Trading receipt from bank adjustment remained taxable; waiver of liability did not trigger section 41(1) on these facts.

A bank-adjustment receipt was treated as compensation for loss of stock-in-trade, not as a mere cessation of a trading liability attracting section 41(1) of the Income-tax Act, 1922. Because the waived liability was not a liability for which a deduction had been allowed, its cessation alone did not trigger tax under that provision. The receipt retained its character as a trading receipt and, to the extent the related losses had already been reflected in earlier assessments, it was taxable in the year of receipt, i.e. assessment year 1961-62. The amount was therefore assessable to tax in that year.

---

---

Issues: Whether the amount received by way of adjustment from the bank was taxable in the assessment year 1961-62, and whether section 41(1) of the Income-tax Act, 1922 was attracted.

Analysis: The liability waived by the bank was not a trading liability in respect of which any deduction had been allowed, so the mere cessation of that liability did not attract section 41(1). The material showed that the receipt was really compensation for loss or damage to the assessee's stock-in-trade, namely hides and skins. Such compensation related to losses sustained in earlier years and, to the extent those losses had already been taken into account in prior assessments, the receipt was liable to be brought to tax in the year in which it was received. The receipt retained its character as a trading receipt and was not transformed into a payment for withdrawing the criminal complaint.

Conclusion: The amount was assessable to tax in assessment year 1961-62, and the reference was answered against the assessee.

---