1947 (12) TMI 8 - HC - Income Tax

Tribunal rules remission not taxable, citing trading practice.

Agarchand Chunnilal Versus Commissioner of Income-Tax, C.P. And Berar

The Tribunal held that the remission granted by the creditor should not be treated as a revenue receipt for income tax assessment purposes, contrary to ... - Issues:1. Whether a certain remission granted by a creditor should be treated as a revenue receipt or a capital receipt for income tax assessment purposes.The judgment pertains to a reference under Section 66(1) of the Income-tax Act, involving an assessee dealing in various commodities who became heavily indebted to a firm due to forward contracts. The debt owed was shown in the assessee's accounts, with interest credited to the creditor annually and deducted from the assessee's profits for income tax assessment. The specific query was whether a remission of a substantial amount by the creditor should be treated as a revenue receipt for the relevant year. The Income-tax authorities considered the remission as a revenue receipt, emphasizing common trading practices of granting remissions during settlements. The Income-tax Appellate Tribunal supported this view, noting that the remission was part of the trading account and had been allowed as a revenue deduction in previous assessments. The Tribunal highlighted the absence of evidence suggesting the remission was inflated or not genuine. Drawing parallels to a similar case involving debt forgiveness, the Tribunal rejected the notion that the remission should be treated as a revenue receipt. The Tribunal differentiated the present case from another precedent where an actual cash receipt was involved, leading to the conclusion that the remission should not be considered a revenue receipt. Consequently, the Tribunal answered the reference in the negative, allowing the applicant's costs and a counsel's fee.---