Law: Income Tax Act, 1961

Section: 41

Income-tax -----Business---Business income---Remission of liability---Condition precedent for application of S.41(I)---Obtaining of benefit by virtue of remission or cessation of liability---Mere unilateral transfer entry in accounts--No benefit obtained---Section 41(1) was not applicable---Indian Income Tax Act, 1961, The following words in section 41(1) of the Income Tax Act, 1961, are important: "the assessee had obtained, whether in cash or in any other manner whatsoever any amount in respect of .such loss or expenditure or some benefit in -respect of such trading liability by way of remission or cessation thereof; the amount obtained by him". The section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a-particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is the sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the department to say that section 41(1) would apply and the amount should be included, in the total income of the assessee. The principle that expiry of the period of limitation prescribed under the Limitation Act could .not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well-settled. If that principle is applied, it is clear, that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor -will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section. CIT v. Sugauli Sugar Works (P.) Ltd. (1983) 140 ITR 286 affirmed. Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay AIR 1958 SC 328 and (1958) SCR 1122 applied. CIT v. Bennett Coleman & Co. Ltd. (1993) 201-ITR 1021 (Bom.) disapproved. CIT v. Bharat Iran and Steel Industries (1993) 199 ITR 67(Guj.) and J.K. Chemicals Ltd. v. CIT (1966) 62 ITR 34 (Bom.) approved. CIT v. General…

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