IT Appeal No. 1303 (Delhi) of 1983 by assessee, Tractor & Equipment Corpn. Ltd., (in voluntary liquidation), New Delhi and IT Appeal No. 1373 (Delhi) of 1983 by revenue arising out of order of Commissioner (Appeals) dated 6-1-1983 have been consolidated, heard together and are being disposed of by common order for sake of convenience. year of assessment involved is 1979-80, for which previous year ended 24-3-1979. 2. IT Appeal No. 1303 (Delhi) of 1983: Grounds 2 and 3 reading as under, were not pressed at time of hearing of appeal: "2. learned Commissioner (Appeals) has erred in upholding disallowance of legal and professional expenses of Rs. 12,451 having been incurred wholly and exclusively for purpose of business. 3. learned Commissioner (Appeals) has erred in upholding disallowance in respect of unrecovered sales tax in sum of Rs. 5,150." As such and for reasons stated by Commissioner (Appeals), with which we agree, we uphold his order on these points. 3. Ground No. 1 in appeal by assessee and only ground in appeal by revenue are inter-connected and so they are being dealt with in manner stated hereinafter. admitted facts in this connection are that assessee in year under consideration on 20-11-1978 received sum of Rs. 2,32,090 as refund from sales tax authorities. sales tax refund pertains to period from 31-10-1960 to 31-3-1963. ITO assessing assessee for year under consideration, in view of said refund, called upon it to explain as to why above refund should not be taxed under section 41(1) of Income-tax Act, 1961 ('the Act'). In reply, stand taken by assessee was that said sum having not been charged to profit and loss account as refund was not taxable under section 41(1) and, secondly, that said amount was repayable by assessee to Director General, Supplies and Disposal (DGSD), after waiting for statutory period for initiation of revision proceedings by Commissioner of Sales Tax under section 57 of Bombay Sales Tax Act, 1959 ('the 1959 Act'). These contentions were, however, negatived by ITO, who has charged above sum of Rs. 3,32,090 to tax under section 41(1). 4. Aggrieved by said addition by ITO, assessee brought matter by way of appeal before Commissioner (Appeals), who has agreed with ITO that above amount was to be charged to tax under section 41(1). At same time, Commissioner after going through contract between assessee and DGSD, came to conclusion, in view of provisions of section 72 of Indian Contract Act, 1872, as also fact that assessee followed mercantile system of account, that said sum of Rs. 2,32,090 being sales tax not legally leviable had to be refunded to DGSD. That is why appeals both by revenue and assessee. assessee in appeal has challenged correctness of order of Commissioner (Appeals) on ground that he has erred in not accepting stand of assessee that sum of Rs. 2,32,090 received by way of sales tax refund was not its income under section 41(1), as there was no final cessation of said sales tax liability, during year under consideration. In appeal by revenue, they have urged that Commissioner (Appeals) had erred in deleting addition of Rs. 2,32,090 made by ITO on ground that said amount being refundable to DGSD, assessee was entitled to get deduction of that amount in computing its total income for year under consideration. 5. In appeal by assessee, learned counsel for assessee, Mr. Harnam Shanker, drew our attention to provisions of section 41(1) and urged that said provisions were attracted if following conditions were satisfied, namely: (i) amount in question should have been received by assessee by way of remission or cessation of trading liability; and (ii) that said trading liability had already been allowed as deduction while computing total income of assessee in any preceding assessment year. These conditions, according to learned counsel for assessee were n o t satisfied in present case, inasmuch as refund of amount in question, pursuant to order of Assistant Commissioner of Sales Tax Appeals dated 16-8-1977 did not bring about cessation of trading liability. cessation of liability of assessee in this behalf was not full and final, in view of provisions of section 57 of Bombay Sales Tax Act. Thereunder, Commissioner had power for suo moto revision of order of lower authority, including order passed in appeal within period of three years from date of communication of order sought to be revised. That period, according to learned counsel for assessee, had not elapsed in year under consideration. In support of these arguments, learned counsel for assessee, Mr. Harnam Shanker, relied on decision of Allahabad High Court in J.K. Synthetics Ltd. v. O.S. Bajpai, ITO [1976] 105 ITR 864. These arguments have been controverted by departmental representative, who has relied on orders of tax authorities. 6. In appeal filed by revenue, departmental representative took us through orders of tax authorities and urged that Commissioner (Appeals) has erred in deleting sum of Rs. 2,32,090 representing sales tax refund from computation of total income of assessee while upholding simultaneously finding of assessing officer charging said amount is under section 41(1), In reply, learned counsel for assessee took us through contract between assessee and DGSD at pages 1 to 8 of paper book filed by assessee, more particularly, to condition in contract that prices were exclusive of excise duty and sales tax which would be paid extra if legally leviable and on production of documentary proof. [Emphasis supplied]. learned counsel for assessee urged that DGSD had paid sales tax to assessee on production of documentary proof said amount is legally refundable by assessee to DGSD, because amount of sales tax levied by STO, in view of order of Assistant Commissioner of Sales Tax (Appeals) was not legally leviable. In support of this stand, learned counsel for assessee took us through opinion of Orr Dignam & Co., dated 27-11-1982, at pages 9 to 19 of paper book filed by it. He also referred to provisions of section 72 of Indian Contract Act, as also various decisions of Supreme Court and Calcutta High Court referred to in opinion of said solicitors and impugned order of Commissioner (Appeals). Mr. Shanker, therefore, urged that Commissioner (Appeals) was correct in holding that said amount of Rs. 2,32,090 being refundable by assessee to DGSD, which liability assessee has admitted in their letter dated 5-12-1978 addressed to DGSD, was deductible in computing its income for year under consideration, more so when assessee follows mercantile system of accounting. 7. We have given consideration to above arguments. Section 41(1) lays down that where deduction has been made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee and subsequently during any previous year assessee 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, amount obtained by him or 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 income of that previous year, whether business or profession in respect of which allowance or deduction has been made is in existence in that year or not. perusal of this section, thus, shows that following two conditions must co- exist before amount can be deemed to be profit and gains of business of assessee: 1. allowance or deduction had not made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee. 2. Subsequently during any previous year assessee has obtained any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission of cessation thereof. Though at this stage there is no dispute before us that assessee in earlier years had obtained deduction in respect of sales tax paid in its assessments for those years and that pursuant to order of Assistant Commissioner of Sales Tax (Appeals) assessee has received above amount of Rs. 2,32,090, short point for our decision is as to whether refund of amount in question, as facts stood in year under consideration, was by way of cessation of said trading liability. 8. This takes us to section 57(1) of 1959 Act. Sub-section (1) of section 57 lays down that subject to provisions of section 56 of 1959 Act and to any rules which may be made in this behalf, Commissioner may, of his own motion, call for and examine record of any order passed (including order passed in appeal) under this Act or rules made thereunder by any officer or person subordinate to him and made such order therein as he thinks just and proper. proviso thereto further lays down that no notice in prescribed form shall be served by Commissioner under said sub-section after expiry of three years from date of communication of order sought to be revised and no order in revision shall be made by him hereunder after expiry of five years from such date. provisions of section 57(1)(a), being stated hereinbefore, order of Assistant Commissioner of Sales Tax (Appeals), which resulted in sales tax refund of Rs. 2,32,090 to assessee, as position stood in year under consideration is not final so as to say that there was cessation of that liability. appellate order of Assistant Commissioner of Sales Tax (Appeals) in question could be revised by Commissioner under section 57(1)(a) within period of three years from date of communication of said order. cessation of liability for purposes of section 41(1), as laid down by Allahabad High Court in J.K. Synthetics Ltd.'s case at page 881 means irrevocable cessation so that there was no possibility of liability being revived in future. Such situation, as stated hereinbefore, did not arise in year under consideration. cessation of liability pursuant to order of Assistant Commissioner of Sales Tax (Appeals) mentioned hereinbefore, same being revivable under section 57(1)(a) was not irrevocable cessation so that there was no possibility of liability being revived in future. condition precedent for taxing said amount of Rs. 2,32,090 under section 41(1) namely, one involving cessation of liability, is not satisfied in present case. said amount of Rs. 2,32,090 could not, therefore, be taxed under section 41(1). 9. Assuming without admitting that said amount could be brought to tax under section 41(1), we now proceed to examine as to whether assessee is entitled to deduction of said amount in computing its total income for entitled to deduction of said amount in computing its total income for year under consideration, said amount being repayable by it to DGSD. This takes us to contract entered into by assessee with DGSD. As already stated, copy of said contract is at pages 1 to 8 of paper book filed by assessee. One of terms of said contract is that prices payable by DGSD in respect of caterpillar, etc., to be supplied by assessee to them were exclusive of excise duty and sales tax which would be payable extra if legally leviable and on production of documentary proof. If is also in fact that DGSD on production of sales tax assessment orders of assessee in respect of goods supplied by it to them received sales tax amount of Rs. 2,32,090 from DGSD. said amount, in view of order of Assistant Commissioner of Sales Tax (Appeals) who reversed assessment order by STO, has been refunded on ground that sales tax in question was not legally leviable. This order of Assistant Commissioner of Sales Tax (Appeals), as already stated above, is subject to power of revision with Commissioner of Sales Tax under section 57(1)(a). Since in year under consideration, there was no order of Commissioner of Sales Tax under section 57(1)(a) of 1959 Act and assessee follows mercantile system of accounting, liability of assessee on facts and in circumstances of case and provisions of section 72 of Indian Contract Act, which is in following terms, accrued in year under consideration, inasmuch as sales tax being not legally leviable was refundable to DGSD: "72. Liability of person to whom money is paid or thing delivered, by mistake or under coercion.--A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it." Tax paid under error of law has always been held to be recoverable in accordance with principles contained in section 72. DGSD having paid amount of sales tax originally to assessee under mistaken notion of legality of such payment, in view of order of STO, were, pursuant to order of Assistant Commissioner of Sales Tax (Appeals) referred to above, in law entitled to get refund received by assessee from sales tax authorities. In this connection, it may be added that assessee in letter dated 5-12-1978 addressed to DGSD has expressed intention to make over refund to them after lapse of period of three years mentioned in section 57(1)(a) of 1959 Act. legal entitlement of DGSD of above amount is supported by ratio of decision of Calcutta High Court in Corpn. of Calcutta v. Hindusthan Constructions Co. Ltd. AIR 1972 Cal. 420. We, therefore, on facts and in circumstances of case and above discussion, agree with Commissioner (Appeals) that assessee was entitled to deduction of Rs. 2,32,090 being amount payable by assessee to DGSD, even if said amount is taxable under section 41(1) of 1961 Act, while computing its total income for year under consideration. 10. In result, appeal by assessee is partly allowed and appeal by revenue fails and is hereby dismissed. *** TRACTOR & EQUIPMENT CORPN. LTD. v. INCOME TAX OFFICER