Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
CGST - Acts + GST Rates GST Ntf. GST Forms GST - Manual GST - FAQ State GST Acts SGST Ntf. I. Tax Manual
Extracts
Home List
← Previous Next →

Commissioner of Income-tax, Bangalore Versus Alvares & Thomas

[2017] 394 ITR 647 - Addition on account of cessation of liability under Section 41(1) - Held that:- Examining of the facts of the present case reveals that, it is not the case of the Department that, any benefit in respect of such trading liability was taken by the assessee but, the Revenue contends that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of the Revenue is th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lity. - In legal parlance, merely because the creditor could not be traced on the date when the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 Section41(1) being outstanding liability towards M/s.Durga traders as claimed by the assessee when the assessee failed to prove the existence of the creditor and that the credit had insiste .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

issions. On almost identical facts, the Hon ble Delhi High Court in the case of Shri.Vardhaman Overseas Ltd. (supra), has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009-10. The provisions of sec. 68 are clear inasmuch as they refer to sum f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of section 68 are satisfied. 12. As far as applicability of section 41(1) of the Act is concerned, the question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below: Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rder to invoke clause (a) of Sec.41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sions of section 41(1) of the Act could not be invoked by the Revenue. In fact the decision of the Hon ble Delhi High Court in the case of Vardhaman overseas Ltd. (supra) clearly supports the plea of the Assessee in this regard. On identical facts, the Hon ble Delhi High Court on the applicability of Sec.41(1) of the Act, held:- 12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words "remission&q .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law". In our opinion, this rule should be applied to the interpretation and understanding of the words "remission" and "cessation" used in the section. 13. In Bombay Dyeing & Mfg .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

itation, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he is not likely to be exposed to action by the creditor." (underlining, italicised in print, ours) This was also the view taken by the Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

C and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within s. 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court CIT vs. Sugauli Sugar Works (P) Ltd. (1981) 23 CTR (Cal) 226 : (1983) 140 ITR 286 (Cal). The Revenue carried the matter in the appea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing counsel contended before us that since a period of more 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(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 amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

preme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. vs. CIT (1996) 62 ITR 34 (Bom) in which it was explained as to what could bring out a cessation or remission of the assessee s liability. The observations of the Bombay High Court in the judgment cited above are as under : "The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to Honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

p> 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 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fore the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the Revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of s. 41(1). In the case before us, the identical contention has been taken on behalf of the Reven .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

parties, or by discharge of the debt. 14. From the ratio laid down in the aforesaid decision, we are of the view that there is nothing on record to show any cessation or remission of liability by the creditor or even an unilateral act by the Assessee in this regard. In view of the above, we are of the view that the impugned addition cannot be sustained and the same was rightly directed to be deleted by the CIT(A). The order of the CIT(A) is therefore confirmed.

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on made by the assessing officer. 4. However, Mr.Arvind, learned counsel appearing for the revenue relied upon the decisions of Rajasthan and Punjab & Haryana High Courts reported in (2013) 35 Taxmann.com 262 (Rajasthan) and (2014) 47 Taxmann.com 268 (P & H) in case of Rama Steel Rolling Mills & General Engg.Works v. Income Tax Officer an d Mrs.Adarsh Sood v. Commissioner of Income Tax, Faridabad respectively. He also relied upon the provisions of Section 41 of the Income .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nds that since the burden was not discharged of existence of the liability, it be treated as cessation of the liability and therefore, Section 41(1) could be invoked. Further, stand of the Revenue is that, when in respect of debt in question, confirmation was called for, a letter was produced of the creditor with its address but, when the same was verified, the report was that, party could not be traced and therefore, it was not verifiable. 9. In our view, even if we accept the conte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. 10. The Tribunal has rightly r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version