- (1.) THE facts relevant for the decision of the reference are as follows :
(2.) THE assessment relates to the assessment year 1968-69, for which the accounting year is 1967-68. M/s. Punjab Oil Mills came into existence by deed of partnership on September 9, 1958, with eight partners. The business of the firm was crushing of oil seeds. The constitution of the firm underwent many changes cither on account of death or inclusion or exclusion of partner/partners. That is, however, not relevant for the decision of this reference. The firm was assessed to an amount of Rs. 39,489 as purchase tax for the purchase of groundnuts. The amount was deposited by it. The respondent challenged the levy of purchase tax by a writ petition in this court. The levy of purchase tax was declared as invalid by the Supreme Court in Bhawani Cotton Mills Ltd. v. State of Punjab, [1967] 20 STC 290 (SC ). The writ petition of the respondent-firm was accepted on May 9, 1967. Shanti Swaroop Sharma, one of the partners of the respondent-firm, filed an application on May 31, 1967, for refund of the amount deposited by it in view of the order of this court, which was allowed. It was refunded to the respondent on August 5, 1967. A return was filed by the respondent-firm and exemption was claimed in respect of the amount of Rs. 39,489 on the ground that the liability to pay the aforesaid amount to the Punjab Government existed under the Punjab General Sales Tax (Amendment and Validation) Act, 1967, and, therefore, its receipt cannot be deemed to be income under Section 41 of the Income-tax Act, 1961 (hereinafter referred to as "the Act" ). The Income-tax Officer made an assessment on the dissolved firm and brought to tax the amount of Rs. 39,489 as the assessee's income under Section 41 of the Act. The respondent went up in appeal before the Appellate Assistant Commissioner who accepted the same on July 15, 1970, and reduced the amount of Rs. 39,489 from the income of the assessee. The revenue filed an appeal against the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal, Chandigarh. It affirmed the order of the Appellate Assistant Commissioner and dismissed the appeal. On the application of the revenue, the Tribunal has referred the following question of law to this court for opinion : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 39,489 was not assessable in the hands of the firm under Section 41 (1) of the Act ? "
(3.) IN order to decide the above question it is necessary to find out whether the refund of amount falls within the purview of Section 41 (1) of the Act. The said sub-section is as follows : "41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, 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 amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. ";