TMI Blog1992 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... firm had supplied goods to certain dealers, namely, Vijay Fabrics and Mahesh Textiles, They had purchased the goods from Subhash and Co., and the broker was entrusted with certain amount. On or about May 13, 1970, the broker had absconded without leaving behind any trace in respect of his whereabouts, and, consequently, the assessee-firm could not realise the price of the goods supplied to the two dealers, namely, Vijay Fabrics and Mahesh Textiles. In the same way, the assessee-firm could not find any trace in respect of the amount of Rs. 22,600 which was entrusted to the broker's firm. It appears that a large sum of the assessee's capital thus stood blocked up and the creditors of the assessee-firm had started pressing them for the payment of their dues. The assessee, thereon had made the position of their stringent financial set up clear to the creditors and, therefore, ultimately, the kasar was allowed by the creditors to the assessee-firm. The following table shows the name of the creditors and the kasar amounts allowed : -------------------------------------------------------------------------------------------------------------------------------------------------- Name o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent years and that the abovesaid transactions in which the kasar was allowed. Thus, the Income-tax Officer was of the opinion that the abovesaid amount of Rs. 53,803 so surrendered by the creditors would form a part of the business income of the assessee during the relevant year liable to be taxed. The abovesaid view is explicit from the assessment orders dated March 30, 1974, available at annexure "A". The assessee had carried the matter in appeal before the Appellate Assistant Commissioner who in his turn confirmed the decision of the Income-tax Officer by the appellate orders dated August 11, 1976, by taking the view that the assessee had paid certain amounts for the purchase of the goods but later on the kasar was allowed to him and, therefore, there was a reduction in the price of the creditors' goods and, that, therefore, the abovesaid amount in the form of the kasar had become the income of the appellant and was thus taxable in the year under question. It is in view of these findings that the Appellate Assistant Commissioner had preferred to dismiss the appeal of the assessee by the said orders. The assessee thereafter had approached the Tribunal by filing appeals aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught under the taxing net as profit from business. After a careful consideration of the provisions contained under section 41(1) of the Act of 1961, the Tribunal has opined that even if the remission was given in the same year in which the liability was incurred, the provisions contained under section 41(1) of the Act of 1961 could have no application, because the said provisions of the Act of 1961 presuppose a loss or trading liability for which the deduction or allowance has been granted in the earlier assessment. The accounts of all the three traders out of the eight traders were examined and it was found that the case of the five creditors would stand on a different footing than the case of the remaining three creditors. The kasar allowed by the three creditors totalling Rs. 17,565 was held to attract the provisions contained under section 41(1) of the Act of 1961. This amount, therefore, was ordered to be retained, while the remaining amount was ordered to be deleted. These orders were pronounced by the Tribunal on June 26, 1978, which are available at annexure "C". Later on, by filing the necessary application, the Revenue had requested the Tribunal to refer certain questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, namely, an amount of Rs. 17,565 only would attract the abovesaid provisions of the Act of 1961. This position has been accepted by the Tribunal on the basis that the remaining five dealers or creditors had started the accounting period only during the assessment year in appeal and the kasar allowed by those five creditors was not open to be added under the provisions of section 41(1) of the Act of 1961. The abovesaid view taken by the Tribunal would go to show that so far as the amount of Rs. 17,565 is concerned, the same has been taken as the income of the assessee. Reliance has been placed upon the decision of the House of Lords in British Mexican Petroleum Co. Ltd. v. CIR [1932] 16 TC 570. This decision, which has been relied upon by various High Courts of this country, points out that a debt forgone by the creditor does not become the income of the debtor-the assessee. In CIT v. P. Ganesa Chettiar [1982] 133 ITR 103 (Mad), the question was as to whether, on the dissolution of a firm, when the assessee had paid a lump sum in complete settlement of all his claims as a partner, as a result of which the debit balance in the capital account had shown the necessary entry and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of carrying on the assessee's business and it was assessable as the income of the assessee. In the background of the aforesaid facts, it was held by the Bombay High Court, confirming the decision of the Tribunal, that the benefit obtained by the assessee was not in the course of carrying on its business and was not an income assessable under section 28(iv) of the Act of 1961. But it should not be overlooked that the emphasis was on the facts and circumstances of the case which showed that the benefit obtained by the assessee was not in the course of the carrying on of its business activity which was of manufacturing electrodes. The other decision which requires consideration is the Supreme Court decision in CIT v. India Discount Co. Ltd. [1970] 75 ITR 191. It was a case of the purchase of certain shares along with the arrears of dividends. Later on, the assessee-company who were dealers in shares had received an amount of Rs. 43,925 being the dividends which had been declared between 1936 and 1945 but was not claimed and collected by the previous owners. The question was as to whether the abovesaid amount of dividend obtained by the assessee can be said to be income liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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