1988 (4) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Whether the credit balance of Rs. 68,757 in the account of the Bombay firm, written off by the assessee-firm, constitutes taxable income.
2. Whether the character of the amount received by the assessee-firm from the Bombay firm is a revenue receipt or a capital receipt.
3. Whether the burden of proof lies on the revenue to establish that the receipt is taxable income.
4. Whether the amount of Rs. 8,619, already offered under section 41(1), can be taxed again.

Issue-wise Detailed Analysis:

1. Taxable Income of Rs. 68,757:
The primary issue is whether the credit balance of Rs. 68,757, standing in the account of the Bombay firm and written off by the assessee-firm, should be treated as taxable income. The Income Tax Officer (ITO) initially treated this amount as the income of the assessee-firm for the assessment year 1976-77 on a protective basis. The ITO argued that the amount represented the profit belonging to the assessee-firm, thus increasing the total income from Rs. 5,240 to Rs. 80,760.

2. Character of the Amount:
The assessee contended that the amount of Rs. 61,000, received through a demand draft and later remitted back to the Bombay firm, should be treated as a capital receipt. The assessee argued that the amount was either a deposit or a loan and not a revenue receipt. The Appellate Assistant Commissioner (AAC) disagreed, holding that the amount was appropriated to the profit and loss account, thereby treating it as income. The AAC relied on the Supreme Court's decisions in Punjab Distilling Industries Ltd. v. CIT and Chowringhee Sales Bureau (P.) Ltd. v. CIT to support this view.

3. Burden of Proof:
The Tribunal emphasized that the burden of proof lies on the revenue to establish that a particular receipt is taxable income. The Tribunal cited the Supreme Court's decision in Parimisetti Seetharamamma v. CIT, which held that the department must prove that a receipt falls within the taxing provision. The Tribunal concluded that the impugned amount of Rs. 68,757 represented either a deposit or a debt due by the assessee-firm to the Bombay firm and did not have the characteristic of a revenue receipt or income.

4. Double Assessment of Rs. 8,619:
The Tribunal noted that Rs. 8,619 out of the Rs. 68,757 had already been offered under section 41(1) and, therefore, could not be taxed again. Assessing Rs. 68,757 would amount to double assessment, which is forbidden by law.

Conclusion:
The Tribunal held that the impugned amount of Rs. 68,757 always remained with the assessee either as a deposit or as a loan of Mrs. Rani. The amount did not transform into income merely because it was transferred to the profit and loss account. The Tribunal allowed the appeal, concluding that the amount of Rs. 60,138, excluding Rs. 8,619, was not taxable for the reasons given. The decisions cited by the revenue were found to be distinguishable on facts and not applicable to the present case.

Final Judgment:
The appeal was fully allowed, and the amount of Rs. 68,757 was not considered taxable income in the hands of the assessee-firm for the assessment year 1976-77.