1982 (3) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of remission or cessation of liability under section 41(1) of the Income-tax Act, 1961.
2. Allowance of unabsorbed depreciation from the previous assessment year.
3. Deduction under section 80G for donations made to Chajju Ram Memorial Jat College, Hissar.

Issue-wise Detailed Analysis:

1. Taxability of Remission or Cessation of Liability under Section 41(1):

The primary issue is whether the remission of Rs. 5,80,884 by the creditors can be considered taxable under section 41(1) of the Income-tax Act, 1961. The assessee had a trading liability of Rs. 11,61,768.06 from 52 creditors, which was included in the profit and loss account for the assessment year 1976-77, resulting in a loss of Rs. 5,29,332. In the subsequent year, the creditors remitted 50% of the liability. The assessee argued that since the final figure for the assessment year 1976-77 was a loss, no benefit was received, thus section 41(1) should not apply. However, the tribunal held that the trading liability had been availed of in the assessment year 1976-77, and the remission in the subsequent year satisfied the conditions of section 41(1). Therefore, the amount of Rs. 5,80,884 was rightly brought to tax.

2. Allowance of Unabsorbed Depreciation:

The assessee claimed the unabsorbed depreciation of Rs. 20,392 from the assessment year 1976-77 should be allowed in the assessment year 1977-78. Both the Income Tax Officer (ITO) and the Commissioner (Appeals) had rejected this claim. The tribunal, however, referred to several judicial precedents, including CIT v. Nagapatinam Import & Export Corp., CIT v. Madras Wire Products, and CIT v. Singh Transport Co., which supported the view that unabsorbed depreciation can be carried forward and set off in subsequent years. The tribunal concluded that the unabsorbed depreciation should be brought back for computation of the total income for the year under appeal, thus allowing the assessee's claim.

3. Deduction under Section 80G for Donations:

The revenue appealed against the Commissioner (Appeals) allowing the deduction under section 80G for a donation of Rs. 14,000 made to Chajju Ram Memorial Jat College, Hissar. The Commissioner had found that the college was affiliated with Kurukshetra University, its accounts were audited, and its income was exempt under section 10(22). Based on these facts, the Commissioner concluded that the assessee was entitled to the deduction. The tribunal upheld this finding, dismissing the revenue's appeal and confirming that the deduction under section 80G was correctly allowed.

Conclusion:

The tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal. The remission of liability was held taxable under section 41(1), the unabsorbed depreciation was allowed to be carried forward, and the deduction for the donation under section 80G was upheld.