COMMISSIONER OF INCOME TAX MADRAS Vs. A GAJAPATHY NAIDU MADRAS

JUDGEMENT

(1.) This appeal by certificate is preferred against the order of the High Court of Judicature at Madras holding that a sum of Rs. 12,447/- received by the respondent from the Government during the accounting year 1950-51 was not assessable to tax for the assessment year 1951-52.

(2.) Gajapathy Naidu, the respondent, was supplying provisions to the Government Stanely Hospital, Royapuram Madras. During the financial year April, 1 1948 to March 31, 1949, he entered into a contract with the Government for the supply of bread to the said hospital at the rate of Rs. 0-4-6 per lb. As the respondent was maintaining his accounts on mercantile basis, it is common case that the amount due from the Government under the terms of the said contract was credited in the accounts of the respondent for the year. For the assessment year 1949-50 the Income-tax Officer assessed the respondent to Income-tax on the basis of the accounts so made. It appears that some time after March 31, 1949, representations were made to the Government for relieving the respondent from the loss sustained in the supply of bread to the hospital. The Government by its order dated November 24, 1950, directed payment of compensation for the loss sustained by the respondent in respect of the supply of bread to the hospital during the year 1948-49 under the said contract. The respondent received on that account payment of Rs. 12,447/- during the year of account 1950-51. In the assessment year 1951-52 the Income-tax Officer included the said amount in the assessment of that year. The assessee, inter alia, contended that he received the said sum in respect of the contract that was entered into by him with the Government during the accounting year 1948-49, and, therefore, it could not be included in the assessment year 1951-52. This contention was rejected by the Income-tax Officer and, on appeal, by the Appellate Assistant Commissioner and also, on further appeal, by the Income-tax Appellate Tribunal. But the contention received favour with the High Court on a reference made to it under S. 66 (1) of the Indian Income-tax Act, 1922, hereinafter called the Act. The following two questions were referred to the High Court:

(3.) The High Court answered the second question in the negative. Its conclusion is based upon the following three steps: