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2007 (5) TMI 257 - AT - Income TaxApplicability Of sec. 41 - Remission Or Cessation Of Trading Liability - difference of opinion between the Members - Third Member Order - Whether the sum received by the assessee in the year 1989, during the normal course of carrying on its business, but shown as outstanding liability in the books of account till date, can be brought to the charge of tax u/s 28, as profit, gain or benefit of business in the assessment year under appeal? - Assessee acting as an Indenting Agent for Hawson Algraphy Ltd. (HAL), London - HELD THAT:- Ld AM came to the conclusion that the sum received is a business benefit which had arisen to the assessee during the course of normal business activities and therefore the same has to be brought to the charge of tax as business income. Judicial Member held that the assessee continues to recognize the liability of a sum payable to HAL in its account and mere non-payment of the account to HAL does not in any manner convert the impugned sum as taxable under the provisions of Income-tax Act as Business Income of the assessee. It was held that the liability does not partake the nature of any benefit or perquisite for bringing it to tax under the umbrella of business income and the said amount due as a liability to HAL is not to be included as income of the assessee for the year under consideration. Third Member Order - The transaction is truly to be accounted to the credit of the supplier of the machinery, who is the original owner of the property. If the original owner does not claim the amounts due to him, it may be anything but not a cesser of liability of the type which could be assessed u/s 41(1) of the Act, as rightly pointed out by the ld JM. In my view the facts of the case does not go with the facts stated by the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd.[1996 (9) TMI 1 - SUPREME COURT] In that case the assessee has appropriated the liability to its profit and loss account whereas in this case there has no such appropriation. The assessee is still showing them as outstanding liabilities in its balance sheet from year to year and the liability arose as a debt which is required to account for the receipt on behalf of the principal. In my view there is no question of cesser of liability. The Hon'ble Supreme Court examined this case in the case of Sugauli Sugar Works (P.) Ltd.[1999 (2) TMI 5 - SUPREME COURT] wherein the Apex Court held again that the expiry for the period of limitation prescribed under Limitation Act could not extinguish the debt but it would prevent the creditor from enforcing the debt, has been well settled. If the principle is applied, it is clear that 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. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by that section. Thus, by majority view, we hold that the liability due to HAL does not partake the nature of any benefit or perquisite in terms of section 28(iv) or under the provisions of section 41(1) and the same is not to be included as income of the assessee for the year under consideration. In the result, the appeal filed by the revenue is partly allowed.
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