Allahabad H.C : There was no remission of the liabilities during this year and in deleting the addition of Rs. 33,767 sustained on this account by the AAC?

Counsel Appeared

Bharatji Agarwal, for the Revenue

OM PRAKASH, J.:

The CIT, Allahabad, has referred the following two questions, said to arise from the Tribunal’s order, Allahabad Bench, relating to the, asst. yr. 1972-73, for our opinion under s. 256(1) of the IT Act, 1961 :

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no remission of the liabilities during this year and in deleting the addition of Rs. 33,767 sustained on this account by the AAC?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest paid by the assessee on arrears of cane cess and cane purchase tax was admissible deduction ? ”

First we take-up question No. (i). The brief facts are that the assessee transferred liabilities aggregating to Rs. 1,16,766,63 from the accounts under different heads to the general reserve account which are as follows:

From the facts as stated by the Tribunal, it appears that the ITO noticed that out of the amount of Rs. 33,000 at item No. 5 above transferred from the reserve for doubtful debts, Rs. 23,000 had been disallowed by the ITO in the asst. yr. 1966-67. After deducting the amount of Rs. 23,000 from the aggregate of Rs. 1,16,766, the balance of Rs. 93,766 was taxed by the ITO as the assessee’s income holding that, to that extent, there was “remission” of the liabilities, for which deduction had been allowed in the earlier years. The assessee appealed to the AAC. He, however, found that besides the amount of Rs. 23,000, another amount of Rs. 10,000 had been disallowed out of the reserve for bad debts during the asst. yr. 1966-67. The AAC, therefore, reduced the addition made by the ITO by Rs. 10,000.

Then the assessee challenged the addition of Rs. 83,766 as sustained by the AAC. Before the Tribunal, the assessee reiterated the stand taken before the lower authorities that there was no remission of the liabilities in respect of which addition was sustained by the AAC. It was urged that instead of keeping a separate account for each liability, the assessee had kept all these liabilities under one head. The Tribunal found that ” these liabilities had not been written off by transfer to the profit and loss account “, but they have been transferred from their respective accounts to the general reserve account. After considering the rival submissions of the parties, the Tribunal held that the assessee had only kept these liabilities under one head and that there was no remission of liabilities in respect of which the addition was sustained by the AAC.

We quite agree that the nomenclature, that is, the general reserve account to which the liabilities were transferred by the assessee, will not be determinative of the fact that there was remission of the liabilities. The question of remission has to be considered taking into consideration the facts and circumstances in totality and the legal position. In Gannon Dunkerley & Co. Ltd. vs. CIT (1976) 102 ITR 428, the Bombay High Court, relying on its earlier decisions in Kohinoor Mills Co. Ltd. vs. CIT (1963) 49 ITR 578 (Bom) and J. K. Chemicals Ltd. vs. CIT (1966) 62 ITR 34 (Bom), held that the mere fact of expiry of the period of limitation to enforce a debt does not by itself constitute cessation of liability and that neither remission nor cessation of liability could take place by a unilateral act on the part of the debtor and that even if the amount was distributed by the company to its shareholders, it could not get rid of its liability when it was called upon to meet it either by the employees under the Industrial Disputes Act or by the employees under the Bombay Labour Welfare Fund Act. From these authorities, with which we fully agree, it is manifest that there cannot be remission of any liability by a unilateral act. There is nothing in the instant cases to show that the creditors of the assessee even agreed to grant remission and the assessee even treated the impugned amount as its profit.

For the above reasons, we uphold the view taken by the Tribunal that there was no remission of the liabilities in respect of which the addition was sustained by the AAC and hence the addition has to be deleted. Then we take up question No. (ii). It can be divided into two parts. The first part is whether the Tribunal was right in holding that the interest paid by the assessee on arrears of cane cess was deductible. This question is no more res integra and is fully covered by Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC), in which the Supreme Court held that the interest paid on arrears of cane cess under s. 3(3) of the U.P. Sugarcane Cess Act, 1956, is an allowable deduction as revenue expenditure. The second part of this question is whether the Tribunal was right in holding that the interest paid on the arrears of sugarcane purchase tax is an allowable deduction. This question is squarely covered by Triveni Engineering Works Ltd. vs. CIT (1983) 144 ITR 732 (All)(FB), in which their Lordships constituting a Full Bench held that interest paid on arrears of sugarcane purchase tax is an allowable deduction.

For the above reasons, we answer both questions Nos. (i) and (ii) against the Revenue and in favour of the assessee. Let the record of this case be laid before the Tribunal, Allahabad Bench, to pass an order conformably to our judgment.

No order as to costs.

[Citation : 172 ITR 430]