RAMESH NARAIN SAXENA AND ORS. versus COMMISSIONER OF INCOME TAX, NEW DELHI

Citation: [1996] SUPP. 1 S.C.R. 610 · Decided: 22-04-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
RAMESH NARAIN SAXENA AND ORS. 
v. 
COMMISSIONER OF INCOME TAX, NEW DELHI 
APRIL 22, 1996 
B 
[B.P. JEEVAN REDDY ANDS. SAGHIR AHMAD, JJ.] 
Income Tax Act, 1961: Sections 28 anq 41(1). 
Income Tax-Assessee-f'ledge of goat skins with bank and over.iraft 
C obtained against pledge-Damage to pledged goods--Assessee initiated 
criminal prosecution against bank officials-Compromise between par-
ties-Assessee withdrawing prosecution-Bank waiving amount due to 
it-Held compensation received by assessee for loss of damage to goods was 
a trading receipt and accordingly assessable to tax. 
D 
E 
The appellant-assessee, an exporter of hides and skins, pledged 
certain quantity of goat skins with the National Grindlays Bank during the 
accounting year relevant to the Assessment Year 1957-58 and obtained 
over-draft against the said pledge. As_ the pledged goat skins were not 
stored properly by the Bank they got damaged. On bank's refusal to pay 
damages the assessee filed a criminal complaint against the officers of the 
bank. Pursuant to a compromise between the parties during the account-
ing year relevant to assessment year 1961-62 the assessee had withdrawn 
prosecution against the bank officials and the bank waived a sum of Rs. 
1,93,159 which was the balance due to it from the assessee. The assessee 
F 
transferred the credit balance due to the Bank to the trading account 
deeming it to be towards the loss sustained by him and offered this amount 
for taxation spread over the three Assessment years 1957-58 (Rs39,940), 
1958-59 (Rs.73,152) and 1959-60 (Rs. 80,067). The Inco111e Tax Officer 
accepted the said additions and made assessment for the said three 
G 
assessment years. However, he held that the entire sum of Rs. 1,93,159 was 
to be included in the assessment year 1961-62. He then took rectification 
proceedings with respect to the earlier assessment years. He deleted the 
aforesaid amounts which were included in the assessments relating to 
Assessment years 1957-58 and 1958-59 but did not delete the addition in 
the assessment year 1959-60. On appeal, the Appellate Commissioner 
H 
upheld the assessee's contention that the said amount of Rs. 1,93,159 
610 
R.N.SEXENAv. C.I.T. 
611 
cannot be treated as income under Section 41(i) of the Income Tax Act, A 
1961 and accordingly delted the said amount. The Tribunal held that the 
amount realised was a part of consideration for wiping off the assessee's 
trading liability and that a sum of Rs. 1,13,092 out of the amount received 
by the assessee from the bank had not been brought to tax. Accordingly, 
it added the said amount to the total income of the assessee in the B 
accounting year ending 31.3.1961, relevant to the assessment year 1961-62. 
A reference obtained by assessee was answered by High Court in favour of 
Revenue and against the assessee. 
In appeal to this Court it was contended for the assessee that the 
High Court having rightly held in the first instance that Section 41 (i) was C 
not attracted in the facts and circumstances of the case, erred iu bringing 
in Section 41(i) later to justify the inclusion of the said amount. 
Dismissing the appea~ this Court 
HELD : The decision of the High Court is not really based npon D 
Section 41(i). It has clearly held that even apart from Section 41(i), the said 
amount is liable to be included in the assessment relating to Assessment 
year 1961-62 for the reason that the amount so received represented com· 
pensation in respect of his stock-in-trade and, therefore, it constitutes a 
trading receipt and is accordingly assessable to tax irrespective of the fact E 
whether the assessee had or had not claimed the loss of damage to stock· 
in-trade, as and when it occurred. The main basis of the Jndgment of the 
High Conrt is that it was a compensation for loss or damage to the 
assessee's stock-in-trade· and not Section 41(1). Indeed, this was also the 
finding of the Tribunal. Assessee did not dispute the fact that if the said 
amount is treated as compensation received in respect of stock-in-trade, it 
would be a trading receipt and accordingly assessable to tax. Therefore, 
there is no reason to interfere with the decision of the High Court. 
F 
[614-G-H; 615-ACJ 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5508 of G 
1985. 
From the Judgment and Order dated 18.2.80 of the Delhi High Court 
in I.T.R. No. 54 of 1972. 
J ahangir Mistry and Mrs. A.K. Verma for the Appellants. 
H 
612 
SUPREME COURT REPORTS [1996

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