TMI Blog2016 (5) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... he verification was made, same is not a ground to conclude that there was cessation of the liability. Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs of the deceased creditor. Under the circumstances, in the present case, it can hardly be said that the liability had ceased. If the liability had not ceased or the benefit was not taken by the assessee in respect of such trade liability, in our view, the conditions precedent were not satisfied for invoking Section 41(1) of the Act in the instant case. - Decided in favour of assessee. - ITA NO. 658/2015 - - - Dated:- 24-3-2016 - MR. JAYANT PATEL AND MRS. B.V.NAGARATHNA JJ. For the Appellant: SRI. K.V.ARAVIND, ADVOCATE For the Respondent: None JAYANT PATEL J. JUDGMENT The appellant-Revenue has preferred the present appeal by raising the following substantial question of law: Whether under the facts and in the circumstances of the case, the Tribunal was right in law deleting the addition of ₹ 81,40,232 on account of cessation of liability under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or xx xx xx xx xxxx xx xx xxxx xx xx [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. (underlining ours) 13. Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee s accounts. The question has to be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emission and cessation used in the section. 13. In Bombay Dyeing Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 the legal position was summarized by T.L. Venkatarama Aiyar, J., in the following manner : It has been already mentioned that when a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson s Law of Contract, 19 th Edition, p. 383, are directly in point : At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under s. 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in CIT vs. Bharat Iron Steel Industries (1992) 105 CTR (Guj)(FB) 331 : (1993) 199 ITR 67 (Guj)(FB). It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under s. 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended cl. (a) of sub-s. (1) of s. 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 w.e.f. 1st April, 1993, by which the words some benefit in respect of such trading liability by way of remission or cessation thereof were inserted. After the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under s. 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. 15. The Supreme Court noticed that the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court : This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same. To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing Mfg. Co. Ltd. vs. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sood v. Commissioner of Income Tax, Faridabad respectively. He also relied upon the provisions of Section 41 of the Income Tax Act. 5. The principal contention is that unless the burden is discharged with regard to the existence o f the liability by the assessee, it is open for the Revenue to invoke the provisions of Section 41(1) of the Act and to make addition on the premise that, the liability has ceased to pay the amount of the creditor. 6. In his submission, the decision of Delhi High Court which has been referred to by the Tribunal in case of Sri Vardhman Overseas Ltd., supra cannot be applied to the facts of the present case since in t he said decision, it was not a case where the party/creditor was not verifiable or that the address was not changed. He therefore, submitted that Court may consider the present appeal. 7. As in the above referred order of the Tribunal, the relevant portion of Section 41 is reproduced, we may not reproduce the same. But, the relevant aspect is that, there are two requirements for invoking the provision of Section 41. The Sina qua non is, the remission or cessation of the trading liability and the additional requirement is, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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