Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1963-64 - Assessee had received certain amount as advance for supplying goods - Neither goods were supplied nor amount was refunded and limitation for claiming refund by customers was expired - Whether amount received as advance could not be brought to tax under section 41(1) since no allowance or deduction was made in earlier assessment year and there was no cessation or remission of trading liability in year in question - Held, yes Section 5 of the Income-tax, Act 1961 - Income - Accrual of - Assessment year 1963-64 - Before end of accounting year, relevant to assessment year 1962-63, account of debtor had been debited with a sum of Rs. 1,071 on account of interest - That amount of interest had not been taken by assessee to its profit and loss account, but, instead in balance-sheet assessee showed it under head "reserve byaskhata" - ITO treated this amount as assessee's taxable income on ground that it was a fictitious liability - Whether aforesaid income on account of interest accrued to assessee when it debited its debtor's account, i.e., in previous year relevant to assessment year 1962-63 - Held, yes - Whether merely because assessee transferred said amount to its reserve byajkhata in relevant accounting year, it could not be said that it was income which accrued in that year - Held, yes FACTS The ITO found the two amounts in the balance-sheet of the assessee-firm. They were (i) Reserve Khata of Rs. 5,408 and (ii ) Reserve byajkhata of Rs. 1,071. Investigation into the account books of the assessee revealed that a sum of Rs. 5,400 was received by it in the year 1951-52 from two of its customers as advance for supplying goods to them. The assessee neither supplied the goods nor returned the advance received by it to its customers. The ITO held that as the limitation for claiming refund of the amount had expired, it had to be treated as the assessee's income under section 41, earned in the accounting year relevant to the assessment year 1963-64. So far as the sum of Rs. 1,071 was concerned, it was an old balance brought forward in respect of interest…

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