TMI Blog2000 (10) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1964-65, the Income-tax Officer observed that a sum of Rs. 41,453, representing certain balances in respect of which allowance or deduction had been made in the assessments of the assessee in the past, had been written off by the assessee during the relevant previous year and credit given to the partners in their profit sharing ratio. He was of the opinion that it was a case of remission of liability and hence that amount was chargeable to income-tax under section 41(1)(a) of the Act. He, accordingly, included the sum of Rs. 41,453 in the taxable income of the assessee under the head "Profits and gains of business". The assessee appealed to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner observed that the ground of appeal challenging the inclusion of the above amount in the taxable income of the assessee was not pressed. He, however, rejected the claim of the assessee in this regard on the merits also. The assessee appealed to the Income-tax Appellate Tribunal. The Tribunal found that the Appellate Assistant Commissioner had not given any reason for holding that this amount was taxable under section 41(1) of the Act. The matter was, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in CIT v. T. V. Sundaram Iyengar and Sons Ltd. [1996] 222 ITR 344. Learned counsel laid great emphasis on the following passage in the above decision : "If a commonsense 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 were 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." He also relied on the following passage appearing in the said judgment : "In the present case, the money was received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not; been claimed by the customers. The claims of the customers have become barred by limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trade surplus." Learned counsel submitted that the ratio of the above decision squarely applied to the present case. When the attention of learned counsel was drawn by the court to the later decision of the Supreme Court in CIT v. Sugauli Sugar Works (P.) Ltd. [1999] 236 ITR 518, wherein the Supreme Court has categorically held that the mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not entitle the Department to say that section 41(1) of the Act would apply, he fairly stated that he was not aware of the above decision and took time to peruse the same and make further submissions in this regard. The matter was adjourned accordingly. The matter is on board today for further hearing. Mr. Anil Bhan, learned counsel for the Revenue, fairly conceded that in CIT v. Sugauli Sugar Works (P.) Ltd. [19991 236 ITR 518, the Supreme Court has held that the mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not entitle the Department to say that section 41(1) of the Act would apply and the amount would be taxable income of the assessee. He, however, contended that the earlier decision of the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. The Supreme Court also said that such an entry by itself would not confer any benefit on the debtor as contemplated by section 41(1) of the Act. The Supreme Court categorically held : "Just because an assessee makes an entry in his books of account unilaterally, he cannot get rid of his liability. The question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone, but it is a matter which has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after the expiry of the normal period of limitation as provided in the Limitation Act." The Supreme Court also quoted with approval the following passage from the decision of the Bombay High Court in J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital nature at the point of time it was received. It is by efflux of time that the money became the assessee's own money. It is in these circumstances that the Supreme Court observed : "Although the amounts received originally were 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." It is in the peculiar facts and circumstances of the above case that the Supreme Court held : "Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson J. pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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