Law: Income Tax Act, 1961

Section: 41(1),256(1)

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessee had made electricity payment in discharge of its liability to Electricity Board in earlier years - Subsequently, electricity tariff rate was reduced and assessee was given concessional rate resulting in a refund - Whether there would be, to above extent, a cessation or remission of its trading liability - Held, yes - Whether amount received by assessee, even assuming that it was capital receipt, was liable to be taxed under provisions of section 41(1) - Held, yes Section 4 of the Income-tax Act, 1961 - Income - Assessable as - Whether refund of electricity charges granted to assessee by Electricity Board on ground that it was a small-scale industry could be treated as subsidy and taxed as such - Held, no FACTS The assessee, during the previous year relevant to the assessment year 1978-79, obtained a refund of a sum of Rs. 3,00,173 as refund from the Tamil Nadu State Electricity Board out of which a sum of Rs. 2,32,794 related to the earlier accounting years and the balance of Rs. 67,379 related to the accounting year relevant to the assessment year in question. The assessee got a refund as concessional rate of levy was extended to the industrial undertaking of the assessee on the ground that it was a small-scale industry. In the adjustment statement, the assessee claimed that it was a capital receipt but the ITO did not accept the claim of the assessee and held that the amount was taxable under section 41(1). On appeal, the Commissioner (Appeals) confirmed the order of the ITO. On appeal to the Tribunal, the Tribunal held that there was no cessation of liability because of the receipt of the money from the Electricity Board and the payment received represented cash subsidy of capital nature and it could not be regarded as a payment under section 41(1). On reference: HELD The assessee made the electricity payment in discharge of its liability to the Electricity Board in the earlier years and when the electricity tariff rate was reduced and the assessee was given the concessional rate, there was, to that extent, a cessation or remission of its trading liability. For…

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