1992 (11) TMI 14 - HC - Income Tax

Court rules unclaimed amounts written back by assessee taxable as income under Income-tax Act

The Court ruled in favor of the Revenue, holding that the unclaimed amounts written back by the assessee were properly taxable as income arising from the ... Deemed Income, Income, Time Barred Debt Issues Involved: The issue involves whether the amount written back by the assessee during the year under consideration could be assessed as income of the assessee.Judgment Details:Issue 1: Unclaimed Liabilities and Sundry AmountsThe assessee, a limited company, wrote back unclaimed liabilities and sundry amounts in its profit and loss account. The Income-tax Officer treated the amount written back as income, leading to an appeal by the assessee. The Tribunal allowed the assessee's claim based on previous decisions, stating that the amount written off cannot be considered income. However, the High Court noted that the unclaimed liabilities dated back to 1972 and were written back annually to avoid tax, without disclosure to the Assessing Officer. The Court emphasized that the debt, though time-barred, was unenforceable but not extinguished, and the assessee's conduct indicated a clear intention to disown the liability.Issue 2: Interpretation of Legal PrecedentsThe Court considered legal precedents such as CIT v. Sugauli Sugar Works P. Ltd. and CIT v. B. N. Elias and Co. (P.) Ltd., where unclaimed liabilities were written back. It distinguished the present case by highlighting the continuous practice of writing back liabilities to avoid tax liability and lack of transparency in disclosing details to tax authorities. The Court emphasized that the unenforceability of a debt does not negate its existence, but the assessee's conduct indicated a deliberate disowning of the liability.Issue 3: Taxability of Unclaimed AmountsThe Court analyzed the Supreme Court's decision in Bombay Dyeing and Mfg. Co. Ltd. v. State of Bombay, emphasizing that a time-barred debt remains unenforceable but not extinguished. It held that unclaimed amounts written back to the profit and loss account are taxable under section 41(1) of the Income-tax Act as income arising from the cessation or remission of liabilities. The Court rejected the assessee's argument that the bar of limitation extinguished the debt, emphasizing that the act of writing back indicated the assessee's intention to disown the liability.In conclusion, the Court ruled in favor of the Revenue, holding that the unclaimed amounts written back by the assessee were properly taxable as income arising from the cessation or remission of liabilities under section 41(1) of the Act.