High Court rules limitation period not a bar for tax liability under section 10(2A)

The High Court of BOMBAY ruled against the Income-tax Officer's decision to add a specific amount to the total income of a civil engineering company under section 10(2A) for the assessment year 1956-57. The court held that the mere expiry of the limitation period to enforce a debt does not automatically result in a cessation of liability under section 10(2A). The judgment was in favor of the assessee, with both judges concurring on the decision. No specific order regarding costs was provided.

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Issues involved: Interpretation of section 10(2A) u/s unclaimed balances account for assessment year 1956-57.

Judgment Summary:

The High Court of BOMBAY considered a case involving the assessment year 1956-57 where the assessee, a civil engineering company, had amounts due to various parties which were transferred to an "unclaimed balances account" if not claimed within three years. A specific amount of Rs. 65,881-3-9 from this account was transferred to the reserve for taxation account during the financial year ending 31st March, 1956. The Income-tax Officer added this amount to the total income of the assessee u/s section 10(2A) as the liability under the unclaimed balances account was reduced. On appeal, the Appellate Assistant Commissioner deleted the sum, stating that it accrued as a benefit only when the debts became unenforceable. The Tribunal upheld the Income-tax Officer's decision. The main question referred to the court was whether the sum of Rs. 65,881 was properly assessed by applying section 10(2A) for the assessment year 1956-57.

Mr. Munim, representing the assessee, cited previous court decisions emphasizing that the mere expiry of the limitation period to enforce a debt does not automatically constitute a cessation of liability u/s section 10(2A). It was clarified that neither remission nor cessation of liability could occur through a unilateral act by the debtor. Mr. Joshi, on behalf of the Commissioner, acknowledged that the question was settled by previous court decisions and stated that further consideration was unnecessary. The court, therefore, answered the question in the negative, with both judges concurring.

The judgment concluded by answering the question in the negative, with no specific order regarding the costs of the reference.

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