The main legal point established in the judgment is the taxability of refunded sums under the Indian Income-tax Act, 1922, and the impact of accounting methods on the treatment of such receipts.

( 1 ) AT the instance of Commissioner of Income-tax, Mysore, Bangalore, the Income-tax Appellate tribunal, Hyderabad Bench, in I. T. A. No. 5488 of 1958-59 on its file, referred to this court the question "whether the sum of Rs. 1,87,630 is, by is nature, taxable sum under the Indian income-tax Act, 1922?" under section 66 (1) of the Indian Income-tax Act, 1922 (to be referred to hereinafter as the "act" ).

( 2 ) IT would be appropriate to recast this question as follow :

"whether on the facts and circumstances of this case the sum of Rs. 1,87,630 refunded by the government to the assessee by adjustment is, by its nature, a taxable sum under the Indian income-tax Act, 1922?"

( 3 ) THE relevant facts as found by the Tribunal and set out in the statement of the case and the fuller statement of the case submitted to this court are as follow : the assessee was an excise contractor. He had liquor shops at Mahabubnagar, Macherala, raichur and Narayanpettah. The kist due from him for Faslis 1357 and 1358 was O. S. 10,75,629. Out of this amount, the assessee paid O. S. 9,81,308 and claimed deduction of the same as revenue expenditure in the assessment years 1949-50 and 1950-51. Because of the Razakar troubles and the police action in the then Hyderabad State at the material time, the assessee could not tap all the trees allotted to him. On representation by the assessee, the Government agreed to refund a portion of the kist paid. The assessee claimed O. S. 4,26,122 as being refundable to him. The Government determined the refund due at O. S. 3,19,541. The refund order was passed in june, 1953. Out of this amount O. S. 1,00,689 was set off towards the amount due from the assessee (according to the assessee, it was only O. S. 94,384 ). The balance of O. S. 2,18,852 (the rupee equivalent being Rs. 1,87,577) was adjusted towards the kist due from the assessee for the months of June and July, 1953. The assessee credited this amount in his accounts which were maintained on cash-credit basis.

( 4 ) NOW the question for decision is whether this amount of Rs. 1,87,630 is a taxable sum under the "act"? If that sum can be considered as a trading receipt, then the same will be liable to tax. But, on the other hand, if it is considered as a casual receipt, it will be exempt from taxation. While deciding the question referred to us, we must remember the fact that the sum paid as excise kist had been deducted as revenue expenditure in the relevant assessment years. It must also be remembered that this is not a case of remission but one of refund and the amount refunded was taken as a credit entry in the assessee's accounts maintained on cash-credit basis, for the assessment year 1954-55.

( 5 ) A case that bears on the question of law under consideration came up before a Bench of the bombay High Court in Union Bank of Bijapur and Sholapur Limited, In re. In that case the assessee bank claimed in the assessment year 1955-56, under 10 (2) (ix) of the "act" a certain amount as loss by reason of embezzlement on the part of an employee and the income-tax authorities treating it as a business loss allowed it to be set off against the profits; in the accounting year 1937-38, the assessee recovered from the heirs of the employee a sum of Rs. 8,790 from the amount embezzled and the income-tax authorities, after deducting the law charges and certain other deductions from Rs. 8,790 included a sum of Rs. 4,737 in the total income of the assessee for the assessment year 1938-39 on the ground that the assessee having treated the loss as a revenue loss and obtained relief on that basis, any recovery made in respect of that loss must be regarded as a revenue gain as and when it occurred. When that question was referred to the High Court, the High Court held that in the circumstances of that case, the sum of rs. 4,737, out of the sum of Rs. 8,790 recovered from the heirs of the employee being part of the amount embezzled by the assessee's employee