ORIENT CORPORATION Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) -

(2.) THE question that is raised in this reference is really covered by the decision which my brother and I gave and which is reported in Mohsin Rehman Penkar v. Commissioner of Income-tax, Bombay city. In that case we held that if a mercantile system of accounting is adopted and a certain liability is allowed by the Income-tax department as a permissible deduction, and if subsequently that liability is discharged not by actual payment by the assessee but by remission of liability by the creditor, then the remission of liability can never be considered as an income which would be liable to tax. THE facts here are almost identical. THE assessee who dealt in shares in curred a loss of Rs. 22,027 in forward share dealings. This loss was duly adjusted against the business receipts in the assessment for the year 1943-44 which meant that the department accepted the sum of Rs. 22,027 as a permissible deduction. In the subsequent year this liability was settled by the assessee paying a sum of Rs. 5,301 and the creditor agreeing to forego his claim, namely Rs. 16,544. THE department now claims that this sum of Rs. 16,544 must be looked upon as an income of the assessee liable to ta : THE Tribunal was in the first instance divided; one learned member taking the view that this was not income and the President Mr. A. N. Shah taking a contrary view, and it was referred to a third member Mr. Sankara Narayana who agreed with the view of the president.

(3.) OUR attention has also been drawn by Mr. Pandit to a decision of the Nagpur High Court which was really decided before we decided the case reported in 16 Income Tax reports page 183 (Mohsin Rehman Penkar v. Commissioner of Income-tax, Bombay city) but which was reported subsequently; and that case is reported in the same volume at page 430 (Agarchand Chunnilal v. Commissioner of Income-tax C. P. and Berar) and the Nagpur high court has taken the same view of this question as we have done.