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Issues involved: Interpretation of section 43(1) of the Income-tax Act regarding the treatment of remission of liability by Atlanta Corporation in relation to the cost of machinery for the purpose of income tax assessment.
Summary: The High Court of Kerala considered a case where the question was whether the remission of liability by Atlanta Corporation would reduce the cost of machinery to the assessee for income tax purposes. The respondent-company, an assessee to income tax, had purchased machinery in 1968 with financing from Atlanta Corporation. Due to business losses, the assessee could not repay the debt owed to Atlanta Corporation, leading to Atlanta Corporation writing off the entire amount due. The Income-tax Officer reduced the written down value of the machinery for the assessment year 1975-76, based on the view that Atlanta Corporation sold the machinery to the assessee. The Commissioner of Income-tax (Appeals) disagreed, stating that there was no provision to vary the written down value in subsequent years. The matter reached the Appellate Tribunal, which held that Atlanta Corporation did not reduce the cost of the machinery to the assessee by remitting the liability. The Tribunal found that the liability remitted included various amounts owed by the assessee and concluded that Atlanta Corporation acted as a financier, not meeting the cost of the machinery. The court analyzed section 43(1) of the Income-tax Act, which defines "actual cost" and held that the remission of liability by Atlanta Corporation did not reduce the cost of the machinery for the assessee. The court ruled against the Revenue, stating that the remission could not be deducted from the cost of the machinery for income tax purposes. In conclusion, the court answered the question in the negative, favoring the assessee. A copy of the judgment would be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
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