1982 (4) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 58,175 credited to the profit and loss account could be included in the assessment year 1967-68.
2. Whether there was any material or evidence on record to support the Tribunal's conclusion that adjustments in the accounts were made in 1950.
3. Whether there was any material on record to support the Tribunal's conclusion that profits under section 10(2A) had arisen in 1950.

Issue-Wise Detailed Analysis:

1. Inclusion of Rs. 58,175 in the Assessment Year 1967-68:
The Tribunal held that the amount of Rs. 58,175 transferred from the sundry creditors' account to the profit and loss account in the year ending 31st December 1966 could not be included in the assessment year 1967-68. The Tribunal concluded that the income had arisen in 1950 when the sundry creditors' account was credited and the Lahore branch account was debited, thus satisfying the conditions of s. 10(2A) of the Indian I.T. Act, 1922 (similar to s. 41(1) of the 1961 Act). The Tribunal's finding was final, and there was no actual receipt of cash or payment in the year under consideration.

2. Material or Evidence Supporting Adjustments in 1950:
The Tribunal refused to refer questions regarding the evidence supporting the adjustments made in 1950, noting that there was sufficient material for its conclusion. The Tribunal found that the receipt by adjustment was made in 1950, and this finding was based on sufficient material, making it final and not subject to further challenge.

3. Material Supporting Profits Arising in 1950:
Similarly, the Tribunal refused to refer questions regarding the material supporting the conclusion that profits under section 10(2A) had arisen in 1950. The Tribunal's finding that the income arose in 1950 due to the adjustment entries was based on sufficient material and thus was final.

Legal Reasoning and Precedents:
The court examined the relevant provision, s. 41(1) of the I.T. Act, 1961, which taxes as income what was earlier allowed as a deduction. Two conditions must be satisfied: the amount must have been allowed as a deduction in an earlier year, and the assessee must receive the amount or benefit by way of remission or cessation of liability. In this case, no actual cash was received in the year under consideration, and the Tribunal's finding that the income arose in 1950 was final.

The court referenced several precedents:
- Gannon Dunkerley & Co. Ltd. v. CIT: Merely transferring money from one account to another does not make it taxable.
- J. K. Chemicals Ltd. v. CIT: Transfer of entry does not constitute payment or remission of liability.
- CIT v. Rashmi Trading: Actual receipt of cash or equivalent is necessary for taxation under s. 41(1).

The Allahabad High Court's differing stance in Indian Motor Transport Co. v. CIT was noted but distinguished based on the facts that no actual monies were received by the assessee in the present case.

Conclusion:
The court concluded that the question must be answered in the affirmative and in favor of the assessee. The Tribunal's finding that the income arose in 1950 was final, and there was no material to suggest that the provisions of s. 41(1) were attracted in the year under consideration. The assessee was entitled to costs, with counsel's fee set at Rs. 350.