TMI Blog2008 (11) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the view that deduction or increase in foreign exchange liability is to be adjusted to the cost of relative assets only in the year in which actual payment is made. The Assessing Officer relied upon the provisions contained in section 43A of the Act. The Assessing Officer thus disallowed depreciation amounting to Rs. 10,59,669 being depreciation on Rs. 84,77,357 being foreign exchange fluctuation liability added to the cost of relative assets. 4. On an appeal, the CIT(A) allowed the assessee s claim by observing that this issue is covered by the order of the ITAT, Delhi Bench in the assessee s own case for the assessment years 1991-92 and 1992-93 in Appeal Nos. 2539 and 3476 (Delhi)/95, dated 2-12-2002, by relying upon the decision of Hon ble Supreme Court in the case of CIT v. Arvind Mills [1992] 193 ITR 255. Hence, the department is in appeal before us. 5. We have heard both the parties and carefully perused the orders of the authorities below. The assessment year in question is the assessment year 1998-99. The amendment to section 43A has been made by the Finance Act, 2002 with effect from the assessment year 2003-04 providing that increase or reduction in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the course of assessment proceedings, it was noticed by the Assessing Officer that the sales tax deferral liabilities of Rs. 532.82 lakhs was assigned by the assessee to one partnership firm, M/s. Gayatri Annapurna (in short G A ) for a sum of Rs. 131.41 lakhs, and the balance of Rs. 401.41 lakhs was credited to the profit and loss account by the assessee company. In the original return of income filed by the assessee company, the amount so credited to the profit and loss account was offered as income being a part of the assessee s returned income. But later on, the assessee revised its return of income by excluding the said difference of Rs. 401.41 lakhs on the ground that it was wrongly included. However, after considering the composition of partnership firm (Gayatri Annapurna) and its relation to assessee company and other company of the same group, and after deliberating upon the agreement of assigning the deferred sales tax liability by the assessee to the said firm, the Assessing Officer has taken a view that discounting of liability was clearly on revenue account being covered by section 28 and also by section 41(1) of the Act, and the Assessing Officer, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present value of future payments to be made to SICOM, For such calculations a discount factor or rate of interest at 18 per cent p.a. was considered reasonable. As already stated above the Assessing Officer invoked the provision of section 41(1) as well as section 28( iv ). The appellant however, has pleaded that no real income has been earned on the assignment of sales tax deferral sum since there is no remission or cessation of such liability by SICOM/Government of Maharashtra. There is enough indication that the aforementioned liability subsists and that SICOM continues to hold the right for the repayment of the deferral sum of sales-tax as per agreed terms of repayment. The appellant has highlighted the cases of Godhara Electricity Co. Ltd. v. CIT [1977] 225 ITR 746 and CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 wherein it was laid down by the Supreme Court that if income does not result at all, there cannot be a tax. Thus only real income and not notional income can be subjected to tax. In the case of the appellant there is no waiver of liability by SICOM neither under section 41(1) nor section 28( iv ). Having gone through the terms and conditions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( iv ) of the Act, and the provisions of section 41( i ) of the Act, the difference of Rs. 401.41 lakhs has been rightly treated to be the income of the assessee of the year under consideration. 13. The Authorized Representative for the assessee, on the other hand, submitted that no real income to the extent of Rs. 401.41 lakhs has been earned on the assignment of sales tax deferred liability since there was no remission or cessation of such statutory liability amounting to Rs. 532.82 lakhs, which being a statutory liability was still payable by the assessee to the Government of Maharashtra. He further submitted that vide agreement dated 31-3-2008, the assessee assigned the above liability of Rs. 532.82 lakhs of M/s. G A for an amount of Rs. 131.41 lakhs computed by discounting the above liability at 18 per cent per annum, and credited the difference to the profit and loss account for the year ended on 31-3-1998. It was further contended that in the light of the facts of the present case, there was no cessation or remission of the aforesaid liability of the assessee as the liability to pay sales tax was still upon the assessee and it continued in the name of the assessee bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Rs. 532.82 lakhs was under the 1976 Scheme, 1983 Scheme and 1993 Scheme. The assessee vide agreement dated 31-3-1998 assigned the above liability to M/s. G A for an amount of Rs. 131.41 lakhs, computed by discounting the above liability at 18 per cent per annum. The assessee had credited its profit and loss account for the year ended on 31-3-1998 with an amount of Rs. 401.41 lakhs with the narration "profit on assignment of sales tax liability". There is also no dispute to the fact that the sales tax deferred liability amounting to Rs. 532.82 lakhs was allowed as deduction in assessment of earlier years. The discounted value of Rs. 131.41 lakhs was paid by the assessee to M/s. G A, and the amount was put at the disposal and use of M/s. G A. The assessee s contention is that only the sum paid by M/s. G A over and above the discounted value of the liability in each and every year would amount to an income chargeable to tax in the hands of the assessee in the relevant years as the profit or gain arising to the assessee in that year, and not the whole of the amount of Rs. 401.41 lakhs in one year only in which the liability was assigned by the assessee to G A. The CIT(A) accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. [ Explanation 1. For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause ( a ) or the successor in business under clause ( b ) of that sub-section by way of writing off such liability in his accounts.]" 19. Insofar as the first condition of section 41(1) that allowance of deduction should have been made or allowed in respect of any trading liability incurred by the assessee in the assessment of any earlier year, a deduction on account of sales tax deferred liability was admittedly allowed to the assessee in the respective years by treating the sales tax deferred liability as actually paid within the meaning of section 43B of the Act. The dispute is only with regard to the question whether the whole of the amount of difference between the actual sales tax liability of the assessee and the discounted value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof the amount obtained or the value of benefit accruing to him shall be deemed to be the profits, and accordingly chargeable to income-tax as income of that previous year, whether the business or profession in respect of which the allowance or deduction was made is in existence in that year or not. There is a similar provision in the case of successor in business in regard to any amount in respect of which loss or expenditure, etc., was incurred by the predecessor. It has been noticed that courts are holding that taxpayers would not be liable to tax on the amount of trading liability written-off unilaterally credited to the profit and loss account. The recovery of debt in such cases may have become barred by limitation and also where there is no likelihood of the liability being enforced. The court s decisions revolve on the view that a debtor, by his unilateral action, cannot bring about remission or cessation of his liability. It is proposed to tax the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this sub-section, has been defined to include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause ( a ) or the successor in business under clause ( b ) of this sub-section by way of writing off such liability in his accounts. 28.3 This amendment will take effect from 1-4-1997 and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years." 22. To invoke section 41(1) read with Explanation 1 thereto, the following conditions must be fulfilled : ( i )In the assessment of an assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee; ( ii )Any amount is obtained whether in cash or in any other manner whatsoever, in respect of such loss or expenditure, or some benefit is obtained in respect of such trading liability by way of remission or cessation thereof; ( iii )Such amount or benefit is obtained by the assessee or the successor in business (with effect from 1-4-1993); ( iv )Such amount or benefit is obtained in a subsequent year, whether business or profession in respect of which the deduction or allowance has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous language used by the Legislator in section 41(1) and as well in Explanation 1 thereto. The Legislator has used the expression "any such trading liability" which in the context in which it is used, would mean all trading liability, in respect of which any allowance or deduction has been made in the assessment of the assessee for any year. The expression "any such trading liability" if construed in the context in which it is used does not make any distinction between any contractual trading liability and any statutory trading liability. In the present case, what the context requires is that any trading liability, which has been remitted or ceased in any subsequent year, must have been allowed as deduction in the assessment of any earlier year. The scope of expression "any trading liability" used in section 41(1) of the Act read with Explanation thereto is limited only to the extent that such trading liability must have been allowed as deduction in the assessment of the assessee of any earlier year without there being any distinction between contractual trading liability and statutory trading liability. 24. The learned counsel for the assessee has also submitted that Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Union of India [1991] 189 ITR 70 (Pat.). 26. There is no quarrel as to the proposition that the statute should be construed on the basis of object sought to be achieved. It is also not in dispute that the interpretation of any statute must depend on the text and the context. Both the texts as well as the context are to be taken into account. Both are important. However, at the same time, it must be borne in mind that it is a well settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. 27. In the present case, the Explanation 1 to section 41(1) was inserted by the Legislator to overcome the judgment holding that unilateral action on the part of the assessee in writing back trading liabilities would not amount to remission or cessation of the liability so as to attract the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of Explanation to section 73 of the Act. 29. For the reasons given above, we are, therefore, not inclined to accept the contentions of the learned counsel for the assessee that Explanation 1 to section 41(1) is applicable only in respect of any contractual trading liability, and not in respect of any statutory trading liability, which have been written back in the accounts of the assessee by unilateral action on the part of the assessee. We thus hold that for the purpose of section 41(1) read with Explanation 1 thereto, the unilateral act on the part of the assessee in writing back any trading liabilities in its books of account would include the writing back all sorts of trading liabilities, whether contractual or statutory, in respect of which a deduction has been allowed or made in the assessment of any earlier year of the assessee. 30. The case before us is related to the assessment year 1998-99 i.e., after the insertion of Explanation 1 to section 41(1) of the Act, and thus the view of various courts that unilateral action on the part of the assessee in writing back trading liabilities would not amount to remission or cessation of trading liability so as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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