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Commissioner of Income-tax, Poona Vs. Manohar Bandhu - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 9 of 1974
Judge
Reported in(1983)37CTR(Bom)184; [1984]148ITR108(Bom); [1983]13TAXMAN99(Bom)
ActsIncome Tax Act, 1961 - Sections 41(1)
AppellantCommissioner of Income-tax, Poona
RespondentManohar Bandhu
Excerpt:
direct taxation - remission - section 41 (1) of income tax act, 1961 - assessee made payment for discharging outstanding liability against creditor - whether tribunal erred in construing release deed dated 04.10.1965 to mean that assessee given remission of debt mentioned therein in assessment year 1955-56 and not assessment year 1966-67 - liability took place in assessment year 1966-67 - nothing in release deed to show that release indicated to be made effective in assessment year 1955-56 - held, remission took place in assessment year 1966-67. - - 53,265 in view of the bad financial position of the second party' rs. 53,265 in view of the bad financial position of the party of the second part......total amount coming to rs. 16,000 as against rs. 51,130 outstanding at the end of s.y. 2010.2. by release deed dated october 4, 1965, bapuji narayan & co., accepted rs. 16,000 'in full and final settlement of the balance debt of rs. 53,265 in view of the bad financial position of the second party' - rs. 53,265 was the balance shown as outstanding in the account of the assessee with bapuji narayan & co. with reference to the assessment year, the release deed was made in the assessment year 1966-67, i.e., s.y. 2021.3. the ito took the view that the remission for the purpose of s. 41(1) of the income-tax act, 1961, took place in the assessment year 1966-67 and he added the amount of rs. 42,266 with other income of the assessee. this order was upheld by the aac.4. when the matter was taken.....
Judgment:

Chandurkar, J.

1. The assessee was buying goods from a commission agent in Bombay, called M/s. Bapuji Narayan & Co. It appears that the assessee was in financial difficulty with the result that after S.Y. 2010 at the end of which, the closing credit balance to the account of Bapuji Narayan & Co. was Rs. 51,130, and there were no further purchases by the assessee from that company. Some payments were made towards discharging the outstanding liability by the assessee in the assessment years 1957-58, 1965-66 and 1966-67, the total amount coming to Rs. 16,000 as against Rs. 51,130 outstanding at the end of S.Y. 2010.

2. By release deed dated October 4, 1965, Bapuji Narayan & Co., accepted Rs. 16,000 'in full and final settlement of the balance debt of Rs. 53,265 in view of the bad financial position of the second party' - Rs. 53,265 was the balance shown as outstanding in the account of the assessee with Bapuji Narayan & Co. With reference to the assessment year, the release deed was made in the assessment year 1966-67, i.e., S.Y. 2021.

3. The ITO took the view that the remission for the purpose of s. 41(1) of the Income-tax Act, 1961, took place in the assessment year 1966-67 and he added the amount of Rs. 42,266 with other income of the assessee. This order was upheld by the AAC.

4. When the matter was taken in appeal to the Tribunal by the Revenue, the Tribunal took the view that though the last installment of Rs. 16,000 paid by the assessee fell in S.Y. 2021, the acceptance of the last installment in S.Y. 2021 could not be explained on any other hypothesis than that the creditor had agreed for remission as early as S.Y. 2010. The Tribunal, however, took the view that the fact that the creditor's claims were paid in the assessment year 1966-67 did not alter the basic fact that the creditor had already accommodate the assessee by agreeing to the remission or dispensation in S.Y. 2010. The Tribunal, therefore, held that the authorities below had fallen into an error in holding that the amount of Rs. 39,496, which was the correct amount of remission as per books of account of the assessee, was liable to be taxed in the assessment year 1966-67. The said amount was, therefore, ordered to be detected in the computation of the income for the assessment year 1966-67.

5. Arising out of this order of the Tribunal, the following two questions have been referred to this court under s. 256(1) for opinion :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal erred in construing the release deed dated October 4, 1965, to mean that the assessee was given remission of the debt mentioned therein, in Samvat year 2010 (relevant to the assessment year 1955-56) and not Samvat year 2021 (relevant to the assessment year 1966-67) ?

(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 39,469 which represented the remission obtained by the assessee in respect of its trade debt as per the release deed dated October 4,1965, was includible under section 41(1) of the Income-tax Act, 1961, in computation of its assessable income for the assessment year 1966-67 ?'

6. The answer to the second question will depend on what view we take on the first question. Mr. Sajnani appearing on behalf of the Revenue has contended that the Tribunal has wholly erred in reading the release deed to say that the remission was given by Bapuji Narayan & Co., in S.Y. 2010 itself. The learned counsel has referred us to annex E which is the copy of the accounts of Bapuji Narayan & Co., i.e., the creditor in the books of the assessee and, as pointed out, that for S.Y. 2011 and 2-12 corresponding to the assessment years 1956-57 and 1957-58, interest has been credited in the account with the result that the amount due from the assessee to the creditor which was Rs. 51,130-12-0 at the commencement of S.Y. 2011 became Rs. 53,346 (at the end of S.Y. 2011) and at the end of S.Y. 2012 this amount became Rs. 55,469. Our attention has also been invited to annex. F which is the account of the assessee in the account books of the creditor in which the amount shown outstanding against the assessee in S.Y. 2021 is Rs. 53,265. On the basis of this, it is contended that the release deed became effective in S.Y. 2021 and it is only in that year that the balance was written off by the creditor. It is difficult for us to see how the Tribunal could take the view that the settlement had taken place in S.Y. 2010. This conclusion is contrary to the recitals in the release deed itself. It is no doubt true that the release deed recites the fact that at the end of S.Y. 2010, Rs. 51,130 were outstanding against the assessee. But the crucial recital with regard to giving up of the balance of the debt after receiving Rs. 16,000 does not refer to the balance outstanding at the end of S.Y. 2010 but refers to the balance outstanding at the end of S.Y. 2021. The relevant part of the release deed reads as follows :

'That the party of the first part has accepted Rs. 7,000, being the last installment of Rs. 16,000 in full and final settlement of the balance debt of Rs. 53,265 in view of the bad financial position of the party of the second part.'

7. The liability of which the assessee has been relieved is the liability to pay Rs. 53,265 and this has taken place in S.Y. 2021. There is nothing in the release deed to show that the release was indicated to be made effective in S.Y. 2010. Indeed, the recitals are to the contrary.

8. Mr. Pandit appearing on behalf of the assessee, no doubt, sought to support the view of the Tribunal that the remission was given in S.Y. 2010 and based the argument only on the reference to the figure of Rs. 51,130 which was the amount outstanding at the end of S.Y. 2010. As already pointed out, these recitals are merely in the nature of a preamble and the real agreement accepting Rs. 16,000 in lieu of Rs. 53,265 would determine as to when the remission took place. This, as we have already pointed out, took place in S.Y. 2021. In the view which we have taken, question No. 1 has to be answered in the affirmative and in favour of the Revenue. Question No. 2 must, consequently, be answered in the affirmative and in favour of the Revenue. However, in the circumstances of the case, there will be no order as to costs.


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