Pathak, Actg. C.J.
1. On an application under Section 66(2) of the Indian I.T. Act, 1922, the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, was directed to draw up a statement of the case on the following question :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no addition could be made under Section 10(2A) of the Indian Income-tax Act, 1922 ?'
2. The assessee owns a rice mill and in the year 1946 he had mortgaged his immovable property including the mill machinery in favour of M/s. Tripura Modern Bank Ltd. with a view to obtain financial assistance from the bank. From time to time that bank financed the assessee. Some time after, the bank was closed down and an official liquidator was appointed. The High Court of Calcutta made an order against the assessee on September 3, 1957, for the payment of a sum of Rs. 3,76,914-11-3 along with further interest @ 6% per annum till the date of realisation and costs on the basis of the dues outstanding from the assessee to the said bank. This amount included a sum of Rs. 2 lakhs which was the capital amount and the remaining amount represented interest. The official liquidator by a letter dated November 19, 1957, required the assessee to pay this amount within 15 days from the date of that letter. It appears that the assessee did not pay the amount and thereafter the official liquidator approached the High Court and the High Court of Calcutta by an order dated October 10, 1960, granted leave to the official liquidator to
accept an amount of Rs. 1,65,000 'in full settlement of the claim, interest and costs against the debtor.'
3. Thereafter, the ITO during the course of assessment proceedings for the assessment year 1961-62 came to the conclusion that, by means of the settlement, the assessee not only got the benefit of remittance of the entire interest of Rs. 1,76,000 odd but also of the capital by Rs. 35,000 and from the perusal of the records, he found that during the assessment years 1946-47 to 1960-61, the assessee had been allowed a total sum of Rs. 1,03,570 as interest and he, therefore, added back this sum under Section 10(2A) of the Indian I.T. Act, 1922. The assessee being aggrieved preferred an appeal before the AAC and challenged the addition. The AAC held, agreeing with the ITO, that by means of the said settlement the assessee got the benefit of remission of the entire interest and also of the capital by Rs. 35,000. But on the scrutiny of the records the AAC found that in fact the assessee had paid Rs. 30,300 as interest, allowed in the years 1946-47 to 1949-50, and, therefore, he reduced the addition by that amount and sustained the addition of the balance amount.
4. The assessee went up in further appeal before the Income-tax Appellate Tribunal, Calcutta Bench, against the addition of the amount as sustained by the AAC, and on consideration of the materials on record, the Tribunal came to the conclusion that the addition of the balance amount to the profit during the assessment year was not tenable in law.
5. Let us note Section 10(2A) of the Indian I.T. Act, 1922, which reads as follows:
'(2A) Where for the purpose of computing profits or gains under this section, an allowance or deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assessee and, subsequently during any previous year, the assessee has received, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or has obtained some benefit in respect of such trading liability by way of remission or cessation thereof, the amount received by him or the value of the benefit accruing to him shall be deemed to be profits or gains of business, profession or vocation and to have accrued or arisen during that previous year.'
6. On a perusal of the provisions of Section 10(2A), it is found that if any deduction was obtained by the assessee in the previous year and if it is found during the subsequent year that in respect of that deduction remission was given, then the remitted amount can be added back under Section 10(2A). But, in this particular case, from the facts it is not possible to hold whether in the settlment the entire interest was remitted, for which the ITO would have been justified in adding back the interest. In 'this connection, we may refer to a decision of the Supreme Court in Tirunelveli
Motor Bus Service Co. P. Ltd. v. CIT : 78ITR55(SC) , wherein their Lordships of the Supreme Court had occasion to consider the scope and content of Section 10(2A). That case arose on the following facts. The appellant-company had submitted a return for the assessment year 1950-51, disclosing an income of Rs. 14,555, which was arrived at after deducting Rs. 71,949 towards the annual bonus payable to its employees. The ITO, however, made an assessment to the best of his judgment under Section 23(4) of the Indian I.T. Act, 1922, estimating the appellant's income at Rs. 1,30,000 having as a guide the earlier year's assessment, in which year also there was a bonus claim. In the accounting year relevant to the assessment year 1957-58, a sum of Rs. 17,470 was paid to the employees as bonus in full settlement and the balance of Rs. 54,479 was credited to the profit and loss account. The question was whether the sum of Rs. 54,479 could be assessed as deemed profit, under Section 10(2A) of the Act, for the assessment year 1957-58. The Tribunal held that there was nothing on record to indicate that in estimating the income for 1950-51, the ITO had made any allowance in respect of bonus and that unless the department was able to identify any particular item of expense as having been already allowed as a deduction in an earlier assessment conclusively, Section 10(2A) is not available for recoupment. On a reference, the High Court of Madras held that the same was assessable under Section 10(2A). On appeal, the Supreme Court reversed the judgment and order of the High Court and affirmed that of the Tribunal.
7. From a perusal of the records and also of the order of the Tribunal, we are satisfied that it cannot be held that in the settlement which was arrived at before the High Court of Calcutta, there was a complete rebate of the interest, as the order of the Calcutta High Court which is at pp. 6 and 7 of the paper book states that leave was granted to the official liquidator to accept Rs. 1,65,000 'in full satisfaction of the claim, interest and costs against the debtor'. Thus, interest was also taken into consideration while allowing settlement at Rs. 1,65,000. It would be a conjecture to try to find out how much remission was given on account of interest. So, it is not possible to identify conclusively the particular item for which remission was granted, and then how much for each item. Section 10(2A) was thus not available to the department because of what has been stated in Tirunelveli Motor Bus Service v. CIT : 78ITR55(SC) . In this view of the matter, we answer the question referred in the affirmative and against the department.