GIRIDHAR R Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is M/s Mysore Agencies Pvt. Ltd., Bangalore (in voluntary liquidation). THE assessment year is 1967-68. A total sum of Rs. 4,600 which had been debited in the books of accounts of the assessee during the earlier years towards rent payable to its landlord had been allowed as trading expense by the IT authorities in the orders of assessment passed earlier by them. During the assessment year in question the liquidator of the assessee which had gone into voluntary liquidation transferred the said sum of Rs. 4,600 which had been shown as the rent payable to the landlord in the earlier years to the PandL A/c of the year in question and treated it as an item of credit in its hands. THE ITO treated the said sum of Rs. 4,600 also as part of the taxable income on the basis of the PandL A/c presumably on the ground that s. 41(1) of the IT Act, 1961 (hereinafter referred to as "the Act"), was applicable. Aggrieved by the order of the ITO, the assessee filed an appeal before the AAC. In the course of the said appeal, it was contended on behalf of the assessee that the said sum of Rs. 4,600 should not have been treated as part of the taxable income as s. 41(1) of the Act was not attracted merely because the claim of the creditor in respect of the said amount had become barred by time. THE claim of the assessee was accepted by the AAC and the taxable income was reduced by Rs. 4,600. THE Department questioned the correctness of that order before the Tribunal, Bangalore Bench. Several questions were urged before the Tribunal by the assessee and the Department. We are, however, concerned only with one of them, namely, the tax liability in respect of the abovesaid sum of Rs. 4,600. THE Tribunal held that since the period of limitation prescribed for recovering the sums amounting to Rs. 4,600 had expired and since the liquidator of the assessee had expressed his intention to resist the claim by the landlord to recover the said amount there was cessation of the liability to the extent of Rs. 4,600 and, therefore, under s. 41(1) the said amount was taxable. Accordingly, it allowed the appeal of the Department in that regard.

(2.) AT the instance of the assessee, the following question has been referred to us by the Tribunal under s. 256(1) of the Act :

(3.) IN Salmond on Jurisprudence, Twelfth edition, the distinction between a perfect right and an imperfect right is explained as follows :