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1981 Supreme(Cal) 135
High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
CHITPUR PRESSING CO.(P)LTD. - Respondent
Income-Tax Reference 535 Of 1973
Decided On : 04/23/1981
Nirmal Mukherjee, S.K.CHAKRABORTY, S.K.MITRA
The provision of Section 86(v) of the I. T. Act, 1961, which exempts from income-tax any portion of the amount which an assessee is entitled to receive from an association of persons or body of individuals, in which income-tax has already been paid by the association or body, totally excludes the general provisions made in Section 41(1) of the Act.
Headnote:
INCOME TAX - Section 41(1) and Section 86(v) - Refund of subscription by association to its members - Applicability of Section 41(1) and Section 86(v) - Whether the receipt of refund by the assessee is a revenue receipt or a capital receipt - Whether the provision of Section 41(1) is excluded by the provision of Section 86(v).
Fact of the Case:
The assessee, a member of the Calcutta Hydraulic Press Association, received a refund of Rs. 56,916 from the association out of its accumulated "operating fund" to its members in the year under consideration. The ITO treated the same as income of the assessee as the subscription paid by the assessee had been allowed as a deduction. The assessee contended that the refund was a capital receipt and not a revenue receipt and the revenue authorities erred in treating the same as a revenue receipt.
Finding of the Court:
The Tribunal held that the receipt of Rs. 56,916 by the assessee was a revenue receipt which fell within the purview of Section 41(1) of the I. T. Act, 1961. However, the Tribunal also held that the applicability of Section 41(1) was excluded by Section 86(v) of the Act.
Issues: 1. Whether the receipt of refund by the assessee is a revenue receipt or a capital receipt? 2. Whether the provision of Section 41(1) is excluded by the provision of Section 86(v)?
Ratio Decidendi: 1. The nature of the receipt by the assessee, whether it was capital or revenue, did not depend upon the nature of the fund from which the association made the refund but depended upon the fact whether the refund had been made upon capital basis, i. e. , it depended upon the intention of the association with which the refund was made. 2. The refund was made to the members proportionate to their contributions, which showed that the receipt was a remission out of the contributions and it was a revenue receipt which fell within the purview of Section 41(1). 3. Section 86(v) is a special provision which exempts from income-tax any portion of the amount which an assessee is entitled to receive from an association of persons or body of individuals, in which income-tax has already been paid by the association or body. 4. The provision of Section 86(v) totally excludes the general provisions made in Section 41(1) of the Act.
Final Decision: The question referred to the court is answered in the affirmative and in favour of the assessee. There will, however, be no order as to costs.
( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-III, Calcutta, the question referred to us is as follows :"whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 41 (1) and Section 86 (v) of the Income-tax Act, 1961, the Tribunal is justified in holding that the sum of Rs. 56,916 received from M/s, Calcutta Hydraulic Press Association was not a profit chargeable to tax ?"
( 2 ) THE assessment year involved is 1964-65. The business of the assessee is of pressing of jute bales and the assessee is a member the Calcutta Hydraulic Press Association. A number of other concerns engaged in pressing of jute into bales are also members of that association. Each of the members contributed to the fund of the association at 9 paise per bale pressed. The subscription paid by the assessee had been allowed as deduction in the computation of the income of the earlier years. The association maintained a fund styled as the "operating fund", the source of which was the subscription received from its members. The association also had income from dividend and interest. The association refunded Rs. 5 lakhs out of its accumulated "operating fund" to its members in the year under consideration and the assessee received Rs. 56,916 as its share. The ITO treated the same as income of the assessee as the subscription paid by the assessee had been allowed as a deduction.
( 3 ) AFTER the matter came up in appeal before the AAC, he observed that the receipt was only a portion out of the subscription paid by the assessee, and that it was assessable under Section 41 (1) of the I. T. Act, 1961.
( 4 ) THE assessee came up in further appeal before the Appellate Tribunal. It was argued by the learned counsel for the assessee that the fund, out of which the association paid Rs. 5 lakhs had become its capital after the payment of tax thereon and the return of Rs. 5 lakhs to the members was a refund out of capital and as such the receipt was a capital receipt and not a revenue receipt and the revenue authorities erred in treating the same as a revenue receipt. It was next urged that the subscription had been paid prior to the enforcement of the I. T. Act, 1961, and Section 41 (1) had no application. It was further urged that as the association had paid tax on the amount refunded, the receipt was not assessable to tax as provided under Section 86 (v ). The representative of the department relied on the reasons given by the revenue authorities.
( 5 ) THE Tribunal observed that the nature of the receipt by the assessee, whether it was capital or revenue, did not depend upon the nature of the fund from which the association made the refund but depended upon the fact whether the refund had been made upon capital basis, i. e. , it depended upon the intention of the association with which the refund was made The Tribunal found that the managing committee in their report had stated that the refund was made to the members proportionate to their contributions. The Tribunal drew the inference that the basis for the refund was not the entire capital of the association and the refund proportionate to the subscription showed that the receipt was a remission out of the contributions and it was a revenue receipt which fell within the purview of Section 41 (1 ). The Tribunal negatived the plea of the assessee that Section 41 (1) did not apply on account of the subscription having been made prior to the enforcement of the I. T. Act, 1961, as a similar provision in Section 10 (2a) existed in the Indian I. T. Act, 1922. The Tribunal found that the receipt of subscription by the association from its members had been assessed in its hands and the receipt out of the refund by the assessee was as a member of that association and was governed by Section 86 (v) of the I. T. Act, 1961. The Tribunal observed that Section 41 (1) was of
