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TMI Blog1986 (2) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as incidental charges debited to the assessee's account in the books of the Bank were allowed as deductions in the income-tax assessments of the assessee-firm. Account No. 2341 of the secured overdraft account in M/s Andhra Bank Ltd. relates to the assessee. From a copy of the said running account from 1st Jan., 1974 to 12th June, 1974 the outstanding amounted from the assessee firm to M/s Andhra Bank Ltd. stood at Rs. 2,87,909. M/s Andhra Bank Ltd. Filed a suit in O.S. No. 79/74 on the file of the First Addl. Subordinate Judge, Kakinada for realisation of the said amount together with costs and subsequent interest. The total of the interest found debited periodically in the said amount totalled to Rs. 1,31,362.65. When a suit was pending the matter was compromised outside the Court where under in full settlement of all the suit claims, the Andhra Bank agreed to receive Rs. 1,75,000 before 31st March, 1977 and gave up or waived the rest of the suit claim. The waiver was with regard to the claim of Rs. 1,12,961. In the P L A/c prepared by the assessee for the accounting year relevant to the asst. yr. 1978-79, the amount of Rs. 1,12,961 was credited. Despite the said fact, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of Rs. 1,12,961 as deemed income under s. 41(1). He heavily relied upon the Gujarat High Court's decision reported in CIT vs. Usha Rahjan Hadra (1980) 20 CTR (Guj) 94 : (1980) 126 ITR 44(Guj) where it was held that when how much remission was given on account of interest where would be a mere conjecture it would not be possible to identify conclusively the particular item for which remission was granted and how much for each item. In those circumstances, no addition could be made as deemed profit under s. 10(2A) of the Indian IT Act, 1922. 7. It was also contended by the counsel for the assessee firm that the ld. CIT(A)'s finding that the remission obtained was only with regard to trading liability is erroneous and it does not represent a correct appreciation of facts on record. 8. The next contention of the ld. counsel for the assessee-firm is that the onus to prove that an allowance or deduction had been given in the earlier assessment years lay upon the Department and from the facts and circumstances of this case, the burden of the Department was not discharged and that on that ground also the inclusion of Rs. 1,12,961 as deemed income cannot be justified. In support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 28(iv)of the IT Act. It as much as, the necessity to bring in the firm's circulating capital is reduced to the extent of remittance of Rs. 1,12,961. The ld. Departmental representative argued ultimately that in any case, the person who had received remittance of Rs. 1,12,961 having shown it as profit in P L A/c for the relevant assessment year should not be allowed to receive it without being taxed. 10. Thus, we have considered the arguments on both sides. We are inclined to agree with ld. counsel for the assessee and hold that he amount remitted namely Rs. 1,12,961 cannot be considered as deemed income either under s. 41(1) or under s. 28(iv) of the IT Act. Our reasons are as follows. The total claim of Andhra Bank Ltd. was for Rs. 2,87,909 costs and subsequent interest from the date of suit till realisation, as can be seen from O.S. No. 79/74 on the file of the First Addl. Subordinate Judge, Kakinada. As against the said claim, the suir was compromised on payment of Rs. 1,75,000 by the assessee-firm to the bank in full settlement of the suit claims. No compromise petition was filed before the Court, so as to know from its terms as how much was paid towards principal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest due and the balance of Rs. 425 to principal." The exposition of law made by the ld. authors quoted above is based on the following decisions namely,(i) AIR 1950 Federal Court 38 at SCS,(ii) P.C. Lal vs. State of Bihar AIR 1952 Ptn. 414,(iii) CIT vs. Maharajadhiraja of Darbangha AIR 1933 PC 108 and (iv) AIR(1952) (All) 514. In view of the above said lucid exposition of law, the ITO understanding of law that the payments made should be appropriated towards basic amount of the loan and the remaining amount only should be appropriated towards interest payments is wrong in law. Therefore, according to the above position in law, the amount of Rs. 1,75,000 which was taken in full settlement of suit claimed should first be adjusted towards interest amount. The said interest amount as can be seen from para 7 of the impugned orders totalled to Rs. 1,31,362.65. Thus it can be seen that the whole interest it wiped out by payment of Rs. 1,75,000 and under those circumstances, no remission of interest can be remained to be considered. Thus, the main point at issue should be decided in favour of the assessee on this ground only. Secondly, let us consider the aspect of burden of proof. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee for asst. yr. 1956-57. The Tribunal reversed the said order. In the reference directed by the Delhi High Court, the Hon'ble Delhi High Court held at page 441 of the reported decision as follow: "This is a case where the amount in question represents the refund of the amount actually paid by the assessee to the Government. It is only if an allowance or deduction had been given for this amount in the earlier assessment years that it can be included as the assessee's income of this year under s. 10(2A) of the Act. The burden, therefore, lies upon the Department to prove that an allowance or deduction had been given for this amount to the assessee-company in the earlier assessment years." In Liquidator, Mysore Agencies Pvt. Ltd. vs. CIT 1978 CTR (Kar) 284 : (1978) 114 ITR 853(Kar), the requirements s. 41(1) are explained by the Karnataka High Court as follows "A reading sub-s.(1) of s. 41 of the IT Act, 1961, shows that where any amount has been treated as an expenditure or trading liability in the assessment for any year and in a subsequent year the assessee had obtained any amount or benefit either in cost or in any other manner with respect of such expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anjaneyulu that unless a receipt is in the nature of a "return", it cannot be treated as income, nor would we try to define the expression "income" which the Legislature has itself advisedly refrained from doing. For these reasons, we respectfully disagree with the judgment of the Bombay High Court in Mehboob Productions Ltd. vs. CIT (1977) 106 ITR 758(Bom), in so far as the learned Judges say that, for constituting income, the receipt must necessarily be in the nature of a "return" for the labour, and/or skill bestowed and/or capital invested by him." As can be seen clearly the above discussion culminated in the finding that the State subsidy received by the assessee constituted income of the assessee chargeable under s. 28 of the IT Act. The above portion of discussion does not relate to anything about the interpretation of s. 41(1). Regarding s. 41(1), the argument advanced on behalf of the assessee before the Andhra Pradesh High Court was that what was paid and allowed was deduction was sales tax and electricity charges but what was returned was state subsidy which was not given in the same shape as return of sales-tax and remission of electricity charges. State subsidy is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance or deduction earlier granted and the amount subsequently remitted is not discharged by the Revenue in this case. Firstly, it is not established that what is remitted is either interest or miscellaneous expenditure previously allowed as deduction in the assessments of the assessee-firm in earlier years. In the absence of any such language having been established the provisions of s. 41(1) cannot be applied and accordingly on this ground also, the amount of Rs. 1,12,961 cannot be brought to tax as the deemed income of the assessee under s. 41(1) of the Act. 11. The ld. departmental representative contended that in any event, the amount with regard to which the claim is given up by Andhra Bank Ltd. should be accepted as income under s. 28(iv) of IT Act as the assessee firm received was saved to secure to the extent of the given up claim of Rs. 1,12,961 as circulating capital. We are unable to accede this contention. Sec. 28(iv) is as follows: "The following income shall be chargeable to income-tax under the head "profits and gains of business or profession". (iv)the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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