COMMISSIONER OF INCOME TAX Vs. AGARPARA CO LTD

JUDGEMENT

(1.) IN this reference under s. 256(1) of the IT Act, 1961, the following question has been referred to this Court by the Tribunal for the asst. yr. 1971-72 :

(2.) DURING the previous year relevant to the asst. yr. 1971-72, the assessee wrote off liabilities totaling to Rs. 84,508.40 including unpaid bonus amounting to Rs. 50,061.61 made up of the following items : The ITO in the above assessment year added the said amount of Rs. 50,061 in respect of unpaid bonus to the total income of the assessee without any discussion. The assessee, accordingly, took up the matter in its objection to the draft assessment order under s. 144B with the AAC. It was stated that the above amount of Rs. 50,061 represented unclaimed bonus due by the assessee to its workers. Although the said amount had been written back in the accounts, it could not be said that the liability of the company in that behalf had been extinguished. In the present case, there was neither remission nor cessation of the said liability in termsaid by him was bthe Act and as such the obligation of the assessee to pay unclaimed bonus to its workers, when they claimed the same, exists in law. The said amount cannot represent the income of the assessee. The said stand of the assessee had, however, been negatived by the ITO in the final order, as according to him, after the above amount had been credited to the PandL A/c, the assessee had no liability in the matter of payment of bonus totaling Rs. 50,061 which was claimed in the earlier years as revenue expenditure. The assessee went on appeal before the CIT(A) who observed as follows :

(3.) THE question, however, is whether the liability has ceased to exist. It was contended by Mr. Ray on the strength of the decision of this Court in the case of CIT vs. Sugauli Sugar Works P. Ltd. (supra), that recovery may have been barred but the liability still exists. It is, therefore, necessary to consider the decision of this Court. In that case, the assessee transferred Rs. 3,45,000 out of the suspense account running from 1946-47 to 1948-49 to its capital reserve account. THE ITO found that out of the above sum, an amount of Rs. 2,56,529 represented liabilities for expenses which had been allowed in the earlier years. By applying s. 41 of the Act, he included this amount in the total income of the assessee. THE AAC confirmed the view taken by the ITO. THE assessee came up in further appeal to the Tribunal. THE Tribunal was of the opinion that the liabilities for expenses arose for 1948-49 and these amounts became barred by limitation. When the liability became barred by limitation, there was neither a remission nor a cessation of the liabilities. THE liabilities are not extinguished. THE Tribunal, therefore, held that the amount in question cannot be taxed under s. 41(1) of the Act. This Court considered the decision in the case of Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) : TC19R.278, where the decision of the Supreme Court in the case of Bombay Dyeing and Mfg. Co. Ltd . vs. State of Bombay (1958) SCR 1122, corresponding to AIR 1958 SC 328, was considered. This Court also considered the decision of the Bombay High Court in the case of J.K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom) : TC19R.248. This Court reproduced extenso from the decision in the case of J.K. Chemicals Ltd. THE following passage at page 41 of 62 ITR was relied on :