Kanhaiya Singh, J.:— The Income Tax Appellate Tribunal has referred the following question of law under section 66(1) of the Income Tax Act:

“Whether on the facts and circumstances of the case the receipt of Rs. 26,328/- by assessee in the accounting year 1949-1950 Out of licence fee paid during the accounting year 1940-1947 is a capital receipt or taxable income?”

2. The matter relates to the assessment of income-tax for the assessment year 1950-1951, the accounting year being 1949-1950. The assessee is a registered firm and a licensed excise vendor carrying on the business of purchasing country spirit from the Excise Department of the State Government in bulk and selling it to consumers in bottles, and for this it has to pay licence fee. During the accounting year ending 31-3-1947, (assessment year 1947-1948) the assessee paid several lacs of rupees as licence fee. During this period its liquor shops remained closed on account of the outbreak of communal riots. On its representation the Government, on account of the stoppage of the business due to circumstances beyond its control, allowed concession and refunded Rs. 26,328/- out of the licence fee paid in the accounting year ended 31-3-1950, that is to say, the year under reference. This amount has been treated by the Revenue Department as a trading receipt and has) been brought into the computation for the assessment year in question. The assessee claims to deduct this amount from the income of the year under consideration, and whether it is entitled to deduct this sum depends upon whether or not it is properly attributable to capital or is chargeable against the revenue. The facts are simple and lie in short compass. They can be gathered from the statement of the case submitted by the Appellate Tribunal. In respect of that assessment year, the assessee returned a loss of Rs. 2,11,956/-. In arriving at that amount of loss, licence fee paid to the Government amounting to Rs. 2,47,560/- together with other expenses like excise duty, purchase of molasses etc. and overhead charges in all, amounting to Rs. 7,57,841/- was claimed by the assessee as business expenditure. The loss returned by the assesee was not accepted by the Department for various reasons. After an examination of the accounts the deportment fixed the unexplained cash credit at Rs. 4,21,701/- and after sotting off the loss of Rs. 2,11,956/- determined the nett assessable income from business at Rs. 2,09,745/-. In determining the taxable income the Income-tax Officer considered this amount as the subject of income-tax and included it in the taxable income. He observed as follows:

“Since these payments were considered in assessment for the year in which they were paid, the refund on account of such items will have to be treated as a constructive revenue receipt in the hands of the assessee during the year under consideration. The entire amount should have been shown as business income of the year. Assessee has not shown the same on the ground that these were capital receipts. I wonder how assessee could treat these receipts as capital receipts. The entire amount has to be included in the income for assessment purposes.”

3. The assessee went in appeal before the Appellate Assistant Commissioner who, after considering the various additions made, fixed the cash credits at Rs. 2,66,494/- and reduced the net assessable income to Rs. 54,538/-. This amount represents the difference between the unexplained cash credits of Rs. 2,66,494/- and the loss returned by the assessee of Rs. 2,11,956/-. As regards this amount he held that the assessee had actually made payment of excise duty which was allowed as business deduction, and as a cash refund in respect thereof was received during the year in appeal, it was clearly liable to tax. In other words, he confirmed the finding of the Income-tax Officer regarding this claim.

4. On further appeal to the Appellate Tribunal it passed a consolidated order for assessment years 1946-1947 to 1949-1950 and stated therein that during these years the assessee introduced from time to time aggregate cash of Rs. 5,78,084/-. This amount includes Rs. 83,564/- as relating to the assessment year 1947-1949. In the end the Tribunal estimated the income at 8 per cent, on the estimated turnover of Rs. 4,40,000/- in distillery liqiuor and at 15 per cent on the estimate turnover of Rupees 1,40,000/- in outstill liquor; but the amount of this estimate was restricted to Rs. 54,538/- as fixed by the Appellate Assistant Commissioner, as otherwise it would result in an enhancement of the income. Regarding the present claim the Tribunal held that the sum in question was a revenue gain and was assessable to tax.

5. Stated simply, when the assessee paid a certain amount of licence fee it cannot but be regarded as an outgoing and, therefore, as a deduction from the profits. Similarly, when there was a recoupment of the whole or part of the licence Pee paid by way of refund from the Government for any reason, the recoupment must be considered as a revenue gain. I do not think, it can on any account be regarded as a capital receipt. The assessee cannot blow both hot and cold in the same breath and contend that while the outgoing stands, the incoming is not to be brought in. This position appears to me to be quite manifest and is supported by authorities. I may refer in this connection to the case of In re Union Bank of Bijapur and Sholapur Ltd. 1942-10 ITR 21. In this case the assessee a bank, claimed in the assessment year 1935-1936 a certain amount as loss by reason of embezzlement on the part of an employee under Section 10(2)(ix) of the Indian Income-tax Act and the Income-tax authorities treating it as a business loss allowed it to be set off against the remainder of profits.

6. In the accounting year 1937-1938 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 & certain other deductions from Rs. 8,790/-, included a net sum of Rs. 4,737/- in the total income of the assessee for the assessment year 1938-1939 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. On these facts the Bombay High Court held that 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 him was a revenue gain and was assessable to tax as part of the total income of the assessee for the assessment year 1938-1939. Beaumont, C.J, delivering the judgment of the Court, observed as follows:

“The embezzlement was, no doubt, substantially more than the income of that year. In a subsequent year a sum is found to have been recovered in respect of that embezzlement, and it seems to me that the assessee, having alleged that the embezzlement was an embezzlement of income, which could properly be set off against income in a previous year cannot affirm in another year that it was not income, and that a recovery in respect of it is a casual appreciation of capital, as he seeks to do.”

7. This case is on all fours with the present case, and when, as in that case, the amount received back out of the amount embezzled was considered as a revenue gain, there is no reason why the amount refunded by the Government out of the licence fee paid cannot be regarded as a revenue gain. A similar view was taken by the King's Bench Division in Gray v. Lord Penrhyn, (1937) 21 Tax Cas 252. What happened in that case was this: In 1934 it was discovered that officials employed at a state quarry owned by the respondent (Lord Penrhyn) had misappropriated money from 1928 to 1934 by falsifying the wages accounts.

8. The respondent's auditors admitted negligence on the part of their staff in not making certain enquiries and paid over to him in November, 1934, a sum equal to the amount misappropriated since their first audit after the defalcations commenced. The amount so paid was credited in the quarry accounts for the year ended 31-12-1934, as to part as recovery in respect of wages defalcations for all years to 31-12-1933, and as to lie balance by reducing the wages debit for 1934 by the, amount misappropriated in that year. The respondent was assessed to income-tax for the year 1935-1936 in respect of the profits of the quarry in a sum which included the full amount received from his auditors. It was held in that case that the whole amount paid by the auditors was a trading receipt of the respondent to be taken into account in the computation of the assessment for the year 1935-1936. Finlay, J. observed as follows:

“It seems to me that, looking at it from the point of view of the recipient, it is equally a business receipt, something which comes in the course of the business. The substance of my view can be quite concisely put by saying that I think that there is a strong presumption that the two things, so to speak, balance; that is to say, looking at it first from the point of view of Lord Penrhyn, that since as an outgoing to these fraudulent people it was allowed, so, when that out-going is made good, the thing ought to be cancelled out and that ought to be done, if not by the re-opening of previous years, then, as I prefer because it is simpler by the bringing in of the receipt when it comes in. Looked at from the point of view of the chartered accountants and Lord Penrhyn, it seems to me that as the sum is an outgoing of the chartered accountants, so, looking at it from the otherside, it is a receipt on the part of Lord Penrhyn.”

It seems quite plain that when the amount paid as licence fee was deductible from the profits, any refund out of that amount by the Government for whatsoever reason must be considered as a part of the revenue gain and not as a capital asset. The assessee cannot have both ways. He cannot claim the payment of the licence fee as an outgoing and regard the subsequent refund as a capital asset. In my opinion, the sum in question is a revenue gain land not a capital receipt.

9. Thus, the legal position is not in doubt, the question is whether the amount paid on account of licence fee was allowed as a deduction in coming liability of the assessee to income-tax. This is purely a question of fact, and the Courts below an unanimous in their view that it was so allowed. The Assistant Income-tax Officer definitely held, as stated above, that the licence fees paid were considered in assessment for the year in which they were paid. The Appellate Assistant Commissioner also held as follows:

“Since the payment of licence fee was claimed and allowed as a legitimate business deduction in the relevant assessment year, the refund thereof which has been received during the previous year, relevant for the year under appeal, was rightly included in the appellant's total income. There was no justification for the appellant's treating it as an item of capital receipt. The add back was, therefore justified.”

The, Assistant Commissioner held definitely that the payment had been allowed as a business deducts. The same view was taken by the Appellate Tribunal in the following terms:

“Here, in the present case, it is submitted by the Department that in respect of estimating the income of the assessee for the relevant assessment year, the licence fees as paid by the assessee in the said year was one of the factors taken into consideration in arriving at the estimate aforementioned, and any refund of the same in a subsequent year will have to be taken into consideration to the estimate of profit made by the assessee in respect of its business in the later assessment year. We see much force in that contention and following the decision of the Bombay High Court in the aforementioned case, which held that it was a revenue gain and was assessable to tax as part of the total income of the assessee in the said case, we hold that the receipt in question is only of a revenue nature. We, therefore, hold against the assessee on this point.”

The income-tax authorities had sufficient material before them on which they could reach their finding and further it appears that they had made no error in law. This is purely a question of fact. When on the facts found by the tribunals allowance was given for the licence fee paid in computing the taxable income, the sum refunded by the government should be included in the calculation of the taxable profits for the year in which it was received.

10. Accordingly, I would answer the question of how against the assessee and in favour of the Department. The assessee must pay the costs of the Inference.

11. Hearing fee Rs. 250/-.

12. Ramaswami, C.J:— I agree.

IC/K.S.B

13. Answered accordingly.