Taxability of relief from reduced corporation tax liability rejected absent retrospective amendment and statutory authority.

A reduction in corporation tax liability following a later settlement was held not taxable as income where the liability had been allowed in earlier years under the law then in force. The Court held that, absent a retrospective amendment, the relief could not be assessed under the Income-tax Act, 1961, including section 41(1), or brought to tax as income from house property or under the head "Other sources". The assessee's entitlement under the law existing when the liability accrued could not be displaced by a later amendment. The amount was therefore not taxable as income, and the issue was answered in favour of the assessee.

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Issues: Whether the amount arising from reduction of corporation tax liability could be assessed as income.

Analysis: The liability had been allowed in earlier years on the basis then prevailing, and the later settlement produced a relief. The Court noted that no provision under the Income-tax Act, 1961, including section 41(1), authorised taxation of the relief as income from house property or under the head "Other sources" in the absence of a retrospective amendment. The assessee's entitlement under the law existing when the liability accrued could not be taken away by a subsequent amendment.

Conclusion: The amount could not be brought to tax as income. The question was answered in the negative, in favour of the assessee and against the Revenue.

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