2018 (9) TMI 230 - HC - Income Tax

Addition u/s 41 - Profits chargeable to tax - Held that - In the present case there was no unilateral act by way of remission or cessation by the assessee, for the respondent-assessee had not written off the outstanding amount of ₹ 2,61,72,160/- payable to M/s. P.T. Polysindo. This is also not a case where benefit in any form or in cash was received by the respondent-assessee. Hence, the first part of Clause (a) to Section 41(1) of the Act, would not apply. In the present case the respondent-assessee has not obtained any money or benefit under the first part or the deeming part of Clause (a) to Sub-section 1 to Section 41 of the Act. There was no remission or cessation of liability. - decided in favour of assessee

Summary

Issues:
1. Addition of liability under Section 41(1) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of liability under Section 41(1) of the Income Tax Act, 1961

The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, challenging the deletion of an addition of ?2,61,72,160/- made by the Assessing Officer under Section 41(1) of the Act. The Tribunal had dismissed the appeal by the Revenue, stating there was no evidence of cessation of liability. The respondent-assessee had an outstanding liability due to M/s. P.T. Polysindo, Jakarta, Indonesia since 31st March, 2003, which was acknowledged in their balance-sheet and accounts. The Revenue claimed that the liability had ceased due to non-payment and the debt had become barred by limitation, considering the respondent's business losses and ceased operations.

The Court analyzed Section 41(1) of the Act, which deems any amount obtained or benefit accrued from the remission or cessation of liability as profits chargeable to tax. The term "cessation" implies the end or forfeiture of the debt, while "remission" denotes the cancellation of the financial obligation. The Court emphasized that the conduct of the assessee is crucial in determining cessation or remission under the Act.

The Court noted that there was no unilateral act of remission or cessation by the respondent, as the outstanding amount was not written off, and no benefit was received. Non-payment of a liability does not automatically indicate remission or cessation. Legal precedents were cited to support the position that acknowledgment of a debt in accounts and returns signifies the existence of the liability, even if recovery is barred by limitation. The Court distinguished a case where cash was received, highlighting that in this instance, no money or benefit was obtained by the respondent.

In conclusion, the Court held that there was no remission or cessation of liability in this case, based on the legal principles and facts presented. The settled legal position led to the dismissal of the appeal by the Revenue, as there was no evidence to suggest the liability had ceased to exist.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Court's reasoning behind the decision, ensuring clarity on the application of Section 41(1) of the Income Tax Act, 1961 in the context of the case.