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Commissioner of Income-tax Vs. Thakurdas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 199 of 1981
Judge
Reported in[1984]147ITR549(MP)
ActsIncome Tax Act, 1961 - Sections 41(1) and 176(3A)
AppellantCommissioner of Income-tax
RespondentThakurdas
Appellant AdvocateR.C. Mukati, Adv.
Respondent AdvocateP. Mehta, Adv.
Excerpt:
- .....the aac. the aac held that as the assessee was not carrying on business during the assessment year in question and since section 176(3a) of the act came into force only from the assessment year 1976-77, the amount in question could not be taxed during the assessment year 1975-76. the aac further held that since no actual allowance or deduction in respect of any loss, expenditure or trading liability had been allowed in any assessment year, the amount received by the assessee could not be subjected to tax under section 41(1) of the act. the aac, therefore, allowed the appeal preferred by the assessee. aggrieved by that order, the department preferred an appeal before the tribunal. the tribunal upheld the findings given by the aac and dismissed the appeal. hence, at the instance of.....
Judgment:

Sohani, J.

1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as ' the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion:

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the findings of the AAC that the sum of Rs. 2,00,930 received by the assessee from the Railways during the accounting year relevant to the assessment year 1975-76 is neither chargeable to tax as business profit nor is it chargeable under Section 41(1) of the Act and consequently in upholding the AAC's order deleting the sum of Rs. 91,748 taxed by the Income-tax Officer '

2. The material facts giving rise to this reference briefly are as follows :

3. The assessee-firm entered into a contract with the Chief Engineer (Construction), Central Railway, for executing earth work in connection with construction of bridges between Sumeri and Jeruwakherea. After partly executing the contract, the assessee abandoned the contract as one of the partners of the assessee-firm was abducted by dacoits. Thereafter, the assessee did not carry on any business. Thus, from the assessment year 1967-68 onwards, no business was carried on by the assessee-firm. On 3rd August, 1974, the assessee received a sum of Rs. 2,00,930 in full and final settlement of its 'claims against the Railways, which were referred to arbitration. For the relevant assessment year 1975-76, the assessee contended that the amount received by it from the Railways was not taxable as business income as it related to a discontinued business and that it was also not taxable under Section 41(1) of the Act. The ITO upheld the contention of the assessee that the amount was not taxable as business income since Section 176(3A) of the Act came into force in the assessment year 1976-77. The ITO was, however of the view that the amount was chargeable to tax under Section 41(1) of the Act. Aggrieved by the order passed by the ITO, the assessee preferred an appeal before the AAC. The AAC held that as the assessee was not carrying on business during the assessment year in question and since Section 176(3A) of the Act came into force only from the assessment year 1976-77, the amount in question could not be taxed during the assessment year 1975-76. The AAC further held that since no actual allowance or deduction in respect of any loss, expenditure or trading liability had been allowed in any assessment year, the amount received by the assessee could not be subjected to tax under Section 41(1) of the Act. The AAC, therefore, allowed the appeal preferred by the assessee. Aggrieved by that order, the Department preferred an appeal before the Tribunal. The Tribunal upheld the findings given by the AAC and dismissed the appeal. Hence, at the instance of the Department, the Tribunal has referred the aforesaid question of law to this court for its opinion.

4. The learned counsel for the department conceded that the provisions of Section 176(3A) of the Act were not attracted in the instant case and that in view of the findings of the Tribunal that the amount in question was received by the assessee when the assessee had ceased to carry on any business, the Tribunal was right in upholding the view of the AAC that the sum received by the assessee-firm from the Railways during the assessment year in question was not chargeable to tax as business profits. As regards chargeability under Section 41(1) of the Act, the Tribunal has found that the conditions prescribed for charging tax under Section 41(1) of the Act were not fulfilled. A Division Bench of this court has held in Naubatram Nandram v. CIT : [1972]86ITR805(MP) , that Section 10(2A) of the I.T. Act, 1922, corresponding to Section 41(1) of the Act, envisages an actual allowance or deduction and not a notional one. In view of this decision, the Tribunal, in our opinion, was justified in holding that the provisions of Section 41(1) of the Act were not applicable.

5. For all these reasons, our answer to the question referred to this court is in the affirmative and against the Department. In the circumstances of the case, parties shall bear their own costs of this reference.


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