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TMI Blog1985 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee wrote off the said debts in his accounts making corresponding credit entries in the profit and loss account. The assessee contended that the said amount was not taxable as there was neither remission nor cessation of the liabilities. The Income-tax Officer found that the amounts had remained unclaimed for the years in question, that they had become barred by limitation and the assessee's liabilities for the claims had ceased. He held that the said amount should be treated as business income of the assessee under section 41(1) of the Income-tax Act, 1961, in the said assessment years. On an appeal preferred by the assessee, the Appellate Assistant Commissioner held that cessation of a liability need not necessarily flow from any over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,81,380 could not be included in the total income of the assessee ? " Learned advocate for the assessee contended that the controversy raised in the question was well-settled in favour of the assessee. In support of his contentions, he cited the following decisions : (a) Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay [1958] AIR 1958 SC 328. This decision was cited for the following observation of the Supreme Court (p. 337): "... when a debt becomes time-barred, it does not become extinguished but only unenforceable in a court of law. Indeed, it is on that footing that there can be a statutory transfer of the debts due to the employees, and that is how the Board gets title to them. If then a debt subsists even after it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end to pay that amount if an action is taken by the creditor against him. There is in terms no admission that there is no liability. It is a well-known principle that if a recovery of a debt had become barred, what is barred is only the remedy and not the right. A fortiori the corresponding obligation must continue even after the recovery of the debt had become barred. " (c) Liquidator, Mysore Agencies Pvt. Ltd. v. CIT [1978] 114 ITR 853 (Kar). In this case, an amount had been debited in the accounts of the assessee, a company in liquidation, towards rent payable to its landlord and had been allowed as a trading expense in its earlier assessments of income-tax. In a subsequent year, the liquidator transferred the amounts to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Bench of the Bombay High Court following J. K. Chemicals Ltd. [1966] 62 ITR 34 (Bom), held that where deduction had been claimed and obtained earlier on an amount shown as provision for gratuity, the appropriation of the said amount later by reversal of the entry in the profit and loss account would not attract the provisions of section 41(1) of the Act. It was reiterated that the transfer of an entry was an unilateral act and did not bring about cessation of the liability of the debtor. (e) CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 (Cal). In this case, the assessee transferred an amount out of its suspense account to its capital reserve account. It was found that a part of the said account represented liability for expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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