Law:

Section:

Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - In assessment year 1970-71, assessee-company carrying on business of consulting engineers, showed Rs. 2,09,993 as royalty outstanding and payable to a foreign company - Total amount of royalty payable at end of accounting year 1963-64 was Rs. 4,74,918 out of which Rs. 2,64,925 had been paid - Last instalment was paid on 24-4-1966 of Rs. 30,000 - Subsequent to accounting year 1963-64 no royalty was payable by assessee - Foreign company had neither asked nor taken any steps to recover balance of said royalty - Whether merely because foreign company had not taken any steps to recover amount of royalty an inference as to cessation of liability could be drawn so as to bring said sum to tax under section 41 (1) , when assessee was continuously showing same as liability in its balance sheet - Held, no - Whether merely because period of limitation under Indian law provided for recovery of an amount due has passed it can be said that indebtedness has ceased - Held, no FACTS The assessee-company carried on the business of consulting' engineers. In the assessment year 1970-71 the assessee returned a loss of Rs. 2,25,815, which Included a sum of Rs. 2,09,993 shown as royalty outstanding and payable to a foreign company. The total amount of royalty which was payable at the end of the accounting' year 1963-64 was Rs. 4,74,918 out of which a sum of Rs. 2,64,925 had been paid. The last payment was made on 24-4-1966 in the sum of Rs. 30,000. Subsequent to the accounting year 1963-64, no royalty was payable by the assessee as no manufacture was carried on by the assessee entailing royalty payment. The foreign company had also neither asked, nor taken any steps to recover the balance of royalty which was shown as due to the foreign company. The ITO, taking the view that the outstanding liability had, for all intents and purposes, ceased, added that amount of Rs. 2,09,993 under section 41(1) and completed the assessment. On appeal, the Tribunal, however, took the view that there was no evidence to show as to why it should be considered as a remission or cessation in the assessment year in…

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