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TMI Blog1999 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... JEE. JUDGMENT The respondent-assessee is a private limited company. In the proceedings for assessment of tax for the year ending June 30, 1964, relevant to the assessment year 1965-66, the assessee transferred a sum of Rs. 3,45,000 out of the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The Income-tax Officer found that an amount of Rs. 1,29,000 was with reference to the deposits and advances which had been paid back and he included a sum of Rs. 2,56,529 under section 41 of the Income-tax Act in the total income of the assessee. The assessee went on appeal before the Appellate Assistant Commissioner and the order of the Income-tax Officer was confirmed. The assessee carried the matter to the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax has preferred this appeal. Learned counsel for the appellant contends that in the facts of the present case, the liability has come to an end as a period of more than 20 years had elapsed and the creditor had not taken any step to recover the amount. Consequently, according to him, there is a cessation of the debt and the matter would fall within the scope of section 41(1) of the Act. Section 41(1) reads as follows : "Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant draws our attention to the judgment of the Calcutta High Court in CIT v. General Industrial Society Ltd. [1994] 207 ITR 169. The Division Bench of the Calcutta High Court has taken care to set out the two important factors in that case which weighed with them to come to the particular conclusion. The Bench said : "It appears from the assessment order that there is one peculiar aspect in the present case. It is the practice of the assessee to write back such unclaimed and unspent liabilities from year to year on grounds of bar of limitation of the liability and to get away without paying tax on such amount written back to profit on the same plea. This has been happening since the assessment year 1977-78. This fact, to our mind, is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression of intention of the debtor not to treat the amount any more as liability might be sufficient to bring about a cessation of the liability. The Bench also accepted the alternative argument that where an assessee had written off his time barred liability from his accounts and transferred the amount to his profit and loss account thereby treating it as his income, he could not be permitted to turn round when the question of inclusion of such amount in his income under section 41(1) of the Act arose. The Bench distinguished the judgment in Kohinoor Mills Co. Ltd. v. CIT [1963] 49 ITR 578 (Bom), by observing that there was no cessation of liability in that case despite the expiry of period of limitation to enforce the same. The Bench sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Bharat Iron and Steel Industries [1993] 199 ITR 67. The following passages in the judgment bring out the reasoning of the Full Bench succinctly : "In our opinion, for considering the taxability of amount coming within the mischief of section 41(1) of the Act, the system of accounting followed by the assessee is of no relevance or consequence. We have to go by the language used in section 41(1) to find out whether or not the amount was obtained by the assessee or whether or not some benefit in respect of trading liability by way of remission or cessation thereof was obtained by the assessee and it is in the previous year in which the amount or benefit, as the case may be, has been obtained that the amount or the value of the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt---the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability." This judgment has been quoted by the High Court in the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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