JUDGMENT
Arijit Pasayat, C.J (Oral)
Pursuant to directions given by this court under section 256(2) of the Income Tax Act, 1961(hereinafter referred to as ‘Act’), following question has been referred at the instance of revenue, by the Income Tax Appellate Tribunal, Delhi Bench ‘C’ (hereinafter referred to as ‘Tribunal’) for opinion of this court:
“Whether, on the facts and in the circumstances of the case, provisions of section 41(1) of the Income Tax Act, 1981 are attracted in respect of the amount of Rupees 18,255 representing refund of additional license fee received from the Excise Department?”
2. Factual position in nutshell is as follows. assessed is an individual who was carrying on business under the name and style of M/s Baldev Raj and Sons. Previously M/s Baldev Raj and Sons was the name and style of a partnership firm of which M/s Lal Chand, Kidar Nath, Madho Ram, Bishamber Prashad and B.S. Chawla were the partners. assessed was the successor to the business which was being carried on by the said firm. Said firm was required to pay certain additional license fees imposed by the Excise Department during the assessment year 1968-69. Subsequently a part of the duty was refunded by the Excise Department out of which Rs. 18,255 were received by the assessed being the successor of the partnership firm. assessed took the stand that assessment of the firm which had paid the additional fees was still pending consideration and the expenditure may not be allowed as a deduction in its assessment. Income Tax Officer found that since firm’s assessment was complete and the expenditure had been allowed in appeal, provisions of section 41(1) of the Act were clearly applicable. Accordingly he treated the said amount as liable to be taxed under section 41(1) of the Act. assessed carried the matter in appeal before the Appellate Assistant Commissioner (hereinafter referred to as the ‘AAC’). Said authority directed exclusion of the amount from assessment. He was of the opinion that the refund could only be assessed in the hands of the firm in whose case it was allowed as an expenditure. Matter was carried in appeal by the revenue before the Tribunal. Revenue’s stand was that assessed being the successor was liable to be treated at par with the firm and the aforesaid section 41(1) was clearly applicable. Reference was made by the assessed to a decision of the Apex Court in Commissioner of Income Tax v. Hukumchand Mohanlal (1971) 82 ITR 624 (SC) to contend that AACs conclusions were in order. Tribunal affirmed the views of AAC. Prayer for reference under section 256(1) of the Act was turned down, but on being moved under section 256(2) of the Act, the question as set out above, was directed to be referred.
3. We have heard learned counsel for the revenue. There is no appearance on behalf of the assessed in spite of notice. Learned counsel for the revenue submitted that in view of section 47 of The Indian Partnership Act, 1932 (hereinafter referred to as the ‘Partnership Act’) and section 189 of the Act, mere discontinuance or dissolution would be of no consequence and section 41 of the Act was clearly applicable to the facts of the case.
Section 41(1) at the relevant point of time read as follows:
“41. Profits chargeable to tax-(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 assessed, and subsequently during any previous year the assessed 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.”
A bare reading of the provision makes it clear that when a deduction has been made in the assessment for any year in respect of expenditure incurred by the assessed and subsequently during any previous year assessed has obtained any amount in respect of such expenditure, the amount obtained by the assessed shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year, whether the business in respect of which the deduction has been made is in existence in that year or not. In order to bring in application of section 41(1) it has to be shown that: (a) an expenditure has been incurred by the assessed, (b) the said expenditure has been allowed as a deduction in assessed’s case (c) in subsequent previous year assessed has obtained any benefit in respect of such expenditure. On existence of aforesaid conditions, the amount has to be brought to tax, irrespective of the question whether the business in respect of which the deduction was allowed is in existence or not. It our view in order to make section 41(1) applicable, it has to be shown by the revenue that the expenditure was allowed as a deduction in case of the assessed. The amount in respect of which remission or cessation takes place has to be assessed in the hands of the assessed who was earlier granted an allowance or deduction; and none else. Essence of the provision is that revenue takes back what has been already allowed, under certain circumstances indicated in section 41, and section 41(1) deals with one of such circumstances. Sub-section (1) consists of two parts. The first part deals with loss, expenditure of trading liability in some earlier year for which allowance has been made. Second part deals with recoupment of such loss or expenditure or benefit in respect of such trading liability by way of remission or cessation.
4. In the case at hand, the deduction was allowed in the case of a partnership firm whereas the assessed concerned is an iIndividual’. Merely because he was carrying on business in succession to the earlier partnership firm’s business, that does not per se make him the “assessed” covered under section 41(1). Section 2(31) of the Act defines “person” to include an “individual” and a “firm” separately. Section 2(7) of the Act defines an “assessed”. By no stretch of imagination the firm in respect of whom the expenditure was allowed can be treated to be the assessed with whom we are concerned, that is an ‘individual’. That being the position, Tribunal was justified in its view. Our answer to the question, therefore, is in the negative, in favor of assessed and against the revenue.
The reference stands disposed of.