Law:

Section:

Section 41(1) of the income-tax act, 1961-Remission or cessation of liability-Assessee-company gave certain amounts as loan to some parties in Lahore before partition of India in 1947-Said amounts transferred to its books in India after partition-They were written off and allowed in assessment years 1948-49 and 1949-50-In 1950, these amounts were debited to Lahore branch of assessee as they were considered to be realisable there and credited to sundry creditors' account-In assessment year 1967-68, assessee transferred said amounts from sundry creditors' account to profit and loss account-Whether impugned amounts were taxable under section 41(1) in assessment year 1967-68-Held, on facts, no Facts The assessee-company, carrying on financing business, had advanced loans amounting to Rs. 58,175 to certain parties in Lahore (now in Pakistan) before the partition of India in 1947. After the partition, these amounts were transferred to the assessee's books in India. The same were written off and allowed in the assessment years 1948-49 and 1949-50. Later, in 1950, these amounts were transferred to the Lahore branch as they were considered to be realisable in Lahore and a corresponding credit entry was made in the Sundry Creditors' Account. In the accounting period relevant to the assessment year 1967-68, the assessee transferred the amounts from the Sundry Creditors' Account to the profit and loss account since the assets of the Lahore branch had vested in the liquidator. The ITO taxed the said amounts under section 41(1), rejecting the assessee's objections thereto. The AAC confirmed the ITO's order in appeal. On further appeal, the Tribunal upheld the applicability of section 41(1) to the case on the ground that the assessee had obtained adjustment with the Lahore branch in respect of loss suffered by the assessee earlier, but it took the view that since the said adjustment was made in 1950 when the Lahore branch was debited and the Sundry Creditors' Account was credited, it was at that stage that income could be said to have arisen under section 10(2A) of the 1922 Act [corresponding to section 41(1) of the 1961 Act]. Consequently, the Tribunal held that the impugned…

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