Bombay High Court
Commissioner Of Income-Tax vs Chougule And Co. Pvt. Ltd. on 16 August, 1990
Equivalent citations: [1991]189ITR473(BOM)
Author: Sujata V. Manohar
Bench: Sujata V. Manohar
JUDGMENT
T.D. Sugla J.
1. This is an application under section 256(2) of the Income-tax Act, 1961, by the Department. Proceedings pertain to the assessment years 1976-77 and 1977-78. An application was made before the Tribunal raising a number of questions as questions of law. The application was rejected by the Tribunal. Hence, this application under section 256(2). Rule was granted in respect of the first question raised in respect of both the assessment years. That question reads as follows :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the unclaimed liabilities written back to profit and loss account is not taxable under section 41(1) of the Income-tax Act, even though the said liability has by operation of the law of limitation ?"
2. The assessee, admittedly, wrote back the unclaimed liabilities in the two years under reference. The Department's case is that section 41(1) is applicable since the assessee had received the benefit of deduction in respect of the unclaimed liabilities in the earlier years and the amounts were written off during the previous years. The Tribunal, however, held that the mere fact that the assessee had written back the unclaimed balances did not mean that the liabilities had ceased to exist and, therefore, section 41(1) of the Income-tax Act, 1961, was not applicable.
3. For the present, it may be assumed that the unclaimed balances represented trading liability and the assessee had taken benefit of deductions in respect of them. The question still remains whether there is remission or cessation of these liabilities during the relevant years. Mere fact that a liability became barred by law or that the assessee unilaterally wrote back the outstanding amounts does not lead to the conclusion that there is remission or cessation of the liability. The assessee may as well have the intention of honouring the debts as and when somebody comes forward to claim the same. In the absence of any material brought on record suggesting that the assessee had no intention of honouring the debt after writing back the liabilities in question, the conclusion of the Tribunal that the amounts written back cannot be treated as income under section 41(1) appears to us to be obvious in view of our court's judgment in the case of J. K. Chemicals Ltd. v. CIT [1966] 62 ITR 34. Under the circumstances, no useful purpose will be served in directing the Tribunal to state the case Rule stands discharged with no order as to costs.