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2021 (3) TMI 365 - HC - Income TaxAddition u/s 41(1) - amount ceased to be a liability - Debatable issue - amount paid by the assessee towards tax and interest due to the department against the deduction claimed towards royalty payable to the foreign collaborator - HELD THAT:- The amount deducted in 1990-91 as an expenditure consisted of an element of tax being TDS. The words employed in Section 41(1)(a) are "amount obtained by such person or the value of benefits accruing to him". The "amount obtained" can only mean the actual amount obtained. The fiction created under the provision cannot be expanded to even include amounts that may be obtained in the future. The legal fiction is intended to deem the actual amount obtained as profits and gains from business and to tax the said actual amount. Section 41(1) employs, on the one hand, words such as "allowance" or "deduction" and on the other hand "loss", "expenditure", or "trading liability"- Tax liability should be commensurate to the actual amount received or the value of benefit accrued to the assessee in that financial year and not on the unrecovered amount or unacknowledged benefit by the assessee. The unrecovered amount becomes taxable only in the previous year when it is recovered or actually obtained. The amounts paid as tax has not been obtained in 1995- 96 as the same had not been refunded. Until the amount of TDS is refunded, that amount cannot be treated as amount obtained by the assessee. The amount of TDS and interest can be deemed to be profits and gains and chargeable to tax only on refund. Until actual receipt, it is not "amount obtained" and cannot be deemed to be profits and gains from business. In other words, if it is assumed that the TDS paid by the assessee, for the royalty payable, is ordered to be refunded due to the cessation of liability and the refund is received by the assessee, the actual amount of refund when received will have to be treated as the amount obtained in the previous year of receipt and not prior to that. The amount paid by the assessee as TDS comes back to the assessee only when the TDS is refunded. The amount obtained by the assessee under Section 41(1) (a) is thus the actual amount obtained. Since we have held that the amount obtained under Section 41(1) shall be the actual amount obtained by the assessee exclusive of the tax paid and not refunded, the contention regarding whether the issue is a debatable one or not, does not strictly arise. However, for the purpose of complete appreciation, it is necessary to deal with the said contention also. Interpretation of the words employed in Section 41(1) required a deeper analysis and whether the section contemplates the net amount or the gross amount, was certainly a matter of debate. It cannot be held that the question raised by the assessee was a non-debatable issue. In the said circumstances, we are of the view that the First Appellate Authority was correct while the Tribunal erred in coming to the conclusion that the issue was not a debatable one. - Decided in favour of assessee.
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