Calcutta High Court
Commissioner Of Income-Tax vs Eastern Spinning Mills And Industries ... on 27 November, 1992
Equivalent citations: [1994]207ITR951(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following common question of law for the assessment years 1982-83 and 1983-84 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the cessation of liabilities of Rs. 61,041 and Rs. 47,260 were not income assessable under Section 41(1) of the Income-tax Act, 1961, respectively in the assessment for the assessment years 1982-83 and 1983-84 ?"
2. Shortly stated, the facts are that the assessee, a resident company, during the accounting year ending on June 30, 1981, being the relevant assessment year 1982-83, wrote back to its profit and loss account an aggregate sum of Rs. 88,010 representing unpaid and unclaimed bonus, A similar amount for the accounting year ending June 30, 1982, relevant to the assessment year 1983-84 is Rs. 2,25,600. The liabilities were written back as they were no longer considered necessary to be carried as liabilities. The Assessing Officer brought the amounts to tax on the ground that, by conduct, the assessee has disowned having any obligation with regard to the said liabilities. The Commissioner of Income-tax (Appeals), however, excluded the liabilities written back for both the years on the ground that the liabilities, though barred by limitation of time under the Limitation Act, does not become extinguished by the unilateral act of the assessee. The Department carried the matter before the Tribunal in second appeal. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) holding that the mere act of writing back unclaimed liabilities cannot attract Section 41(1) as the assessee's unilateral act does not result in the cessation of the liabilities. In coming to this conclusion, the Tribunal followed its earlier order in Income-tax Appeal No. 395/(Cal) of 1985 in the assessee's own case relating to the assessment year 1979-80.
3. From the assessment order, it appears that the assessee had not filed before the Assessing Officer any particulars or details of the liabilities so written back. From the following observation of the Commissioner of Income-tax (Appeals) appearing in paragraph 5, it appears that it is the practice of the assessee as a regular measure to write back similar liabilities and getting away with not paying any tax : "It has further been stated by the representative of the appellant that the unpaid liabilities are written back in the books of the appellant after 2/3 years as a regular measure for the purpose of keeping effective checks against frauds which may be committed by the employees of the appellant by claiming fictitious payments of the said liabilities".
4. The Commissioner of Income-tax (Appeals) has, however, gone by the mere averments of the appellant that the liabilities written back are shifted to a special register and a specific watch is kept on actual payments of the said liabilities.
5. The statement of the appellant that such write-back of liabilities is a regular feature in the assessee's accounts is a cause for alarm. Such write-back, as a recurring event, could be a means whereby the assessee could, on the one hand, get its profit kept down by way of provision for expenditure which the assessee does not mean to or has no need to discharge and can go scot free by recycling such provisions into the profit and loss account appropriated as reserve. It is also not comprehensible why no evidence regarding the liabilities written back were furnished to the Assessing Officer.
6. Learned counsel for the assessee relied upon the decisions of this court in CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 and CIT v. B. N. Elias and Co. (P.) Ltd. [1986] 160 ITR 45. It was pointed out that these decisions are founded on the ratio of the Supreme Court in Bombay Dyeing and Mfg. Co. Ltd. v. State of Bombay, .
7. We are not, however, persuaded to say that the facts in those cases are similar to those in the instant case, as such write-back was not a regular course of happening every year. In the present case, it is not the assessee's claim that the liabilities written back are barred by limitation. There is no finding of the Commissioner of Income-tax (Appeals) or the Tribunal to that effect. Here the facts are that the assessee, as a regular method, writes back substantial sums of liabilities remaining unpaid to its profit and loss account without, however, incorporating the same in the taxable income. The decisions cited were arrived at on the basis of the fact that some old liabilities barred by limitation were written back. It was not the case there that write-back of liabilities was a system immaterial whether it is time-barred or not. Again, the decision of the Supreme Court in Bombay Dyeing and Mfg. Co. Ltd.'s case, , has no application. It was altogether in a different context. The Supreme Court overruled the employer's refusal to transfer unpaid and unclaimed wages to the Bombay Labour Welfare Fund in the teeth of the statutory requirement under the said State Act on the ground that unclaimed wages are barred by limitation. The Supreme Court held that though the liability is unenforceable by the eligible payee after the expiry of the period of limitation, yet the liability is such that it did not become extinguished and the statutory requirement for transfer of such amount to the Labour Welfare Fund shall have its sanction and the employer is bound by the operation of law to transfer the liability to the statutory fund. The entire context and perspective in which the Supreme Court pronounced the decision are radically different from the facts in the instant case.
8. This court in CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78, has held that assuming that extinguishment can take place on the bilateral act of the parties, such act can be inferred from the conduct of the debtor and the creditor. It need not be a positive act or a positive conduct. Surrounding circumstances may furnish proof of cessation or remission of the liabilities. We find no reason for making any departure from the view this court took in Agarpara Co. Ltd.'s case [1986] 158 ITR 78.
9. In the premises, we answer the question in the negative and in favour of the Revenue.
10. There will be no order as to costs.
Shyamal Kumar Sen, J.
11. I agree.