LexTHE CHIEF COMMISSIONER OF INCOME TAX, COCHIN versus MIS. KESARIA TEA CO. LTD.
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THE CHIEF COMMISSIONER OF INCOME TAX, COCHIN
A
v.
MIS. KESARIA TEA CO. LTD.
MARCH 19, 2002
[S. RAJENDRA BABU, K.G. BALAKRISHNAN AND
P. VENKATARAMA REDD!, JJ.]
B
Income Tax Act, 1961-Section 41(1)-Applicability-Purchase tax
liability-Remission or cessatio1>-Benefit of-Assessee made provision in books C
of accounts towards purchase tax-Availed benefit of deduction from business
income in earlier assessment years-Assessee reversed the same by writing
back in its accounts a sum for a relevant assessment year-Assessing Officer
treated sum representing provision towards purchase tax during earlier
assessment year as income for relevant assessment year-Whether purchase
tax liability ceases and thus, S.41(1) can be invoked to enable Revenue to take D
back ;,hat it has allowed earlier as business expenditure and to include such
amount_qs income of relevant assessment year-Held, no since mere unilateral
act on the part of assessee writing back amount does not have the effect of
extinguishing statutory liability and Section 41(1) can be invoked only if liability
of assessee is assessed without the possibility of reviving it.
The question which arose for consideration in the present appeal was
whether the purchase tax liability of assessee ceased finally during the relevant
assessment year so that resort could be had to Section 41(1) of the Income
E
Tax Act enabling the Revenue to take back what has been allowed earlier as
business expenditure and to include such amount in the income of relevant F
assessment year.
Dismissing the appeal, the Court.
HELD: 1. In order to apply Section 41(1) of the Income Tax Act, 1961
in the context of the facts in the instant case, the following points are to be G
taken into account : (1) in the course of assessment for an earlier year,
allowance or deduction has been made in respect of trading liability incurred
by the assessee; (2) subsequently, a benefit is obtained in respect of such
trading liability by way of remission or cessation thereof during the year in
wltich such event occurred; (3) in that situation the value of benefit accruing
571
H
572
SUPREME COURT REPORTS
[2002] 2 S.C.R.
A to the assessee is deemed to be the profit and gains of business which otherwise
would not be his income; and (4) such value of benefit is made chargeable to
income tax as the income of the previous year wherein such benefit was
obtained. [574-E-F]
2. The High Court, agreeing with the Tribunal that an unilateral action
B on the part of the assessee in writing~back the amounts could not have the
effect of extinguishing the statutory liability has rightly held that resort to
Section 41(1) could arise only if the liability of the assessee can be said to have
ceased finally without the possibility of reviving it. On the facts found by the
Tribunal, the Tribunal as well as the High Court were well justified in coming
C to the conclusion that the purchase tax liability of the assessee had not ceased
finally during the year in question. [574-B-G]
Commissioner of Income Tax v. T. V Sundaram Iyengar and Sons Ltd, 222
ITR 344, distinguished.
D
CIT v. Suguli Sugar Works (P) Ltd, 236 ITR 518, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1581 of
2001.
From the Judgment and Order dated 19.i 1.99 of the Kerala High Court
E in I.T.R. No. 16 of 1997.
R.P. Bhatt, Rajiv Tyagi and B.V. Balam Das for the Appellant.
Ms. Asha Gopalan Nair for the Respondent.
p
The Judgment of the Court was delivered by
P. VENKATARAMA REDDI, J. The opinion recorded by the Kerala
High Court in ITR No. 16 of 1997 has given rise to this appeal filed by the
Chief Commissioner of Income-tax. The dispute relates to the assessment
year 1985-86. At the instance of the Revenue the following question was
G referred under Section 256(1) of the Income-tax Act for the opinion of the
High Court:
"Whether on the facts and in the circumstances of the case, the
Tribunal is right in law and fact in holding that Rs. 3,02,758 cannot.
be brought to tax and in deleting the addition of Rs. 3,02,758 sustained
H
by CIT (Appeals)?"
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CHIEFCOMMR. OF INCOME TAX v. KESARIA TEA CO. LTD. {P. VENKATARAMA REDDl,J.] 573
The High Court accepted the view of the Tribunal which partly allowed A
the appeal of the assessee and answered the question in favour of the assessee.
The facts in brief are: The respondent-assessee is engaged in the business
of tea, spices etc. During the assExcerpt shown. Read the full judgment & AI analysis in Lexace.