AJIT K.SENGUPTA,J. - (1.) In this reference under s. 256 (1) of the IT Act, 1961 ('the Act') the following question has been referred by the Tribunal for our opinion at the instance of the Revenue:-- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 7,77,175 being the amount of commission treated by the assessee as payable to the Zonal Development Council for the asst. yrs. 1971-72 and 1972-73 in spite of no demand notice for the assessment having been received by the assessee either in the relevant years or subsequently and having been allowed by way of deductions in the assessments for these assessment years is not assessable under s. 41 of the IT Act, in the asst. yr. 1973-74 in spite of the fact that no demand notice was received the said amount was write back to the P&L A/c on the ground the Zonal Development Council was not consulted in the relevant years thereby showing the assessee itself had treated the sum of Rs. 7,77,175 as no longer a debt or liability payable by it ?"
(2.) THE facts as found by the Tribunal are briefly stated as under :-- The Government of Bihar promulgated an Ordinance known as Bihar Sugar Cane (Regulation of Supply and Purchase) (Second) Ordinance, 1969 which was made effective from 8th July, 1969. Under s. 48 of the said Ordinance, the State Government by a notification required the occupiers of sugar factories to pay commission and/or a fee not exceeding Rs. 0.05 per quintal on the purchase of sugarcane made by it or on its behalf. The commission thus collected was to be paid to the co- operative society and to the Zonal Council in such proportion and in such manner as may be prescribed in the notification by the said Government from time to time. The Ordinance provided that the arrears of commission payable shall bear interest as specified under s. 51 of the Ordinance and shall be recoverable together with interest as a public demand as an arrear of land revenue. Pursuant to the aforesaid Ordinance, the assessee-company computed its liability for payment of commission for the asst. yrs. 1971-72 and 1972-73 and deduction was allowed in the assessments for the aforesaid liabilities. The company, however, did not pay this amount as the Council had not been constituted and transferred the said amount to the P&L A/c for the relevant year. The company also claimed a sum of Rs. 2,36,540 paid as commission for the current year. The ITO allowed the current year's commission but treated the sum of Rs. 7,77,175 as profit under s. 41 (1) of the Act. The AAC found that there was nothing to show that there was accusation of the liability for a sum of Rs. 7,77,175.
(3.) THE AAC particularly relied upon the letter dt. 16th Jan., 1975 written by the State Government by which it was pointed out that steps should be taken against the sugar factories to get the amount deposited in National Savings Account. On the basis of the aforesaid letter, the AAC pointed out that it cannot be said that there was a cessation of the liability and deleted the said amount which was taken by the ITO as the deemed income. The Tribunal followed the said order of the AAC. On further appeal to the Tribunal, the Tribunal held that the liability of the assessee did not cease to exist and as such, this could not be assessed as income under s. 41 (1) . It was held by the Supreme Court in CIT vs. Shoorji Vallabhadas & Co. (1962) 46 ITR 144 (SC) that only the real income could be assessed to tax. The Supreme Court in CIT vs. India Discount Co. Ltd. (1970) 75 ITR 191 (SC), held that the receipt being one which in law could not be regarded as income, it could not become income merely because the assessee erroneously credited it to the P&L A/c. Since, this liability did not cease to exist, the same could not be treated as income under s. 41 (1) merely on the ground that it was written back.;