Unclaimed liabilities written back to profit and loss account are taxable as income under Section 41(1) of the Income-tax Act, 1961, where the assessee has demonstrated its intention to disown the obligation to pay.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question of law for our opinion :"whether, on the facts and in the circumstances of the case, the amount written back by the assessee during the year under consideration, viz. , Rs. 17,595, could be assessed as income of the assessee ?"

( 2 ) SHORTLY stated, the facts are as under : the assessee is a limited company. It wrote back unclaimed liabilities and sundry amounts of Rs. 17,595 in its profit and loss account. The assessee pleaded before the Income-tax Officer that the amount written back in the profit and loss account was not taxable in view of the decision in the case of CIT v. Sugauli Sugar Works P. Ltd. The Income-tax Officer did not accept the contention of the assessee and he took the amount written back by the assessee as its income.

( 3 ) THE assessee, being aggrieved, appealed to the Commissioner of Income-tax (Appeals) who confirmed the action of the Income-tax Officer.

( 4 ) THE assessee came in appeal before the Tribunal and relied on the decisions in the cases of Sugauli Sugar Works P. Ltd. and CIT v. B. N. Elias and Co. (P.) Ltd. On behalf of the Department, reliance was placed on CIT v. Agarpara Co. Ltd.

( 5 ) THE Tribunal, after considering the facts of the case and the case-law cited before it, allowed the assessee's claim by observing as under:"4. The assessee during the year under appeal has written off the unclaimed and sundry amounts to the profit and loss account. The amount written off by the assessee cannot be taken as the income of the assessee in view of the decision of the Calcutta High Court in CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 and CIT v. B. N. Elias and Co. (P.) Ltd. [1986] 160 ITR 45. The Departmental representative has referred to the decision of the High Court in CIT v. Agarpara Co. Ltd. [1986] 158 ITR 78. The said case related to unclaimed wages and bonus. Therefore, the case of the assessee is covered by the earlier two decisions of the Calcutta High Court and consequently the amount taxed by the Income-tax Officer was not proper. The assessee is allowed a relief of Rs. 17,595. "

( 6 ) WE have heard the rival contentions. The facts of the case show that the claim of the assessee with regard to unspent and unclaimed liabilities dates from January 27, 1972. The same became barred long before the end of the accounting year relevant to the assessment year under reference. In the instant year, the assessee credited the said unclaimed liability to the profit and loss account. The assessee claimed exclusion of this credit for determination of the taxable income on the following grounds :1. That unilateral writing back of liability to the profit and loss account does not result in cessation of liability. 2. That the limitation only bars the remedy but does not extinguish the liability. Therefore, despite the liability being written back to profit there cannot be any profit in the eye of law.

( 7 ) LEARNED counsel appearing for the assessee relied upon the decisions of this court in CIT v. Sugauli Sugar Works P. Ltd. [1983] 140 ITR 286 and CIT v. B. N. Elias and Co. (P.) Ltd. [1986] 160 ITR 45. It was pointed out that, in both the decisions, this court has drawn support from the decision of the Supreme Court in Bombay Dyeing and Mfg. Co. Ltd. v. Stare of Bombay.

( 8 ) IT appears from the assessment order that there is one peculiar aspect in the present case. It is the practice of the assessee to write back such unclaimed and unspent liabilities from year to year on grounds of bar of limitation of the liability and to get away without paying tax on such amount written back to profit on the same plea. This has been happening since the assessment year 1977-78. This fact, to our mind, is very significant. One more notable feature is that the assessee never divulged to the Assessing Officer the details and particulars of the claims despite sp

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