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TMI Blog1972 (10) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company, which has gone into voluntary liquidation on December 31, 1959. The assessee-company was the selling agent of the National Rayon Corporation Ltd. before the voluntary liquidation proceedings were commenced. The agency of the company came to an end some time in March, 1958. The assessment year is the year 1961-62, and the corresponding previous year is the calendar year 1960. During the year the assessee-company had an income of Rs. 7,318 in the outstanding creditors' account and this amount was on account of expenses claimed in earlier years. The assessee-company had maintained its accounts on mercantile basis, and even though the amount in fact was not paid, yet as the liability was incurred, it was allowed as expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out to its logical conclusion. Accordingly, the amount was liable to be assessed under section 10(2A). In the alternative, he took the view that the provisions of section 12(5) were also attracted. The order passed by the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. On an appeal by the assessee-company before the Tribunal, it was contended on its behalf that neither the provisions of section 10(2A) nor those of section 12(5) were attracted, that the company had ceased to carry on the business as from March 30, 1958, that the liquidator has not carried on any business after the date of the winding-up and since the business in respect of which the expenditure was allowed came to a stop in 1958, and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was subject to tax in view of the provisions of section 10(2A). Upon application by the assessee-company, the question has been referred to this court for its determination. Having regard to the question referred to this court, two questions arise for consideration, viz., whether the sum of Rs. 7,318 could be included in the income of the assessee-company for the assessment year 1961-62, either under the provisions of section 10(2A) or section 12(5). Section 12(5) will not apply because the deductions in the first place in the earlier years were given under section 10. Section 12(1) provides that tax shall be payable by an assessee under the head "income from other sources" in respect of income, profits and gains of every kind which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken the view in this case that sub-section (2A) of section 10 of the Indian Income-tax Act, 1922, must be read along with sub-section (1) and an essential requirement for the application of sub-section (2A) is the existence of the business in the "previous year". Upon construction of sub-section (2A) it took the view that it creates two fictions: (i) that though the amount received or the benefit derived in respect of a trading liability which has been allowed would not be income, it is to be deemed to be profits or gains; and (2) that such profits or gains have to be deemed as having accrued during that previous year, i.e., the year of remission or cessation. The sub-section does not go further and provide that in a case where the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earlier allowed as a deduction or an allowance. The opening words of the sub-section, namely, "where for the purpose of computing profits or gains under this section" would themselves indicate that the sub-section is not an independent provision but a part of the scheme of section 10, a scheme for computing profit or gains. As part of the scheme for such computation, the sub-section provides that where an allowance or deduction has been made in the assessment of any year in respect of any loss, expenditure or trading liability, and subsequently during any previous year the assessee has received any amount of such loss or expenditure or has obtained some benefit in respect of such trading liability by remission or cessation thereof, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of an all India statute to follow the decision of the Gujarat High Court, even though we may be persuaded upon reconsideration to take a different view. Mr. Joshi on behalf of the revenue has reserved his right to contend that the question involved in this reference raises an important question as to the construction of the provisions of section 10(2A) and section 12(5) of the Act and also to contend that the view taken by the Gujarat High Court is erroneous. It will be open to the revenue to take such a contention in case the matter has to be considered by any higher court. Following the decision of the Gujarat High Court, our answer to the question referred is in the negative. The revenue shall pay the costs of the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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