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Issues Involved:
1. Whether the unclaimed credit balance of Rs. 6,093 written back to the profit and loss account forms part of the trading receipts and is includible in the total income. 2. Applicability of section 41(1) of the Income-tax Act, 1961. Summary: Issue 1: Unclaimed Credit Balance as Trading Receipts The assessee, a limited company publishing "The Times of India," had an unclaimed credit balance of Rs. 6,093 from casual contributors and part-time correspondents, which was transferred to the profit and loss account. The Income-tax Officer included this amount as income. However, the Appellate Assistant Commissioner and subsequently the Income-tax Appellate Tribunal excluded it, reasoning that the amounts belonged to outsiders and the mere transfer to the profit and loss account did not make it the income of the assessee. The Tribunal held that the amount did not form part of the trading receipts. Issue 2: Applicability of Section 41(1) The Revenue argued that section 41(1) of the Act applies, which deems any remission or cessation of trading liability as profits chargeable to tax. The court noted that for section 41(1) to apply, two conditions must be met: an allowance or deduction must have been made in the assessment for any year, and subsequently, the assessee must obtain any amount in respect of such liability. The court found that the first condition was undisputed, but the controversy was about the cessation of liability. The court rejected the assessee's argument that cessation requires a bilateral act, stating that in cases where the recovery is barred by limitation, a unilateral act by the debtor might suffice. The court observed that the liabilities had become unenforceable by lapse of time, and the assessee's transfer of the amount to the profit and loss account indicated an intention not to pay. The court distinguished this case from previous cases like Kohinoor Mills Co. Ltd. v. CIT and J. K Chemicals Ltd. v. CIT, where the liabilities were still enforceable under special labor legislations. Here, the liability had ceased to exist by operation of law, and the transfer to the profit and loss account was a clear declaration of cessation. The court concluded that section 41(1) was applicable, and the amount of Rs. 6,093 should be deemed as profit and included in the total income of the assessee. The Tribunal's decision was reversed, and the question was answered in favor of the Revenue. No order as to costs was made.
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