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2014 (10) TMI 706 - KARNATAKA HIGH COURTSum received as written off amount – Cessation of liability or not - Whether the Tribunal was correct in holding that the sum received by the assessee as fixed deposit during the earlier AY was written off by forfeiture during the current AY under a settlement resulted in cessation of a liability in the ordinary course of the business of the assessee resulting in income liable to tax – Held that:- As decided in ISKRAEMECO REGENT LTD. Vs COMMISSIONER OF INCOME TAX [2010 (11) TMI 43 - Madras High Court] - The assessee received the deposits which were repayable with interest - The assessee sustained loss in the business - They framed a scheme of compromise/arrangement - During the course of such a claim before the High Court, the assessee entered into an arrangement with the depositors who were willing to receive a portion of the amount deposited by them towards settlement of their claim - Therefore, those depositors were paid a portion of the money which they had deposited - With such payment, the entire liability to pay the amount received stood extinguished. By extinguishment of the liability, the assessee did not receive any amount either by forfeiture or by discount and it is a case of sheer inability to pay the amount received by way of deposits - though such rebate or remission has benefitted the assessee insofar as discharging his liability to the depositor, in reality it did not result in any income at the hands of the assessee unless there is accrual or receipt of income by the assessee, it would not constitute income for the purpose of levy of tax - The income to be taxed under the Act should be real income and not fictional one - the tribunal was justified in holding that the balance amount of deposit which was not repaid under the arrangement, did not constitute an income and therefore, the assessee is not liable to pay any tax under the context – Decided against revenue.
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