Decided on January 31,1967



- (1.) THIS is a reference under Section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) at the instance of the Commissioner of income-tax. Madhya Pradesh, Nagpur and Bhandara The question which has been propounded by the Tribunal for our decision is:-" whether the sum of Rs. 24,341 was liable to lax under Section 41 (1) of the Income-tax Act 1961?"
(2.) THE material facts are that one Kanhaiyalal used to carry on business as selling agent of Messrs Mohanlal Hargovinddas of Jabalpur under the name and style of "messrs Hukumchand Mohanlal". On or about 17th February 1960 Kanhaiyalal died his widow Hira Laxmi succeeded to the business of selling agent carried on by her husband and continued it under the same name and style, namely. "messrs hukumchand Mohanlal". The firm of Mohanlal Hargovinddas had recovered from kanhaiyalal an amount of Rs. 24. 341 as sales tax for transactions effected during the period from 26th January 1950 to 31st March 1951. Kanhaiyalal was allowed deduction on account of this amount of sales tax paid by him in the relevant assessment year. Subsequently, when the Assistant Commissioner of Sales Tax, jabalpur, held in an appeal filed by Messrs Mohanlal Hargovinddas that the sales effected during the period from 26th January 1950 to 31st March 1951 were not liable to sales tax and the Government refunded to the firm of Mohanlal hargovinddas the amount of Rs. 24,341, the firm of Mohanlal Hargovinddas in its turn paid back to the assessee-firm Messrs Hukumchand Mohanlal the sum of Rs. 24,341 by a draft. This draft was received by the assessee on 9th November 1961 that is after the death of Kanhaiyalal and in the accounting year beginning from 1st April 1961 and ending on 31st March 1962
(3.) THE Income-tax Officer, Ujjain taxed this amount in assessment proceedings against the assessee for the assessment year 1962-63. He did so under Section 41 (1) of the Act rejecting the contention of the assessee Hira Laxmi that the amount of Rs. 24. 341 received by draft on 9lh November 1961 was the income of her deceased husband Kanhaiyalal and not her own income The decision of the income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner the assessee then preferred a second appeal before the Income-tax Tribunal, which was allowed. The Tribunal upheld the contention advanced on behalf of the assessee that it was her husband and not she who had obtained an allowance or deduction in respect of Rs. 24,341 in assessment proceedings against him and, therefore. Section 41 (1) of the Act did not in terms apply The Tribunal has not given any elaborate reasons for allowing the assessee's appeal It first staled the argument of counsel appearing for the assessee thus:-" the principal point made by Shri S. P. Mehta, who appeared for the assessee before us was based on the wording of Section 41 (1) of the 1961 Act, which corresponds to Section 10 (2-A) of the 1922 Act. He contended that these Sections create an artificial liability of the assessee and that, therefore, they have to be construed strictly. He said that but for these Sections, the amount of Rs. 24,341 in the present case would not have been the income of the assessee. If, therefore, Section 41 (1) is to be applied, the changeability arises if the allowance of deduction had been made in an earlier assessment in respect of expenditure or trading liability incurred by the same assessee Shri Mehta contended that the allowance or deduction had been made in respect of the expenditure or liability incurred by the assessee's husband in the letter's assessment and that, therefore, Section 41 (1) did not apply in terms He conceded that if the assessee's husband had been alive and were to be assessed in respect of the business in the assessment year under appeal, the inclusion of the amount in question in his total income would have been correct. His objection was as regards the present assessee being held chargeable under Section 41 (1)". Then the Tribunal staled its conclusion after simply observing:--"we are inclined to agree with Shri Mehta's said argument. In the circumstances, the addition made must be deleted. ";

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