TaxTMI 
TaxTMI 
2011 (5) TMI 127
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....Calcutta for the purpose of the assessee's business. The assessee maintains a transit flat at Calcutta for the garden employees who come to the Headquarters for official work which is used exclusively for the employees coming for official work and the assessee does not pay any allowance to such employees and no recovery is also made from them for their stay at the transit flat. b) According to the assessee, the Assessing Officer for the Assessment Years 1988-89 to 1992-93 illegally treated the transit flat as guest house within the meaning of sub-section (4) and sub-section (5) of Section 37 and disallowed the expenditure relating to maintenance of such transit flat. On appeal, the assessee succeeded before the Commissioner (Appeals) for the Assessment Year 1988-89 but in the subsequent years, the disallowance was upheld. On further appeal, the Tribunal upheld the treatment of the transit flat as guest house within the meaning of sub-section (4) and sub-section (5) of Section 37. The Tribunal, however, limited the nature of expenses which could be subjected to disallowance. According to the Tribunal, disallowance could be made only in respect of depreciation and rent. Any other ....
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....itted within the meaning of Section 41(1) of the Act. 3. Being dissatisfied, the present appeal has been filed. 4. A Division Bench at the time of admission of the appeal formulated the following substantial questions of law: "a) Whether on a proper interpretation of the provisions of subsections (4) and (5) of Section 37 of the Income Tax Act, 1961 the Tribunal was justified in law in holding that the transit flat for employees was a guest house and the expenditure in respect thereof was to be disallowed as expenditure on the maintenance of guest house within the meaning of the said provisions. "b) Whether the Tribunal was justified in law in holding that the liability in respect of the sum of Rs.5,02,646/- representing cheques not encashed by the appellant's suppliers within the validity period thereof stood extinguished or remitted and the said amount was liable for tax under Section 41(1) lof the Income Tax Act, 1961." 5. Mr. Khaitan, the learned Senior Advocate appearing on behalf of the appellant, at the very outset, fairly conceded that so far as the question No. (a) formulated above is concerned, his client is bound by the Division Bench ....
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.... "41. Profits chargeable to tax.-[(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission o....
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....een obtained that the amount or the value of the benefit would become chargeable to income-tax as income of that previous year. "12. We fully agree with the view taken by the Division Bench in CIT v. Rashmi Trading, 1977 Tax LR 520 (Gujarat) (supra) that the only meaning that can be attached to the words "obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure" incurred in any previous year clearly refer to the actual receiving of the cash of that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of the cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the Legislature when it used the words "has obtained; whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past". As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible." We are in agreement with the said reasoning." (Emphasis supplied by us). 13. The ....
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.... dispute between the assessee and the sales-tax department was still going on. There is no material on record to rebut these factual observations made by the Tribunal. Nor can it be said that the reasons given by the Tribunal are irrelevant. The learned senior counsel appearing for the Income-tax Department has contended that the assessee itself took steps to write-off the liability on account of purchase tax by making necessary adjustments in the books, which itself is indicative of the fact that the liability ceased for all prctical purposes and therefore, the addition of amount of Rs. 3,20,758/- deeming the same as income of the year 1985-86 under Section 41(1) is well justified of the Act. But, what the assessee has done is not conclusive. As observed by the Tribunal, an unilateral action on the part of the assessee by way of writing-off the liability in its accounts does not necessarily mean that the liability ceased in the eye of law. In fact, this is the view taken by this Court in CIT v. Suguli Sugar Works (P) Ltd. (236 ITR 518). We, therefore, find no substance in the contention advanced on behalf of the appellant. Incidentally, we may mention that the controversy relates ....