Law: Income Tax Act, 1922

Section:

Income-tax---Income---Compensation---Stocks pledged with bank---Damage to stocks ---Assessee demanding compensation and bank demanding replacement of stock----Litigation ending in compromise whereby bank paid a sum of money to assessee---Amount paid constituted compensation for loss of stock¬ in-trade---Amount was assessable as a trading receipt. The assessee was an exporter of hides and skins. During the accounting year relevant to the assessment year 1957-58, he had pledged certain quantity of goat skins with a bank. The value of the goat skins was Rs.2,14,808. He had taken on overdraft against the said pledge in a sum of more than rupees two lakhs. The bank officers did not store them properly. On account of a heavy monsoon, the goat skins got damaged for which the appellant claimed damages. The bank authorities were not prepared to pay him the damages. On the contrary, they called upon the assessee to replace the goat skins. The damaged goat skins were removed by the bank authorities to Delhi. Thereupon, the assessee filed a criminal complaint against the officers of the bank. However, negotiations took place between the assessee and the bank towards a settlement. Pursuant to the compromise the back waived the sum of Rs.1,93,159 which was the balance due to the bank on the date of the Highs Court's order. The assessee transferred the credit balance due to the bank to the trading account deeming it to be towards the loss sustained by him earlier as a result of the stocks which were in Bombay in the custody of the bank and offered this amount for taxation spread over the three assessment years 1957-58 (Rs.39,940), 1958-59 (Rs.73,152) and 1959¬60 (Rs.80,067). The Income Tax Officer accepted the said additions and made assessment for the said three assessment years. While completing the assessment for the assessment year 1961-62, however, the Income Tax Officer took the view that the entire sum of Rs.1,93,159 aforesaid should be included in that assessment year. Accordingly, he included the same. The Tribunal held that this sum was assessable under section 41(1) of the Act. On a reference, the High Court held that section 41(1) was not attracted to the facts of…

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