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The Tax Publishers2001 TaxPub(DT) 0669 (J&K-HC) : (2001) 247 ITR 0710 : (2001) 167 CTR 0112 : (2001) 114 TAXMAN 0740 Commissioner of Income Tax v. Abdul Ahad () INCOME TAX --Business income----PROFIT CHARGEABLE TO TAX UNDER SECTION 41(1)Remission or cessation of liability--By unilateral act assessee written off certain balances lying in creditors account-- Catch Note: In the course of assessment of the assessee, the Income Tax Officer observed that a sum of Rs. 41,453 representing certain balances in respect of which allowance or deduction had been made in the assessments of the assessee in the past, had been written off by the assessee during the relevant previous year and credit given to the partners in their profits sharing ratio--He, accordingly, included the sum of Rs. 41,453 in the taxable income of the assessee under the head 'profits and gains of business'--The Appellate Assistant Commissioner observed that the ground of appeal challenging the inclusion of the above amount in the taxable income of the assessee was not pressed--He, however, rejected the claim of the assessee in this regard on merits also--No material was brought on record by the revenue to establish that there was remission or cessation of the liability--Justified--Mere entry in books of account of debtor made unilaterally without any act on part of creditor will not enable debtor to say that liability has come to an end therefore, amount written off by assessee was not chargeable to tax under section 41(1) as remission of liability. Held: The facts of the present case are identical to those of CIT v. Sugauli Sugar Works (P) Ltd (infra) . This above decision of the Supreme Court is a clear authority for the proposition 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. The Supreme Court has held that even the expiry of period of limitation prescribed by the Limitation Act would not extinguish the debt; but it would only prevent the creditor from enforcing the debt. The Supreme Court has held in categorical terms that the mere fact that the assessee had made an entry of transfer in his accounts will not enable the department to say that section 41(1) of the Act would apply and the amount should be included in the total income of the assessee. The above decision applies proprio vigore to the present case and the revenue also does not dispute this fact. In view of the foregoing discussion, on the facts and in the circumstances of the case, the Tribunal was right in holding that no part of the sum of Rs. 41,453 was chargeable to tax under section 41(1) (a) of the Income Tax Act, 1961. Case Law Analysis: CIT v. Sugauli Sugar Works (P) Ltd. (1999) 8 DTC 217 (SC) : (1999) 236 ITR 518 (SC)and J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom)followed. CIT v. T. V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC) distinguished. Application: Not to current assessment year. Decision: In favour of assessee. Date of Judgment: 3 October 2000 Assessment Year: 1964-65 SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2001 TaxPub(DT) 0669 (J&K-HC) : (2001) 247 ITR 0710 : (2001) 167 CTR 0112 : (2001) 114 TAXMAN 0740

Commissioner of Income Tax v. Abdul Ahad ()

INCOME TAX

--Business income----PROFIT CHARGEABLE TO TAX UNDER SECTION 41(1)Remission or cessation of liability--By unilateral act assessee written off certain balances lying in creditors account--

Catch Note:

In the course of assessment of the assessee, the Income Tax Officer observed that a sum of Rs. 41,453 representing certain balances in respect of which allowance or deduction had been made in the assessments of the assessee in the past, had been written off by the assessee during the relevant previous year and credit given to the partners in their profits sharing ratio--He, accordingly, included the sum of Rs. 41,453 in the taxable income of the assessee under the head 'profits and gains of business'--The Appellate Assistant Commissioner observed that the ground of appeal challenging the inclusion of the above amount in the taxable income of the assessee was not pressed--He, however, rejected the claim of the assessee in this regard on merits also--No material was brought on record by the revenue to establish that there was remission or cessation of the liability--Justified--Mere entry in books of account of debtor made unilaterally without any act on part of creditor will not enable debtor to say that liability has come to an end therefore, amount written off by assessee was not chargeable to tax under section 41(1) as remission of liability.

Held:

The facts of the present case are identical to those of CIT v. Sugauli Sugar Works (P) Ltd (infra) . This above decision of the Supreme Court is a clear authority for the proposition 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. The Supreme Court has held that even the expiry of period of limitation prescribed by the Limitation Act would not extinguish the debt; but it would only prevent the creditor from enforcing the debt. The Supreme Court has held in categorical terms that the mere fact that the assessee had made an entry of transfer in his accounts will not enable the department to say that section 41(1) of the Act would apply and the amount should be included in the total income of the assessee. The above decision applies proprio vigore to the present case and the revenue also does not dispute this fact. In view of the foregoing discussion, on the facts and in the circumstances of the case, the Tribunal was right in holding that no part of the sum of Rs. 41,453 was chargeable to tax under section 41(1) (a) of the Income Tax Act, 1961.

Case Law Analysis:

CIT v. Sugauli Sugar Works (P) Ltd. (1999) 8 DTC 217 (SC) : (1999) 236 ITR 518 (SC)and J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom)followed. CIT v. T. V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC) distinguished.
Application:
Not to current assessment year.
Decision:
In favour of assessee.
Date of Judgment:
3 October 2000
Assessment Year:
1964-65

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