Law:

Section:

Section 43(1) of the Income tax Act, 1961 [Corresponding to section 10(2) (vi) of the Indian Income-tax Act, 1922] - Actual Cost - Assessment years 1961-62 to 1965-66 - Asessee, maintaining accounts on mercantile system, purchased machinery in 1955 from Swiss supplier - Due to some dispute about some defect in machinery, Swiss supplier was not paid purchase price but amount was duly credited in his account - Since Swiss supplier had not taken any steps or legal action against assessee for receiving purchase price, in 1960, assessee transferred liability to capital reserve account -Whether under Act of 1922, applicable to assessment year 1961-62, it was only if there was any contribution from Government or public or local authority that those contributions could be deducted while ascertaining actual cost - Held, yes - Whether, Swiss supplier were neither Government nor any public or local authority and, therefore, for assessment year 1961-62 even though there was cessation of liability, assessee was entitled to have benefit of entire amount as actual cost to assessee for that particular assessment year - Held, yes - Whether under section 43(1) of 1961 Act, even if cost has been met directly or indirectly, by any other person or authority, that direct or indirect meeting of cost had to be deducted in order to ascertain actual cost to assessee - Held, yes - Whether since there was cessation of liability particularly in light of omission of Swiss supplier to take any legal action against assessee, actual cost to assessee must be reduced for assessment years 1962-63 to 1964-65 - Held, yes FACTS In 1955 a piece of machinery was purchased by the assessee from the Swiss suppliers at the price of Rs. 30,572. Thereafter, no amount was paid towards the price thereof on the ground that there was some defect in this piece of machinery. The liability to the Swiss suppliers was being shown in the balance-sheet and in the books of account of the assessee-company but in 1960 by making appropriate entries in the books of account, the assessee-company wrote back the amount of Rs. 30,572 and debited the amount of Rs. 30,572 in the account of the Swiss suppliers and credited the…

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