Law: Income Tax Act, 1961

Section: 41,41(1)

Income tax......Deemed profits Remission or cessation of trading liability-Provision made towards purchase tax liability in earlier year Written back in accounts Sales Tax Department pursuing claim Amount written back cannot be taxed as deemed profit Unilateral action of assessee not conclusive Indian Income Tax Act, 1961, S.41(1) (before introduction of Expln. 1). During 1978 1981, the assessee, engaged in the business of tea, spices, etc., had made provision for purchase tax liability. The liability to purchase tax was in dispute and the Sales Tax Department persisted in its claim for purchase tax. During the previous year relevant to the assessment year 1985 86, the assessee apparently for the reasons that the decision of the Supreme Court had dismissed the States special leave petition to appeal from the decision of the High Court in Neroth Oil Mills (1982) 49 STC 249 (Ker.) wrote back in its accounts the sum of Rs.14,65,997 out of the provisions for purchase tax liability, which sum the Assessing Officer brought to tax under section 41(1) of the Income Tax Act, 1961, as deemed profit. On appeal, the Commissioner (Appeals) held that out of the sum of Rs.14,65,997, two amounts, viz., of Rs.6,61,413 and Rs.5;10,826, had already been brought to tax in the assessment years 1980 81 and 1981 82 and only the balance of Rs.3,02,758 could be brought to tax. On appeal, the Appellate Tribunal held that the sum of Rs.3,02,758 could not be brought to tax, since the sales tax department was pursuing the matter in respect of the purchase tax liability of the assessee as .late of 1993 and the cases were still pending decision before the Sales Tax Authorities and the of the Kerala High Court was concerned with only one of two aspects relating to exemption from purchase tax, and the other aspect was still involved in the assessees case, there was no cessation of liability and the unilateral action on the part of the assessee in writing back the amounts could not have the effect of extinguishing the statutory liability. On a reference, the High Court affirmed the decision of the Appellate Tribunal. On appeal to the Supreme Court: Held, affirming the decision of the High…

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