Remission of tax and refund of duty lawfully paid.

Rajagopalan, J.- For the assessment year 1946-47, the period from 16th August, 1944 to 16th August, 1945, was the accounting year of the assessee for income-tax and was also the chargeable accounting period for excess profits tax. The assessee firm traded in arecanut, with its head office at Virudhunagar, within the taxable territories. The assessee obtained imports of arecanut from the Travancore State. That arecanut was subjected to excise duty in the year of account both by the Government of India and by the Travancore State. Upto 31st December, 1944, the assessee paid sums totalling to Rs. 36,094, as excise duty to the Government of India and debited his account with those payments.

On the representation of the dealers in arecanuts, pointing out the difficulties in paying excise duty both to the Government of India and to the Travancore State, the Government of India issued certain executive instructions to its subordinates. On 29th December, 1944, the Government directed the Excise Authorities not to enforce the system of voluntary payment of excise duties by the dealers on goods imported from Travancore after 14th November, 1944, the date on which the Travancore State notified the imposition of excise duty on arecanuts (See: Annexure A) Under annexure A-1 dated 2nd June, 1945, the excise authorities were directed to refund to the traders the excise duty they had voluntarily paid to the Government of India on nuts imported from the Travancore State, if any trader applied for refund. Neither of these orders was communicated to the assessee or to any of the dealers. They were only executive instructions to the departmental authorities issued by the Government of India.

The assessee continued the payments of excise duty upto 31st December, 1944. On nth January, 1945, he applied to the Collector of Excise for repayment of the excise duty the assessee had paid on nuts imported from Travancore subsequent to 14th November, 1944 (Annexure B). On 31st March, 1945, the assessee applied for refund of the duty he had paid to the Government of India between 1st April, 1944, and 13th November, 1944 (Annexure B-2). On 27th November, 1945, the Excise authorities ordered the refund of Rs. 22,743-13-0. On 17th November, 1946, a further sum of Rs. 27,049-4-0 was ordered to be refunded to the assessee. These amounts included Rs. 36,094, which the assessee had paid in his year of account 1944-45. The refunds were thus received only in the succeeding years of account.

In computing the assessee’s income for 1944-45 in the assessment year 1946-47, the Departmental Authorities included this sum of Rs. 36,094, in the assessee’s income, though there were no credit entries in his accounts during the accounting year in question, and though the amounts had not actually been received by the assessee. in that year. The Department was of the view that the Government of India had definitely agreed in the year of account itself to refund the said amount to the assessee after the necessary scrutiny. When the assessee appealed to the tribunal, it confirmed the assessment. The question referred to this Court under section 66(1) of the Income-tax Act was:

Whether the sum of Rs. 36 094, being the refund of Indian Excise Duty on betelnuts imported from Travancore State was assessable as profits of the accounting period for income-tax and excess profits tax.

It was not disputed that the excise duty, the assessee has paid in the year of account to the Government of India was reflected in the prices the assessee charged his customers. The Tribunal recorded:

“We find that, by the Government of India’s notification, collection of the excise duty in question has been cancelled with effect from the 14th November, 1944, onwards. Their inclination to refund the excise duty paid before that date from the inception of the duty has also been made clear by the same notification. The assessee has thereunder acquired a right on that date to receive the payment of the duty already p

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