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TMI Blog2012 (8) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... paid liability claimed in respect of salaries of the assesse for the assessment year 2006-07?" With consent of counsel for parties the appeal was heard finally. 3. The brief facts of the case are that the assesse filed its return declaring nil income, on 31-11-2006. The Assessing Officer (AO) noticed that the assesse had shown unpaid liability to an extent of Rs. 38,51,893/- on account of its employees' dues. Of this, an amount of Rs. 6,23,000/- pertained to salary for the year 2005-06 and the balance pertained to the previous years; some extending to as far back in period as 2000-01. The AO called upon the assesse to furnish details and confirmation from the employees. The assesse furnished particulars and confirmation only in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability existed, the lapse of time, and the resultant defences available to the assesse under the Limitation Act, justified the AO's inclusion of the said amounts, on the ground of cessation of liability. It was underlined that the ITAT erred in not holding that benefit had accrued to the assesse by virtue of the wage liability becoming time barred. The revenue relied on Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Income-tax 196 ITR 845 (Cal). 5. It was argued by Mr. Parag Chawla, on behalf of the assesse that in the absence of any action altering the treatment of wage liability in the books, or any other such act, the revenue cannot arbitrarily treat what is a liability as a profit. It was submitted that in order to attrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has laid down in CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78, that if there be any excess over the requirement of the assessee in respect of liability claimed and allowed, such liability must be deemed to have ceased. It has also been laid down that it may be inferred from the surrounding circumstances that there has been a cessation or remission of the liability of the assessee. It has also been laid down that if unclaimed bonus being a portion of the bonus allowed as deduction in computing the income of the assessee is carried forward from year to year and thereafter written back in the account and no tax is levied thereon, the assessee would be getting a benefit to which it was not entitled." The court in the above decision was concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether a trading liability that was once incurred ceases to exist for the purpose of Section 41(1) has to be decided in the light of the provisions of the Income-tax Act, 1961, and the statute, if any, governing such liability. The assessee who maintains his accounts on the mercantile basis would be entitled to a deduction in respect of bonus in the year in which a liability arises under the statute, or the employees' claim for bonus is admitted by the assessee or is settled by an agreement between the parties or is adjudicated upon by an award. Under Section 36(1)(ii) of the Income-tax Act, 1961, payment of bonus to the employees is an allowable deduction. Under the Payment of Bonus Act, 1965, liability to pay bonus has become a statutory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid bonus is an excess of the requirement of the assessee and, therefore, to that extent, in any event, the liability has ceased." 9. Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the workman, to recover the amounts due, does not efface the liability, though it bars the remedy. This view, with respect is an abstract and theoretical one, and does not ground itself in reality. Interpretation of laws, particularly fiscal and commercial legislation is increasingly based on pragmatic realities, which means that even though the law permits the debtor to take all defences, and successfully avo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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