1991 (1) TMI 3 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 41(1) of the Income-tax Act, 1961 regarding taxation of a written back amount.
2. Dispute over the taxability of Rs. 26,08,065 written back and credited to the profit and loss account.
3. Assessment of tax liability on the written back amount pending litigation in the Bombay High Court.
4. Refusal of the Tribunal to refer the question of law to the High Court under section 256(2) of the Income-tax Act.

Analysis:
The case involved an application under section 256(2) of the Income-tax Act, seeking a reference to the High Court regarding the taxability of an amount written back and credited to the profit and loss account. The dispute centered around whether the sum of Rs. 26,08,065, written back by the assessee-company maintaining its books on the mercantile system, could be taxed under section 41(1) of the Act for the assessment year 1981-82. The assessee contended that the amount was not taxable as the decision to write it back was unilateral and the liability was pending determination in the Bombay High Court.

During the assessment, the assessing authority added the written back amount to the total income of the assessee, which was challenged in an appeal before the Commissioner of Income-tax (Appeals). The Commissioner held that there was no cessation of liability as the creditor had not abandoned the claim, and litigation was ongoing in both the Rajasthan and Bombay High Courts. The Revenue appealed to the Tribunal, which upheld the Commissioner's decision, leading to an application to refer the question to the High Court under section 256(2) of the Act.

The High Court, after considering the facts and circumstances, declined to call for the statement of facts, stating that no question of law arose in the case. The court noted that the dispute between the parties was ongoing, with a pending suit for recovery in the Bombay High Court. However, the court mentioned that if the suit were to be decided in favor of the assessee in the future, the Revenue would have the opportunity to include the amount as income. Ultimately, the application for reference was rejected by the High Court, emphasizing the ongoing nature of the dispute and the lack of a legal question necessitating a reference at that stage.