Law: Income Tax Act, 1961

Section: 256

Income-tax----Income---Business income---Unclaimed balances---Deposits received from w customers not claimed by them---Claim barred by limitation---Unclaimed balance transferred to profit and loss account---Amount assessable as income. If an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. The Income-tax Officer found that for the assessment years 1982-83 and 1983-84, the assessee had transferred an amount of Rs.17,381 to the profit and loss account of the company during the accounting period ended on March 31, 1982 (assessment year 1982-83), and an amount of Rs.38,975 during the accounting period ended on March 31, 1983 (assessment year 1983-84). But these amounts were not included in the total income of the assessee. The sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred by the assessee to the profit and loss account. The Income Tax Officer was of the view that because the surplus had arisen as a result of trade transactions, the amounts had the character of income and had to be added as income of the assessee for the purpose of Income-tax assessment. The additions were deleted by the Commissioner of Income-tax (Appeals), and this was upheld by the Tribunal. An application was made to the Tribunal to refer the question of law arising of the order of the Tribunal to the High Court. The application was dismissed by the Tribunal. The High Court on an application held that the question was concluded by, the decision of that Court in the case of CIT v. AN.M. Ltd. (1984) 146 ITR 355. On a petition for special leave to appeal to the Supreme Court, leave was granted and the question proposed to be raised was treated as referred: Held, that if a commonsense view of the matter were taken, the…

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