Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment year 1961-62 - Assessee pledged its stock-in-trade to bank for getting overdraft facilities - Assessee alleged that goods were damaged due to carelessness of bank and claimed compensation which was refused by bank - Subsequently, employees of bank removed assessee's stock in trade from its godown - Assessee filed criminal complaint against bank - Therefore, bank entered into compromise with assessee where under assessee gave up its claim against bank in return for bank writing off amount due from assessee - Whether payment received by assessee by way of adjustment was compensation for loss or damages to its stock-in-trade which had been allowed in earlier assessment years and, hence, payment received in accounting year ending 31-3-1961 was assessable under section 41(1) in assessment year in question - Held, yes - Whether even otherwise, compensation received being in respect of stock-in-trade would be a trading receipt and so assessable to tax irrespective of whether assessee had claimed or omitted to claim loss or damage to stock-in-trade as and when it occurred, as he should have done - Held, yes FACTS The assessee availed the overdraft facility from the bank to the extent of Rs. 2½ lakhs, for which he executed letter of hypothecation/deed of lien in respect of goods lying in his godowns at Delhi and Bombay. The assessee alleged that the banker never confirmed the letter of hypothecation or insisted upon periodical statement of stocks in the godown at Delhi because the stocks in their possession in their godown at Bombay were more than sufficient to meet the overdrafts. The assessee alleged that due to the carelessness of the bankers while giving inspection, the goods lying at Bombay had been damaged. The assessee claimed compensation for loss but the bank was not prepared to accept the same. Subsequently, the employees of the bank entered the godown of the assessee at Delhi and removed all the skins, ostensibly under the terms of the letter of hypothecation. The assessee filed a criminal complaint against the banker" on the strength of the fact that the…

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