Remission of past business debt is not a trading receipt unless it creates a real profit in the relevant year

A remission of a past business liability was not treated as a taxable revenue receipt in the year of settlement. The debt had arisen in the course of business, and the related interest had already been credited in earlier years and allowed as revenue deductions, but there was no finding that those entries were inflated, bogus, or unreal. On those facts, the waiver did not amount to an actual trading profit or a real accretion to profits in the relevant year. The remission of a prior indebtedness, by itself, does not create a trading receipt unless it represents a genuine profit arising in that year.

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Issues: Whether the remission of Rs. 54,225 granted by a creditor in settlement of a business debt constituted a revenue receipt of the year of account.

Analysis: The debt had been incurred in the course of business and interest had been credited in the assessee's books in prior years and allowed as revenue deductions. However, there was no finding that the interest entries were inflated, bogus, or otherwise unreal, and the remission related to a past indebtedness already dealt with in the earlier accounts. On the facts, the remission did not represent an actual trading profit or a receipt arising in the relevant year of assessment. The reasoning followed the principle that forgiveness of a past debt, by itself, does not create a trading receipt for the year in which the concession is granted.

Conclusion: The amount of Rs. 54,225 was not rightly treated as a revenue receipt; the answer to the reference was in the negative and the assessee succeeded.

Ratio Decidendi: A remission of a past business liability does not constitute a taxable trading receipt unless it is shown to represent a real accretion to profits in the relevant year.

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