The Commissioner of Income Tax, Delhi-IV, New Delhi vs M/s. Rajasthan Golden Transport Co.(P) Ltd.

Arijit Pasayat, C.J.—At the instance of revenue, following question has been referred for opinion of this Court u/s 256(1) of the Income Tax Act, 1961(in short the ''Act'') by the Income Tax Appellate Tribunal, Delhi Bench ''D'' (hereinafter referred to as the Tribunal):

"Whether on facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs.26,803 brought to tax by the ITO u/s 41(1) of the Income Tax Act, 1961?"

Dispute lies within a very narrow compass. During the assessment proceedings for the assessment year 1976-77. Assessing Officer noted that the assessed had deleted unclaimed credit balance amounting to Rs. 35,185/- from the total income. Some was held to be taxable in terms of Section 41(1) of the Act. assessed preferred appeal before the Commissioner of Income Tax (Appeals)(in short the CIT(A)''). Said authority noticed that the amounts were credited to the profit and loss account. It was assessed''s stand that these were claims made against various agents of the assessed company for loss or wrong delivery with the hope that the consignee will have to be paid this amount. CIT(A) noted that a sum of Rs. 8382/- was not debited to the profit and loss account in earlier years and could not, Therefore, be taxed u/s 41(1) of the Act. So far as the other amounts are concerned, it was observed that the amounts in question remained credited to the profit and loss account and it prima facie indicated that there was a remission of the liability. assessed preferred appeal before the Tribunal. It was the stand of assessed that unilateral transfer of any entry in the accounts to the profit and loss account does not bring about cessation of liability of the debtor. Therefore, the amounts continue to remain as liability and cannot be treated as income u/s 41(1) of the Act. Tribunal held that the mere fact that some party had unilaterally written back the amount to its profit and loss account does not amount to remission or cessation of liability. Accordingly it was held that the income cannot be treated as assessable u/s 41(1) of the Act. On being moved for reference, the question as set out above has been referred for opinion of this Court.

We have heard learned counsel for the revenue. There is no appearance on behalf of assessed in spite of notice. Learned counsel for revenue submitted that the fact that the concerned party had made an entry in the profit and loss account is indicative of the fact that there was cessation of liability. The Tribunal according to him did not consider this relevant aspect.

At this juncture it would be relevant to refer to a decision of the Apex Court in Commissioner of Income Tax, Madurai Vs. T.V. Sundaram Iyengar and Sons Ltd., . It was inter alia, observed that if an amount is received in the course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessed''s own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessed. Applying the ratio of said decision, it has to be held that the amount in question was taxable u/s 41(1)of the Act. The question referred is, Therefore, answered in the negative, in favor of revenue and against the assessed.

Reference application stands disposed of.