S.S Sodhi, J.:— The controversy here is with regard to unclaimed balance of liabilities of Rs. 48,610/-, written back by the assessee into its profit and loss account. The point in issue being whether this represented cessation or remission of the assessee's liabilities, within the meaning of Section 41(1) of Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. The assessee M/s. Lal Textile Finishing Mills (P) Ltd., credited on its income side a sum of Rs. 48,610/- representing the total sum of unclaimed liability balances written back into its profit and loss account. It was the plea of the assessee that this amount was neither cessation or remission of its liabilities, within the meaning of Section 41(1) of the Act and, therefore, this amount was entitled to deduction. The assessee's plea in this behalf was declined by the Inspecting Assistant Commissioner, an order, which was later upheld in appeal by the Commissioner of Income Tax (Appeals). The Tribunal however, decided in favour of the assessee and accepted its contention that this amount of Rs. 48,610/- could not be included in its taxable income for the assessment year 1978-1979. It is in this factual background that the following question has now been referred to this Court for its opinion:—
“whether on the facts and in the circumstances of the case the Appellate Tribunal is right in law in holding that the sum of Rs. 48,610/- credited by the assessee as its income to its profit and loss account of the relevant previous year is not assessable to tax as the income of the assessee?”
3. The answer to the question posed is provided by the judgment of this Court in Commissioner of Income-tax, Patiala v. Haryana Cooperative Sugar Mills Ltd,1 where it was held that an amount can be brought to tax under Section 41 (1) of the Act if two conditions are satisfied, namely, that the amount has been allowed as a deduction in some earlier year and that during the assessment year in question the assessee had received the benefit representing the amount in question by way of cessation or remission of the liability in regard to the said amount.
4. The pertinent point to note in the present case is that there is no finding nor indeed any material to show that this amount of Rs. 48,610/- was ever allowed as a deduction in any earlier assessment year. This being so, there can be no escape from the conclusion that the said amount cannot be brought to tax in terms of Section 41 (1) of the Act. The reference is consequently hereby answered in the affirmative in favour of the assessee and against the revenue.
5. There will however be no order as to costs.
Sd/- G.C Mital, J.
R.M.S
Reference answered affirmatively.