THE CHIEF COMMISSIONER OF INCOME TAX, COCHIN vs. MIS. KESARIA TEA CO. LTD.

CIVIL APPEAL No. 1581/2001Supreme Court[2002] 2 S.C.R. 57119 March 2002Bench: 3 JudgesAuthor: S. RAJENDRA BABU, K.G. BALAKRISHNAN, P. VENKATARAMA REDDI5 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that Section 41(1) of the Income Tax Act, 1961, can only be invoked if the assessee's liability has ceased finally without the possibility of revival. The Court agreed with the Tribunal and the High Court that a mere unilateral act by the assessee in writing back an amount from its accounts does not have the effect of extinguishing a statutory liability. On the facts found by the Tribunal, the purchase tax liability of the assessee had not ceased finally during the year in question. The Tribunal had noted that the dispute regarding purchase tax liability was ongoing, with cases pending before the Sales Tax Authorities as late as 1993. Therefore, the conditions for invoking Section 41(1) were not met. The Court dismissed the appeal filed by the Revenue. No issue was expressly left undecided.

What were the facts?

The assessee, Kesaria Tea Co. Ltd., made a provision in its accounts for purchase tax liability in earlier assessment years (1978-1981). In the assessment year 1985-86, the assessee reversed this provision by writing back Rs. 14,65,997. The Assessing Officer treated this amount as income for assessment year 1985-86 under Section 41(1) of the Income Tax Act. The CIT (Appeals) upheld the addition of Rs. 3,02,758 pertaining to assessment year 1978-79, holding that the liability had ceased. The Income Tax Appellate Tribunal (ITAT) set aside this addition, finding that a unilateral write-back does not extinguish a statutory liability and that the purchase tax liability had not ceased finally. The High Court upheld the ITAT's decision. The Chief Commissioner of Income Tax appealed to the Supreme Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 3,02,758 could not be brought to tax and in deleting the addition sustained by the CIT (Appeals), thereby holding that Section 41(1) of the Income Tax Act, 1961, could not be invoked? Assessee's contention: The assessee argued that a mere unilateral act of writing back the provision in its accounts does not extinguish a statutory liability. The purchase tax liability had not ceased finally, and therefore, Section 41(1) was not applicable. The Tribunal's observation that the sales tax department was still pursuing the issue of purchase tax liability from assessment year 1974-75 onwards, with cases pending, supported this. The ITAT also noted that the decision in Neroth Oil Mills' case, relied upon by the revenue, only addressed one aspect of the purchase tax exemption and not the other crucial condition. Revenue's contention: The revenue contended that the assessee's act of writing off the liability on account of purchase tax by making adjustments in its books was indicative of the liability ceasing for all practical purposes, justifying the addition under Section 41(1). They relied on the CIT (Appeals)'s finding that the liability ceased in view of the rejection of SLP in Neroth Oil Mills' case.

Which sections of the Income-tax Act were involved?

Section 41(1)

AI-generated summary — verify with the full judgment below

Cited by 59 judgments on BharatTax

See all citing judgments →

Counted from the text of the judgments hosted here. Most recent first.

. " THE CHIEF COMMISSIONER OF INCOME TAX, COCHIN A v. MIS. KESARIA TEA CO. LTD. MARCH 19, 2002 [S. RAJENDRA BABU, K.G. BALAKRISHNAN AND P. VENKATARAMA REDD!, JJ.] B Income Tax Act, 1961-Section 41(1)-Applicability-Purchase tax liability-Remission or cessatio1>-Benefit of-Assessee made provision in books C of accounts towards purchase tax-Availed benefit of deduction from business income in earlier assessment years-Assessee reversed the same by writing back in its accounts a sum for a relevant assessment year-Assessing Officer treated sum representing provision towards purchase tax during earlier assessment year as income for relevant assessment year-Whether purchase tax liability ceases and thus, S.41(1) can be invoked to enable Revenue to take D back ;,hat it has allowed earlier as business expenditure and to include such amount_qs income of relevant assessment year-Held, no since mere unilateral act on the part of assessee writing back amount does not have the effect of extinguishing statutory liability and Section 41(1) can be invoked only if liability of assessee is assessed without the possibility of reviving it.

The question which arose for consideration

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 41(1)

All 1,943 judgments and leading authorities on Section 41(1) →

Recent GST High Court judgments

Search GST case law →