TMI Blog2006 (4) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the appeal on July 14, 2004: "1. Whether the learned Tribunal was justified in law as well as on facts in deleting the addition of Rs. 22,78,980 on account on cessation/remission of liabilities when the same liabilities were written back and the creditor failed to lodge their claim before BIFR ?" 4. Question No 2 was not framed clearly and needs some modification. The modified question required to be considered in this appeal, reads as under: "2. Whether the learned Tribunal was justified in law as well as on facts by deleting addition of Rs. 97,22,082 on account of disallowance of bank interest when the same interest was waived by BIFR under the scheme approved by it vide order dated May 27, 1993, but written off in the books of account of the assessee ending on March 31, 1993, relevant for the assessment year under consideration ?". 5. We shall first examine question No. 2. 6. The facts relating to question No. 2 are that for the accounting periods prior to the financial year ending dated March 31, 1993, the interest on dues on various banks and expense deductible under section 37 of the Income-tax Act, while computing the taxable income for the relevant assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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." 10. The aforesaid Explanation had been inserted in the wake of Judicial pronouncements that unilateral action by the assessee of written off any liability in his books of account does not amount to its remission or cessation. But the same having not been given retrospective effect, the assessment years prior to 1997-98 shall be governed as if no Explanation existed, on the basis of Judicial precedents. 11. As a matter of fact waiver of interest under the BIFR came into existence vide order dated May 27, 1993, which fell within the financial year commencing from April 1, 1993, and ending on March 31, 1994, and assessment for which was to be made for the year 1994-95 and it did not relate to the assessment year 1993-94 in question at all. Under the order of the BIFR, the bank and finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year 1993-94 as also necessary documents would be executed in the financial year 1993-94. 15. Apparently, from the treatment of the order in the books of account can not affect the position of law. The interest in question had accrued since the advances were received by the assessee and has been dealt with accordingly each year when the liability to such interest had accrued. That liability had not ceased and remitted by the financial institutions during the financial year relevant to the assessment year 1993-94. The financial institutions and banks were required to waive the interest only in pursuance of directions issued by the BIFR vide its order dated May 27, 1993. Hence, waiver of liability of the assessee to pay the interest could come only after that date and not earlier. Merely dealing of such waiver by the assessee in his books of account for earlier period will not alter the effect of the order to befall earlier than interest was made. The assessment for the assessment year 1993-94 related to the financial year ending on March 31, 1993. Only the transactions which actually took place or liability incurred or ceased up to March 31 1993, could be the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilitation of the respondent-assessee, a sick industrial undertaking. The order sanctioning the scheme did not come into existence during the accounting period in question. Writing off the sum in the books for the accounting period in question was voluntary and unilateral act on the part of the assessee. 19. In the present case, the financial year ending on March 31, 1993, is relevant to the assessment year in question, no waiver was granted under the BIFR scheme in respect of outstanding liability towards interest on advances received from banks and financial institutions. Liability of the assessee cannot be said to have been remitted or ceased to exist prior to the sanction of the scheme by the BIFR. Until then no benefit to that extent was obtained by the assessee nor could have been obtained by it by any voluntary act of it. The question of inclusion under section 41(1) of such sum governed by waiver by the BIFR in the income of the assessee could arise for consideration only while considering the assessment of the assessment year 1994-95 relevant to the financial year ending on March 31, 1994, during which remission of waiver of interest was directed by the BIFR. That was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waiver is excluded. 22. As a consequence of the aforesaid discussion, we are of the opinion that the decision of the Tribunal in deleting the addition made on account of interest written off in the books of account of the assessee for the assessment year 1993-94, by the Assessing Officer on account of waiver of interest by the order of the BIFR was correct and does not call for interference. 23. We may now examine the issue under question No. 1. 24. The respondent-assessee-company had written off in his books of account his liability towards payment of commission expenses incurred by him and allowed a deduction in the earlier years considering such unilateral action on the part of the assessee as remission or cessation of his liabilities the Assessing Officer invoked section 41(1) for making addition of Rs. 22,78,980 the benefit obtained by the assessee in respect of the amount earlier allowed as deduction while computing his total income and made additions of such sum in computing the total income for the assessment year 1993-94. 25. The Assessing Officer has relied on the decision of the Bombay High Court in the case of CIT v. Bennett Coleman and Co. Ltd. [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipt did not constitute income. In the present case, no amount was required to be refunded and recovery having become barred by time, it appropriated amount received as trading receipt for his own use. It was pointed out that the decision relied on by the Revenue in the present case squarely covering the ratio of CIT v. Sugauli Sugar Works P Ltd [1999] 236 ITR 518 (SC) 32. Now, we may consider question No. 1. 33. We have already noticed the provisions of section 41(1) above while considering question No. 2 which related to waiver or liability by the order of the BIFR, therefore, waiver was not disputed in the order. The fact remains regarding the question of remission or cessation of liability. Apparently, on the plain reading of section 41(1) the term "remission" relates to any overt or specified act attributed to the creditor to forgo his right of recovery from the debtor; on the other hand, cessation of liability may be on account of agreement or by operation of law which may have effect of extinguishing the liability. The other necessary element of operating section 41(1) is that the assessee must actually receive the cash or a benefit equal in terms of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending before the BIFR certain rights of creditors remains suspended. But no provision has been brought to our notice which envisages extinguishment of existing right except to the extent they become part of package under the sanctioned scheme. 38. It is significant to notice that in case BIFR comes to the conclusion that the company is not capable of revival or the scheme sanctioned for its revival fails, it does not result automatic closure or winding of the company and extinguishment of all liabilities of the company but the BIFR is authorised to recommend winding of the company through the procedure under the Companies Act. In that event if winding up order is made by the order of the company court, on an application being made to it in accordance with the provisions of the Companies Act, it is only after rules are made by the competent court and the official liquidator or provisional official liquidator as appointed that the claims of the outstandings against the sick company are required to be lodged before the official liquidator after creditors are invited to do so and they are dealt with under the Companies Act. But that stage has not at all reached. This is only to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained", whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure incurred in any previous year clearly refer to the actual receiving of the cash or benefit equivalent to that amount. The amount may be actually received or it may be adjusted by way of an adjustment entry or a credit note or in any other form when the cash or the equivalent of cash can be said to have been received by the assessee. But it must be the obtaining of the actual amount which is contemplated by the Legislature when it used the words "has obtained", whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure in the past. As rightly observed by the Division Bench in the context in which these words occur, no other meaning is possible. 42. On the other hand, it disapproved the decision of the Bombay High Court in CIT v. Bennett Coleman and Co. Ltd. [1993] 201 ITR 1021(relied on by the Revenue in this case also) and also held that the principle enunciated in Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328; [1958] SCR 1122 is well applicable under section 41(1) of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from April 1, 1997, to section 41(1) and was not retrospective in operation and did not govern assessments prior to the assessment year 1997-98. 47. Coming to the decision of the Supreme Court in CIT v. T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 it may be stated that the said case related to the money received in past by the assessee but was appropriated for his own use during the previous year relevant to the assessment year in question. Such amount when originally received were capital receipts and not liable to be taxed as income. The question did not relate to making of any allowance or deduction claimed by the assessee. The court considered the matter as a case of appropriation of money during the year for own use resulting in change in nature of receipt from capital to revenue and becoming a trading surplus. The question about remission or cessation of liability allowed to be adjusted or deducted from income was not the question before the Supreme Court. 48. Though, the decisions of the Supreme Court in CIT v. T. V. Sundaram Iyengar and Sons [1996] 222 ITR 344 was not noticed in CIT v. Sugauli Sugar Works P. Ltd. [1999] 236 ITR 518, but in the late ..... X X X X Extracts X X X X X X X X Extracts X X X X
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