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Kohinoor Mills Co. Ltd. Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 65 of 1960
Judge
Reported in[1963]49ITR578(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2A)
AppellantKohinoor Mills Co. Ltd.
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
- .....terms : 'whether, on the facts and circumstances of the case, was there a cessation of the trading liability within the meaning of section 10(2a) of the act ?' 2. the question arises in the following manner : the assessee, a limited company, carried on business as a manufacturer of textile piece-goods at all material times. a large number of labourers and workmen had been employed by the company for the purpose of its business. in certain years, however, certain wages due to the labourers and workmen were not paid to them because some of them did not turn up to receive them. previously it was the practice that such amounts of wages which remained unclaimed for a period of three years were added back to the profits of the assessee after the expiry of three years. we are here.....
Judgment:

Y.S. Tambe, Ag. C.J.

1. The question referred to us in this reference under section 66(1) is in the following terms :

'Whether, on the facts and circumstances of the case, was there a cessation of the trading liability within the meaning of section 10(2A) of the Act ?'

2. The question arises in the following manner : The assessee, a limited company, carried on business as a manufacturer of textile piece-goods at all material times. A large number of labourers and workmen had been employed by the company for the purpose of its business. In certain years, however, certain wages due to the labourers and workmen were not paid to them because some of them did not turn up to receive them. Previously it was the practice that such amounts of wages which remained unclaimed for a period of three years were added back to the profits of the assessee after the expiry of three years. We are here concerned with the assessment year 1956-57, the relevant accounting year being the calendar year 1955. It appears that the amount of wages which had become due to the labourers and workmen, but which were not claimed by them, amounted to Rs. 30,190. The income-tax authorities added that amount of Rs. 30,190 in the income of the relevant assessment year on the ground that the liability to pay the amount to labourers and workmen had ceased by reason of the expiry of the period of three years. The claim of the income-tax authorities was founded on section 10(2A) of the Act. The assessee objected to the inclusion of the said amount in its income. According to the assessee, the liability did not cease though the remedy to recover the amount of wages by the labourers and workmen may have become barred. The Tribunal did not accept this contention of the assessee : but, on the other hand, held that in the hands of the assessee the trading liability in respect of unclaimed wages could not be enforced by the workmen and as such there was cessation of the trading liability within the meaning of section 10(2A) of the Act.

3. It is not in dispute before us that in view of the provisions of section 10(2A), it is open to the income-tax authorities to include in the income of the assessee the amount of the trading liability of the assessee, which had ceased to be its trading liability in the relevant accounting year. The question, however, is whether the trading liability to the extent of Rs. 30,190 representing the unclaimed wages, which was the trading liability of the assessee incurred in the year 1952 had ceased to be its trading liability in the year 1955 by reason of the expiry of three years, and thus barring the remedy of the labourers and workmen to recover that amount by way of suits. The answer to this question has been given by their Lordships of the Supreme Court in Bombay Dyeing & . v. State of Bombay. At page 1135, their Lordships observed :

'The position then is that, under the law, a debt subsists notwithstanding that its recovery is barred by limitation...'

4. That being the principle of law laid down by their Lordships, it is hardly possible to sustain the view taken by the Tribunal, that the trading liability incurred by the assessee in respect of the said amount of Rs. 30,190 had ceased to be its trading liability in the year 1955 by reason of the expiry of the period of three years.

5. We therefore answer the question referred to us in the negative. We make no order as to costs.

6. Question answered in the negative.


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