Law: Income Tax Act, 1922

Section: 10(2A)

Section 41(1) of the Income-tax Act, 1961 [Corresponding to section 10(2A) of the Indian Income-tax Act, 1922] - Remission or cessation of trading liability - Assessment year 1956-57 - Whether a debt subsists notwithstanding that its recovery is barred by limitation - Held, yes - Contain amount of wages which had become due to labourers and workmen of assessee company in 1952 but which were not claimed by them were added by income-tax authorities in assessee's income of relevant assessment year on ground that liability to pay amount to labourers and workmen had ceased by reason of expiry of period of three years - Whether order of authorities was justified - Held, no FACTS The assessee-company was carried on business as a manufacturer of textile piece-goods at all material times. A large number of labourers and workmen had been employed by the company for the purpose of its business. In certain years, however, certain wages due to the labourers and workmen were not paid to them because some of them did not turn up to receive them. Previously it was the practice that such amounts of wages which remained unclaimed for a period of three years were added back to the profits of the assessee after the expiry of three years. For the relevant assessment year, there were sone amount of wages which had become due to the labourers and workmen, but which were not claimed by them. The income-tax authorities added that amount in the income of the relevant assessment year on the ground that the liability to pay the amount to labourers and workmen had ceased by reason of the expiry of the period of three years. The claim of the income-tax authorities was founded on section 10(2A) of the 1922 Act. The assessee contended that the liability did not cease though the remedy to recover the amount of wages by the labourers and workmen might have become barred. The Tribunal did not accept this contention of the assessee; but, on the other hand, held that in the hands of the assessee the trading liability in respect of unclaimed wages could not be enforced by the workmen and as such there was a cessation of the trading liability within the meaning of section 10(2A) of the 1922 Act. On…

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