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TMI Blog2006 (4) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether the learned Tribunal was justified in law as well as on facts by deleting addition of Rs. 97,22,082 on account of disallowance of bank interest when the same interest was waived by BIFR under the scheme approved by it vide order dated May 27, 1993, but written off in the books of account of the assessee ending on March 31, 1993, relevant for the assessment year under consideration ?". 5. We shall first examine question No. 2. 6. The facts relating to question No. 2 are that for the accounting periods prior to the financial year ending dated March 31, 1993, the interest on dues on various banks and expense deductible under section 37 of the Income-tax Act, while computing the taxable income for the relevant assessment years. The assessee is following the mercantile system of accounting, i.e., accounts are maintained on the basis of accrual of liabilities for accrual of income and not cash basis. Therefore, in the ordinary circumstances the trading liability incurred on account of interest that accrued on loans and deposits with the assessee was liable to deduction while computing taxable income for the assessment year up to 1993-94. Interest accrued during the earlier a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts that unilateral action by the assessee of written off any liability in his books of account does not amount to its remission or cessation. But the same having not been given retrospective effect, the assessment years prior to 1997-98 shall be governed as if no Explanation existed, on the basis of Judicial precedents. 11. As a matter of fact waiver of interest under the BIFR came into existence vide order dated May 27, 1993, which fell within the financial year commencing from April 1, 1993, and ending on March 31, 1994, and assessment for which was to be made for the year 1994-95 and it did not relate to the assessment year 1993-94 in question at all. Under the order of the BIFR, the bank and financial institutions on their part were required to waive interest accrued on their advances to the respondent-company until the date of the order. Though this order was to be operative with effect from the date it was made, the assessee-company, whose books of account were yet to be finalised, wrote off the said amount of interest in its books for the accounting period ending on March 31, 1993, relevant for the assessment year 1993-94. Very significantly, the BIFR order also directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1993-94. The financial institutions and banks were required to waive the interest only in pursuance of directions issued by the BIFR vide its order dated May 27, 1993. Hence, waiver of liability of the assessee to pay the interest could come only after that date and not earlier. Merely dealing of such waiver by the assessee in his books of account for earlier period will not alter the effect of the order to befall earlier than interest was made. The assessment for the assessment year 1993-94 related to the financial year ending on March 31, 1993. Only the transactions which actually took place or liability incurred or ceased up to March 31 1993, could be the subject-matter of consideration. 16. No remission. or cessation of liability towards interest came into consideration until March 31, 1993. Nor the assessee became entitle to waiver of interest as on March 31, 1993, under the orders of the BIFR. He became entitled to such waiver only under the orders of the BIFR is not in dispute. It is merely because accounts were completed after the order of the BIFR came into existence and the assessee made entries in his books of account by writing off the liability towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on advances received from banks and financial institutions. Liability of the assessee cannot be said to have been remitted or ceased to exist prior to the sanction of the scheme by the BIFR. Until then no benefit to that extent was obtained by the assessee nor could have been obtained by it by any voluntary act of it. The question of inclusion under section 41(1) of such sum governed by waiver by the BIFR in the income of the assessee could arise for consideration only while considering the assessment of the assessment year 1994-95 relevant to the financial year ending on March 31, 1994, during which remission of waiver of interest was directed by the BIFR. That was clear purport of the order of the BIFR that is how creditors were to act on the direction of the BIFR thereafter and that is how the assessee-company has to treat the same. The benefit of the interest waived can actually be said to have been obtained by the assessee only during the financial year relevant to the assessment year 1994-95. This finding of fact is obvious from the material available on record that no remission or cessation came to the company during the accounting period relevant to the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt his liability towards payment of commission expenses incurred by him and allowed a deduction in the earlier years considering such unilateral action on the part of the assessee as remission or cessation of his liabilities the Assessing Officer invoked section 41(1) for making addition of Rs. 22,78,980 the benefit obtained by the assessee in respect of the amount earlier allowed as deduction while computing his total income and made additions of such sum in computing the total income for the assessment year 1993-94. 25. The Assessing Officer has relied on the decision of the Bombay High Court in the case of CIT v. Bennett Coleman and Co. Ltd. [1993] 201 ITR 1021 and held that the amount is taxable. 26. On the other hand the assessee relied on the judgments of different High Courts which included the judgment of this court in CIT v. Sadul Textiles Ltd. [1987] 167 ITR 634, the Karnataka High Court in Liquidator, Mysore Agencies P. Ltd. v. CIT [1978] 114 ITR 853 and the Calcutta High Court in CIT v. B. N. Elias and Co. P. Ltd. [1986] 160 ITR 45. 27. The Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer. 28. However, the Tribunal allowed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, waiver was not disputed in the order. The fact remains regarding the question of remission or cessation of liability. Apparently, on the plain reading of section 41(1) the term "remission" relates to any overt or specified act attributed to the creditor to forgo his right of recovery from the debtor; on the other hand, cessation of liability may be on account of agreement or by operation of law which may have effect of extinguishing the liability. The other necessary element of operating section 41(1) is that the assessee must actually receive the cash or a benefit equal in terms of money in respect of a claim to allowance or deduction of such sum which has earlier been admitted while computing his total income of any earlier year. 34. The expression "remission" has been defined in Black's Law Dictionary to mean "a release or extinguishment of a debt". It is conventional. When it is expressly granted to the debtor by a creditor having capacity to alienate ; or tacit, when the creditor voluntarily surrenders to his debtor the original title, under private signature constituting the obligation. 35. In the ordinary dictionary meaning "remission" is relation to the liability of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act. In that event if winding up order is made by the order of the company court, on an application being made to it in accordance with the provisions of the Companies Act, it is only after rules are made by the competent court and the official liquidator or provisional official liquidator as appointed that the claims of the outstandings against the sick company are required to be lodged before the official liquidator after creditors are invited to do so and they are dealt with under the Companies Act. But that stage has not at all reached. This is only to demonstrate the outstanding against the company before the BIFR does not extinguish or cease to exist merely because the creditors have not approached the BIFR. Hence, the Income-tax Officer and the Commissioner of Income-tax (Appeals) have taken into consideration wholly irrelevant circumstance that the creditors have not approached the BIFR. 39. The aforesaid conclusion is in consonance with the decision of the Supreme Court in the case of CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518. It was a case in which the assessee has unilaterally transferred certain amount out of suspense account running from 1946-47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of such loss or expenditure in the past. As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible. 42. On the other hand, it disapproved the decision of the Bombay High Court in CIT v. Bennett Coleman and Co. Ltd. [1993] 201 ITR 1021(relied on by the Revenue in this case also) and also held that the principle enunciated in Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328; [1958] SCR 1122 is well applicable under section 41(1) of the Income-tax Act, 1961. It is held that the principle that "expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt" has been well-settled. 43. It is enough to refer to the decision of this court in Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328; [1958] SCR 1122. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that that will not by itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appropriation of money during the year for own use resulting in change in nature of receipt from capital to revenue and becoming a trading surplus. The question about remission or cessation of liability allowed to be adjusted or deducted from income was not the question before the Supreme Court. 48. Though, the decisions of the Supreme Court in CIT v. T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 was not noticed in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518, but in the later decision the Supreme Court in Chief CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434, which is also of a three-judge Bench decision, referred to in CIT v. T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 and distinguished the same while considering the provisions of section 41(1) of the Act and followed its earlier decision in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518. 49. In view of the clear pronouncement of the Supreme Court decision on the contrary, we need not refer to other judgments cited by learned counsel for the assessee or the Revenue from the different High Courts anterior to the decision of the Supreme Court. 50. However, it would be apposite to notice the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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