Deferred sales tax liability was not treated as remitted or ceased, so section 41(1)(a) did not apply.

Deferred sales tax liability did not amount to remission or cessation of a trading liability on the facts recorded, because the sales tax tribunal had upheld denial of credit for payment made to discharge the liability and a later demand under the Bombay Sales Tax Act remained in force. As section 41(1)(a) of the Income-tax Act applies only where a benefit is obtained by remission or cessation of liability, that statutory precondition was not met. Section 41(1)(a) was therefore not attracted, and the assessee succeeded.

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Issues: Whether the assessee's deferred sales tax liability had ceased or been remitted so as to attract section 41(1)(a) of the Income-tax Act, 1961.

Analysis: The sales tax tribunal had upheld the refusal to grant credit for the payment made to SICOM towards discharge of the deferred sales tax liability, and a subsequent demand under the Bombay Sales Tax Act, 1959 was also issued. On those facts, the liability continued to subsist and the record did not show any remission or cessation of the trading liability. Since the precondition for invoking section 41(1)(a) is the obtaining of a benefit by remission or cessation of a liability, that requirement was not satisfied.

Conclusion: Section 41(1)(a) was not attracted, and the assessee succeeded.

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