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Indian Motor Transport Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 669 of 1974
Judge
Reported in[1988]114ITR677(All)
ActsIncome Tax Act, 1961 - Sections 41 and 41(1)
AppellantIndian Motor Transport Co.
RespondentCommissioner of Income-tax
Appellant AdvocateR.S. Dhawan, Adv.
Respondent AdvocateAshok Gupta, Adv.
Excerpt:
- - commissioner of income-tax [1975]99itr111(all) .in that case, it was held that section 41 of the income-tax act would apply if two conditions are satisfied, (i) that the amounts must have been allowed as a deduction in some earlier year; on facts, there is no difficulty in holding that both these conditions are satisfied in the present case......in road transport. on 31st march, 1970, it transferred a sum of rs. 24,869 to its profit and loss account. this sum represented two items : rs. 8,672, represented credits in the unclaimed wages account and rs. 16,197, stood to the credit of certain persons who had business dealings with the assessee. these persons had not come forward to demand payment of the amounts due to them and consequently their accounts were debited and correspondingly the profit and loss account of the assessee was credited. this was done on 31st march, 1970, which fell in the assessment year 1970-71. the income-tax officer found that the assessee had credited the above amounts to the profit and loss account when they remained unclaimed for a number of years and there was no hope of these being claimed. the.....
Judgment:

Satish Chandra, C.J.

1. The assessee carries on business in road transport. On 31st March, 1970, it transferred a sum of Rs. 24,869 to its profit and loss account. This sum represented two items : Rs. 8,672, represented credits in the unclaimed wages account and Rs. 16,197, stood to the credit of certain persons who had business dealings with the assessee. These persons had not come forward to demand payment of the amounts due to them and consequently their accounts were debited and correspondingly the profit and loss account of the assessee was credited. This was done on 31st March, 1970, which fell in the assessment year 1970-71. The Income-tax Officer found that the assessee had credited the above amounts to the profit and loss account when they remained unclaimed for a number of years and there was no hope of these being claimed. The assessee has itself claimed the sums as its income. Hence, the same is liable to tax. He included the sum of Rs. 24,869 to the income of the assessee.

2. The assessee went up in appeal. The Appellate Assistant Commissioner held that though the concerned persons had not come forward to demand payments, but in law they could, till three years after 31st March, 1970, for it was up to that date that the assessee had admitted its liability to pay. Therefore, even if the amounts were credited to the profit and loss account that would not become the assessee's profit under Section 41(1). The above addition was accordingly deleted.

3. The Income-tax Officer went in appeal to the Tribunal. The Tribunal held that the conduct of the assessee in transferring the amounts from the accounts of the creditors to the profit and loss account, after debiting the creditors' account shows that the assessee treated these amounts as its income. It was hence taxable as income even without resort to the deeming provisions of Section 41(1) of the Act. It relied upon a decision of this court in Pioneer Consolidated Company of India Ltd. v. Commissioner of Income-tax : [1972]85ITR410(All) . It was observed that though that case was of a deposit, which had been transferred to the profit and loss account, yet the principle laid down in it was applicable to the instant case. On this view, the addition made by the Income-tax Officer was restored.

4. At the instance of the assessee the Tribunal has referred for our opinion the following question :

'Whether, on the facts and in the circumstances of the case, the sum of Rs. 24,869 was assessable under Section 41(1) of the Income-tax Act, 1961, in the assessment year 1970-71?'

5. The inference of fact drawn by the Tribunal from the materials on record was that the assessee itself treated the amounts in question to be its income which accrued to it on 31st March, 1970.

6. Learned counsel appearing for the assessee invited our attention to the principles laid down in Bhagwat Prasad and Co. v. Commissioner of Income-tax : [1975]99ITR111(All) . In that case, it was held that Section 41 of the Income-tax Act would apply if two conditions are satisfied, (I) that the amounts must have been allowed as a deduction in some earlier year; and (2) that during the assessment year in question the assessee must receive some benefit by way of cessation or remission of liability. On facts, there is no difficulty in holding that both these conditions are satisfied in the present case. It is not disputed that the amounts in question had been allowed as deduction in the past years. The inference of fact drawn by the Tribunal from the conduct of the assessee is that the assessee itself treated these amounts as its income because it felt that the claimants were not likely to come forward to make demands. This necessarily implies that the assessee has treated its liability to have ceased to exist at least on 31st March, 1970.

7. The decision in Bhagwat Prasad's case : [1975]99ITR111(All) further emphasises that the fact that the creditors' remedy became time-barred would not lead to the conclusion that the liability had ceased. The expiry of period of limitation bars the remedy, but does not extinguish the debt. In the present case, there is no finding that the assessee made the transfer entry on the basis that the debt had become time-barred. On the contrary, the Appellate Assistant Commissioner has found that the debt would not become time-barred at least for three years from 31st March, 1970. This finding has not been controverted or set aside by the Tribunal. The Tribunal has proceeded on the view that the assessee's conduct showed that it:

'treated those amounts as its income without disclosing the reasons or the motive for it. The Tribunal hence did not proceed on the footing that the assessee treated its liability to have ceased because of the expiry of limitation.'

8. Learned counsel for the assessee invited our attention to the case of Bijli Cotton Mills (P.) Ltd. v. Commissioner of Income-tax : [1971]81ITR400(All) . This case is distinguishable on facts. There the amount in question was held not to belong to the assessee at all. It was in the hands of the assessee as trust money which never altered its character. No such problem arises in the present case.

9. The decision in Gannon Dunkerley and Co. Ltd. v. Commissioner of Income-tax : [1976]102ITR428(Bom) is also distinguishable. There the amounts in question were transferred from the unclaimed balances account to the assessee's reserve for taxation account. It was found that the assessee made payments from the reserve for taxation account as and when the creditors made claims. It is clear that the assessee never claimed that the amounts became its own property or its income. It was not transferred tothe profit and loss account. The observation that a unilateral act on the part of the debtor in making transfer entry would not bring about remission or cessation of liability has to be understood in the context of the facts. The Tribunal was justified in placing reliance on the decision of this court in v. In that case also, the assessee transferred the amount in question to the profit and loss account. It was held that such an entry in the accounts of the company is prima facie evidence of income. The position in the present case is similar. In our view, the Tribunal was justified in holding that the amounts in question were liable to be assessed under Section 41(1) of the Act.

10. We answer the question referred to us in the affirmative, in favour of the department and against the assessee. The Commissioner of Income-tax will be entitled to costs which are assessed at Rs. 200.


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