DIPAK KUMAR SEN, J.

( 1 ) M/s. B. N. Elias and Co. (P.) Ltd. , the assessee, was assessed to income-tax in the assessment year 1971-72, the relevant accounting year ending on September 30, 1970. The assessee had 127 creditors to whom diverse amounts were due by the assessee by way of sundry trade liabilities aggregating to Rs. 1,81,380. The said dues had remained unclaimed for more than three years and in the accounting year involved, the assessee wrote off the said debts in his accounts making corresponding credit entries in the profit and loss account. The assessee contended that the said amount was not taxable as there was neither remission nor cessation of the liabilities. The Income-tax Officer found that the amounts had remained unclaimed for the years in question, that they had become barred by limitation and the assessee's liabilities for the claims had ceased. He held that the said amount should be treated as business income of the assesses under Section 41 (1) of the Income-tax Act, 1961, in the said assessment years.

( 2 ) ON an appeal preferred by the assessee, the Appellate Assistant Commissioner held that cessation of a liability need not necessarily flow from any overt act on the part of the creditor giving up his claim against the debtor as remission. He found that the creditors of the assessee had been deprived of their remedy to institute proceedings in a court of law to recover the debts by reason of limitation, the liability of the assessee after the expiry of the period of limitation was merely notional and not real and in the absence of any legal remedy, the rights of the creditors had ceased and the assessee had written back the liabilities to the credit of its profit and loss account. The Appellate Assistant Commissioner rejected the contentions of the assessee and upheld the decision of the Income-tax Officer.

( 3 ) BEING aggrieved, the assessee went up on further appeal before the Income-tax Appellate Tribunal. On consideration of the rival contentions, the Tribunal followed and applied a decision of the Kerala High Court in Kuttappu and Sons [1974] 96 ITR 327, and held that Section 41 (1) of the Act had been wrongly applied in the case of the assessee. The Tribunal allowed the appeal and deleted Rs, 1,81,380 from the total income of the assessee.

( 4 ) ON an application of the Revenue under Section 256 (1) of the Income-tax Act, the Tribunal has referred the following question, as a question of law arising out of its order, for the opinion of this court: "whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 41 (1) of the Income-tax Act, 1961, the Tribunal was correct in holding that the sum of Rs. 1,81,380 could not be included in the total income of the assessee ?"

( 5 ) LEARNED advocate for the assessee contended that the controversy raised in the question was well-settled in favour of the assessee. In support of his contentions, he cited the following decisions : (a) Bombay Dyeing and Manufacturing Co. Ltd. v. State of Bombay This decision was cited for the following observation of the Supreme Court (p. 337):". . . when a debt becomes time-barred, it does not become extinguished but only unenforceable in a court of law. Indeed, it is on that footing that there can be a statutory transfer of the debts due to the employees, and that is how the Board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well defined, and the bar of limitation is not one of them. "". . . if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that in the normal course he is not likely to be exposed to action by the creditor. " (b) CIT v. V. T. Kuttappu and Sons. In this case, the assessee, a firm, credited to the accoun

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