance with the provisions of the Income-tax Act, 1961.

ORDER R. Swarup, Judicial Member

1. The appeal by the assessee and the Cross Objection by the department are taken up together and are disposed of by a common order for the sake of convenience.

2. Briefly stated the facts of the case are that the assessee is a limited company, which was primarily engaged in the business of manufacture and sale of sugar. It also had a cold storage plant and steel foundry. On 10th October, 1968, a news item appeared in the 'National Herald' in which it was stated that the State of Uttar Pradesh had decided to give exemption from sales tax for a period of 3 years under Section 4A of the U.P. Sales Tax Act to all new industrial units in the State with a view to enabling them "to come on firm footing in developing stage". This item was based upon a statement made by the then Secretary in the Industries Department of the Govt. The assessee, on the basis of this announcement, addressed a letter dated 11th October, 1968, to the Director of Industries stating that in view of the sales tax holiday announced by the Govt., it intended to set up a hydro-generation plant for manufacture of vanaspati and sought for confirmation that this industrial unit, which they proposed to set up, would be entitled to sales tax holiday for a period of 3 years from the date it commenced production. The Director of Industries replied by his letter dated 14th October, 1968, confirming that "there will be no sales tax for three years on the finished product of your proposed vanaspati factory from the date it gets power connection for commencing production". The assessee thereupon started taking steps to contact various financiers for financing the project and initiated negotiations with manufacturers for purchase of machinery for setting up the vanaspati factory. The assurance given above was reiterated by the Chief Secretary that the assessee would be entitled to sales tax holiday in case the vanaspati factory was put up by it. The assurance was confirmed in writing on 22nd December, 1968. He, however, asked the assessee to obtain the requisite application from the submit a formal application to the Secretary to the Govt. in the Industries department and in the meanwhile to "go ahead with the arrangements for setting up the factory". This was followed by another letter dated 23rd January, 1969 to the same effect. Subsequently, the Govt. of U.P. announced that total exemption would not be given to the assessee, but that sales tax would be realised at a concessional rate. Still later, even this concession was withdrawn. Since the sales tax was demanded by the sales tax department from the assessee, the latter filed writ petition in the High Court of Allahabad asking for a writ directing the State Govt. to exempt the sale of vanaspati manufactured by the assessee from the sales tax for a period of 3 years, commencing from 2nd July, 1970 by issuing a notification under Section 4A of the Sales Tax Act and not to collect or charge sales tax for the said period of 3 years. The writ was, however, rejected by the High Court. The assessee thereupon preferred an appeal to the Supreme Court. The Supreme Court decided the matter in favour of the assessee. The decision is in Motilal Padampat Sugar Mills Co. Ltd.'s case (supra).

3. The Commissioner of Income-tax (Appeals) found that initially the assessee had not collected sales tax from its customers under the belief that no such amount was payable to the Govt. Subsequently, when the Govt. demanded payment, the assessee started collecting the amounts from the customers and paid them over to the Govt. under protest. For the period when no such collections were made by the assessee from its customers, a total amount of Rs. 13,71,251 was demanded by the sales tax department. Thereafter amounts aggregating to Rs. 43,78,875 were collected by the assessee during the assessment years 1971-72 to 1974-75 and the same were paid over to the Govt. under protest. The aforesaid sum of Rs. 13,71,251 was claimed as deduction by the assessee in the assessment years 1971-72, 1972-73 and 1973-74. The claim was disallowed by the Income-tax Officer but was allowed by the Appellate Assistant Commissioner. The sums collected by the assessee from its customers amounting to Rs. 43,78,875 were credited to a separate account styled "U.P. Sales tax Account". The payments, as and when they were made to the Govt. were debited to this account.

4. As a result of the decision of the Supreme Court, which was rendered on December 12, 1978, the assessee became entitled to the refunds of the taxes already paid to the Govt. It appears that there were two such refunds, one of Rs. 13,71,251 and the other of Rs. 43,78,875. The first amount represented the deductions by the assessee in various years and allowed in appeal while the second amount represented the refunds of sales tax, which according to the assessee, had not been allowed in the computation of its income of the relevant years and which it was also bound to refund to its customers from whom they collected. These refunds were received in the assessment year 1980-81, which is the year under consideration.

5. The question regarding the taxability of the above amounts also came up for consideration of the Income-tax Officer in this year. The assessee did not object to the taxability of the amount of Rs. 13,71,251 under Section 41(1) of the Income-tax Act, 1961 as it had already received deduction in respect thereof in the assessment years 1971-72 to 1973-74 and further it was also not required to refund any part thereof to its customers. The assessee, however, objected to the taxability of the other amount of Rs. 43,78,875, which it had collected from its customers and which was paid to the Govt. under protest in the assessment years 1971-72 to 1974-75. It was submitted before the Income-tax Officer that the above amount could not be brought to tax as it was not a trading receipt in as much as it had not been collected from the customers in the assessment year 1980-81, but had been received as a refund from the sales tax department. It was further contended that even if it was to be treated, as the income of the assessee, a deduction of a like amount was required to be allowed for the corresponding liability to return it to the persons from whom it was collected. Reliance in this connection was placed on the decision of the Calcutta High Court in Chowringhee Sales Bureau (P.) Ltd.'s case (supra). The Income-tax Officer thought that this case was distinguishable as it related to the liability of a businessman towards the sales tax department and not towards its own customers. The Income-tax Officer also noticed that no part of the above amount had been refunded to any of the assessee's customers and, in fact, not a single claim had been made against the assessee by any of them till the passing of the assessment order. The Income-tax Officer was of the view that the sales tax formed part of the assessee's trading receipt in view of the principles settled by the Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case (supra) and Sinclair Murray & Co. (P.) Ltd.'s case (supra). According to him, the receipt of refund of such an amount from the sales tax department was the income of the assessee taxable under Section 41(1) of the Act in view of the following decisions:

1. Kabbur Bros'. case( supra),

2. Jkrahnandi Coal Co.'s case (supra),

3. Jagatnarain Durga Prasad's case (supra), and Taj Gas Service's case (supra).

He also observed that the assessee had been regularly following the mercantile system of accounting and, therefore, the taxability of the above amount under Section 41(1) of the Act, could not be postponed by making any entries in its books of account. It may be mentioned here that the above addition was made by the Income-tax Officer by seeking the directions of the Inspecting Assistant Commissioner under Section 144B of the Act. On appeal, the Commissioner of Income-tax (Appeals) held that the entire

6. The assessee came in appeal before the Tribunal contending that the amount of Rs. 43,78,875 had been wrongly brought to tax. On the other hand, the department filed Cross Objections supporting the findings of the Commissioner of Income-tax (Appeals). The two learned Members, who heard the case, came to different conclusions. The learned Accountant Member vide his order held as under:

Our findings, therefore, are that the assessee had been allowed a deduction in earlier years in respect of the sales tax payable by it to the Govt., that the assessee in the assessment year under appeal had obtained a. refund of Rs. 43,78,875 in respect of such a trading liability and that the receipt was because of remission or cessation of the liability to sales tax. We also held that the refund had resulted in a benefit to the assessee in as much as there was no liability on the assessee to repay any part of that amount to any of its constituents of customers from whom it had collected sales tax earlier. The provisions of Section 41(1) of the Act are, therefore, clearly applicable to the case in view of the various authorities cited at the Bar and discussed above and the assessee is, therefore, liable toincome-tax on the entire amount of Rs. 43,78,875 in the year under appeal itself. We will, of course observe that as and. when any part of the amount is refunded to any customer, the assessee will be entitled to its deduction in that year. These observations are made not with a view to give any direction for any subsequent year, but with a view to state the correct principles of law. Since in the year under appeal, no customer has made any claim, there is no question of deduction of any amount towards it. Further in the view we are taking that the provisions of Section 41(1) of the Act are applicable to the present case, it is not necessary for us to discuss whether any other provision of the Act including Section 28(i) or 28(iv) is also applicable to the assessee. This contention of the assessee, therefore, fails.

The learned Judicial Member, on the other hand, did not agree with the conclusion of the learned Accountant Member with regard to the conclusion as to the applicability of Section 41(1) of the Act. On other points, he agreed with the conclusion of the learned Accountant Member. Accordingly, the point of difference of opinion was stated as below:

Whether, on the facts and in the circumstances of the case, the assessee was allowed a deduction within the meaning of Section 41(1) of the Income-tax Act, 1961 in earlier years in respect of sales tax payable by it to the Government ?

The matter was referred to the President. The President of the Income-tax Appellate Tribunal nominated the Third Member, who vide his order dated 20-10-1987 answered the question, referred to him as under:

On the facts and in the circumstances of the case, the assessee was indeed allowed deductions within the meaning of Section 41(1) of the Income-tax Act, 1961 in the earlier years in respect of the sales tax payable by it to the Government.

The case was sent to the Bench for being disposed of in accordance with the provisions of the Act.

7. The assessee had filed a petition dated 2-11-1987. It was stated in the petition that on receipt of the order under Section 255(4) dated 29-1-1986, the assessee-company moved an application dated 29-8-1987 before Hon'ble A-Bench, Allahabad, submitting as under:

(a) That taxability of the aforesaid sum depended on several issues, e.g., whether the same was assessable under Section 41(1), whether a liability had arisen in favour of the customers and whether the said sum was assessable in this year as income,

(b) The question framed for reference referred only to one aspect for the applicability of Section 41(1), i.e., whether the assessee was allowed a deduction within the meaning of Section 41(1) in earlier year and the other aspects mentioned hereinabove were also to be necessarily considered for resolving the matter, and.

(c) All the aforesaid other aspects had been argued at length before Hon'ble 'A' Bench and the same have been duly noted in the relevant order as well,

(d) Therefore, the aforesaid question required to be re-framed as mentioned in the said, application dated 29-8-1987, to the following effect:--

Whether, on the facts and in the circumstances of the case, the assessee was chargeable to tax in the assessment year 1980-81 in respect of the sum of Rs. 43,78,875 received, on account of sales tax refund ?

Another application dated 29-8-1987 was also filed before the Bench requesting for early fixation of the aforesaid application dated 29-8-1987. It was further stated in the application that the aforesaid application dated. 29-8-1987 was neither heard nor disposed of by the Bench and the Hon'ble Third Member heard the matter on 19-10-1987 only on the specific aspect as to whether a deduction in respect of the aforesaid amount was allowed in earlier years. Other aspects about the corresponding liability in favour of the customers and the assessability of the amount as income in the present assessment have not been heard upon by the Hon'ble Third Member. It was next stated that all the aforesaid aspects had been referred to by the Hon'ble Accountant Member in his order, whereas the decision of the Hon'ble Judicial Member or the Third Member, is not available. Lastly, the applicant prayed as under:

(a) Before disposing the present appeal and before taking a final decision in the present matter about the taxability of the aforesaid sum of Rs. 43,78,875 in the present assessment, a hearing may be granted by the Hon'ble Bench to the appellant-company on the aforesaid two aspects of the issues, i.e., the corresponding liability in favour of the customers and the assessability of the aforesaid sum as income in the present assessment, on both of which neither the decision of the Hon'ble Judicial Member nor the decision of the Hon'ble Third Member has been given so far.

(b) In the alternative, and to avoid multiplicity of proceedings and having regard to the peculiar circumstances of the present case and the general importance of the issue involved, the matter may be referred to a Full Bench.

8. We have noted in the preceding paragraphs the question which arose out of the difference of opinion between our learned Brothers as well as the issue involved. It has to be repeated here that the different aspects raised by the assessee were referred to by the learned Accountant Member in his order. True, the learned Judicial Member has given his opinion regarding inapplicability of Section 41(1) as no deduction was allowed in. the earlier years and that since the provisions of Section 28(i) or 28(iv) have not been considered by the learned Accountant Member, he considered that he was not called upon to refer his opinion on the point of applicability of these sections.

9. After considering the various aspects and. the submissions and the grievances of the parties, it is seen that at this stage the matter of dispute will have to be decided according to the opinion of the majority of the members as contemplated by Section 255(4). In other words, at this stage when we have to pass such order, we are not in a position to review any part of the decision, indeed we have to pass an order according to the majority opinion of the members. In this view of the matter, it is difficult to accept the contentions made by the assessee's learned counsel that the assessee was entitled to be heard on the other aspects of the matter which did not form part of the question referred by the Bench to the Third Member. As indicated earlier, the Accountant Member has dealt with those contentions raised by the assessee on which the Judicial Member did not express any separate opinion regarding liability to customers as well as the issue of real income. But that would root mean, in our view, that the assessee was not heard on those aspects of the subject-matter or considered and dealt with, by the Appellate Tribunal before framing the question for referring to the Third Member. In fact, only a part of difference was incorporated in the question. In this view of the matter, we are of the opinion that at this stage we cannot re-open or review those issues. Even assuming that there is any point which was pleaded or argued before the Appellate Tribunal which remained to be dealt with, it would have to be deemed that plea or argument had been considered and dealt with by the Appellate Tribunal. For this proposition, we may refer to the decision as in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), CIT v. Burmah-Shell Oil Storage & Distribution Co. of India Ltd. [1978] 115 ITR 891 (Cal.) and Estate of the Late A.M.K.M. Karuppan Chettiar v. CIT [1969] 72 ITR 403 (SC).

10. It may be mentioned here that applicability of Section 28(0 and Section 28(iv) was raised before the Appellate Tribunal when the case was originally heard to the effect that even otherwise the amount would be taxable under Section 28(i) and Section 28(iv). The Accountant Member has given his opinion that in view of his conclusion that the amount in question was taxable and the provision of Section 41(1) was applicable, it was not necessary to discuss whether other provisions of the Act including Section 28(0 or Section 28(iv) would also be applicable. The Judicial Member has also not expressed any opinion on these aspects. So there was no difference of opinion in respect of those two separate aspects of the matter.

11. It may be mentioned here also that the assessee in the application submits that in any view of the matter and to avoid multiplicity of proceedings and having regard to the peculiar circumstances of the case and the importance of the issue involved, the matter may be referred to a Full Bench of the Tribunal. We have heard the parties on the point. We have taken the different aspects of the matter into consideration. We find that after the opinion of the Third Member has been obtained, there is no other room for controversy which would justify us to refer any part of the matter to a Full Bench.

12. Thus, as indicated earlier, the opinion of the Third Member has been obtained in which he has expressed his agreement with the opinion expressed by the Accountant Member, the amount in question was taxable during the year under consideration. The order of the Commissioner of Income-tax (Appeals) on the point is upheld.

13. In the result, both the appeal and the cross-objection are partly allowed.