TaxTMI 
TaxTMI 
2019 (4) TMI 372
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.... the Tribunal was right in holding that the amounts of Rs. 21,06,840/- being credits of Cochin Branch cannot be taxed under Section 4(1) for the reasons that these represented the subject of disputed rent payable to Chennai Port Trust while on facts, these balances do not relate to the Court case and the assessee itself was written the same back to profit and loss account in Assessment Year 2004-05?; (ii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amounts of Rs. 16,69,991/- being credits of Chennai branch cannot be taxed under Section 4(1) for the reason that these represented the subject of disputed rent payable to Chennai Port Trust though on facts, these balances do not relate to the Court case and the assessee having collected the amounts from the clients but not paid them for number of years?; (iii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the interest on inter corporate deposit cannot be treated as income as it was neither received nor recoverable during the relevant accounting year?; (iv) Whether in the facts and circumstances of the case, the Trib....
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.... of the Assessee and held that the Assessee had collected the amounts from its customers and consequently, they are to be taxed as income during the relevant Assessment Year. It was also stated that as a fact, an enquiry was conducted by the Assessing Officer and it was revealed that atleast five parties have confirmed that they have shown as "Nil" balance as receivable against the Assessee's name in their books of accounts as on 31.03.2003. 5. This order of the Assessing Officer was taken up on appeal before the Commissioner of Income Tax (Appeals) by the Assessee. The CIT (Appeals) in their order dated 05.12.2006 agreed with the contentions of the Assessee that once a claim is pending determination before judicial authorities, the same cannot be added to the income of the Assessee till the dispute is finally settled. The extract of the relevant portion of the CIT (Appeals) is given below:- "2.3. I have examined the facts and various submissions of the appellant on this issue. Perusal of the facts reveal that the appellant has neither written back the said amounts of the creditors in its books of accounts nor there is cessation of the said liability till the end of....
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.... represent expenses which were allowed in the earlier years. In fact these amounts represented recoveries from expenses towards cranage and port congestion charges. We have noted that the Madras Port Trust increased the ground rent payable which was challenged by the Steamer Agents Association before the Hon'ble Madras High Court. The learned counsel for the Assessee placed before us a letter dated 18.10.2006 from Natraj, Rao, Raghu & sundaram, Advocates and Notary, wherein it is mentioned that the W.A.Nos. 1746 and 1747 of 2000 filed by the Board of Trustees, Port of Madras against the order dated 28.08.2000 passed by Hon'ble Mr.Justice P.Shanmugam in W.P.Nos. 11747 of 1994 and 5806 of 1997 is pending before the Division Bench of the Hon'ble Madars high Court. From the said letter, it is clear that the liability is not yet settled. In these circumstances the prescription of Section 41(1) of the Act cannot be invoked. We, therefore uphold the order of the Commissioner (Appeals) on this point." 7. Revenue is therefore on appeal before us. Heard arguments advanced by Mr.T.Ravikumar, learned Senior Standing Counsel for the Revenue and Mr.V.S.Jayakumar, learned ....
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....s incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. 11. The significant phrase in the said provision is 'remission or cessation' of trading liability which has been claimed as an allowance or deduction taken by the Assessee, if such liability is paid back by the creditor or had ceased to exist, then in that year of payment or cessation, the said trading liability can ....
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....hat the liability of the assessee finally ceased during the year 1985-86 in view of the rejection of SLP in Neroth Oil Mills' case in November 1984. Certain observations were also made as regards the includiblity of the sums pertaining to assessment years 1980- 81 and 1981-82 in respect of which reassessments were made. However, in this appeal, we need not go into the details thereof. 3. On further appeal by the assessee, the Tribunal set aside the addition of Rs. 3,02,758/- which was upheld by the Appellate Commissioner. The Tribunal did not agree with the view taken by the first Appellate Authority that there was no cessation of liability within the meaning of Section 41(1) of the Income-tax Act during the relevant year on account of dismissal of SLP in another case. The Tribunal observed that for claiming exemption from purchase tax on the ground that transaction was in the course of export, two conditions were required to be fulfilled: (1) things purchased and exported are one and the same and (2) the purchases were against firm orders for export. Neroth Oil Mills' case was concerned only with the first aspect and not the second aspect. Therefore, the Tribunal ....
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....d to have ceased finally without the possibility of reviving it. On the facts found by the Tribunal, the Tribunal as well as the High Court were well justified in coming to the conclusion that the purchase tax liability of the assessee had not ceased finally during the year in question. Despite the finality attained by the judgment in Neroth Oil Mills' case, the other issues having bearing on the exigibility of purchase tax still remained and the dispute between the assesseee 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. 5. 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 practical 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 d....
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....ecome the Assessee's own money and the claims of the customers had become time barred and the Assessee itself had treated the money as its own money and credited the same to its profit and loss account and therefore, it was liable to be taxed in the hands of the Assessee. The following observations in paragraphs 22 and 23 of the Supreme Court are quoted below for ready reference. "22. The principle laid down by Atkinson, J. applies in full force to the facts if this case. If a common sense view of the matter is taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally was not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. Atkinson, J. pointed out that in Morley's case (supra) no trading asset was created. Mere change of method of book-keeping had taken place. B....
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....decision in Commissioner of Income Tax v. Chipsoft Technology (P) Limited [(2012) 210 Taxman 173 (Del.)], a Division Bench of the Delhi High Court held that the word "include" in the Explanation to Section 41(1) was important and where the unpaid dues of the employees had been outstanding for six to seven years and the recovery of such dues was time barred, even the omission to pay over a period of time and the resultant benefit derived by the employee/assessee would qualify as a cessation of liability, albeit by operation of law and therefore, was liable to be taxed under Section 41(1) of the Act. Paragraph 9 of the judgment is also quoted below for ready reference: "9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground itself in reality. Interpretation of laws, particularly fiscal and commercial legislation is increasingly based on pragma....
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....the sales promotion Scheme, with the stipulation that if he enrolls further four persons, he would get one Black and White Television manufactured by the Assessee Company free of cost, which Scheme was operative only for a period of 12 months and in the process of such deposits, the Assessee collected huge sum of Rs. 7.87 Crores and after several years, when the said deposit was treated as income of the Assessee under Section 41(1) of the Act, it was challenged by the Assessee, but the Court held that the said amount of deposit of Rs. 7.87 Crores represents the money deposited by the Members and the same would be liable to be taxed in the hands of the Assessee, because for the past several years not a single customer had demanded the money back nor the Assessee had made any attempt to repay the same and it was only when the Assessing Officer raised the said issue, the Assessee made correspondence with the customers, which the Commissioner of Income Tax had rightly held to be an afterthought and that over the years, the company had also invested such amount earning interest, which was offered for taxation and therefore, Section 41(1) stood attracted in the facts of the said case. Th....
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.... is true that unlike in case of Sundaram Iyengar (supra), the assessee has not taken such amount in its profit and loss account. Nevertheless, by all accounts, the assessee has treated such amount as its own. The scheme itself terminated many years back. Limitation of claiming amount back has also seized (sic ceased). There is absolutely no movement or correspondence between the assessee and its members with respect to the claim or with respect to the deposited amounts. 13. under the circumstances, we do not see any reason to interfere. Tax Appeal is therefore dismissed." (emphasis supplied) 19. The Assessee herein had primarily relied on the fact that since the writ appeal had been pending before the Division Bench of this Court and consequently, the liability had not been determined. A closer examination of the facts reveal otherwise. Final orders were passed in W.A.Nos. 1746 & 1747 of 2000 etc., on 08.10.2014. It had been ordered as follows:- "Learned counsel for parties have obtained instructions and state that they would follow the course of action as suggested in our last order dated 17.09.2014. Thus the issue of extent of revision of charges, if....