1962-VIL-137-BOM-DT

Equivalent Citation: [1963] 49 ITR 578 (Bom)

BOMBAY HIGH COURT

Income-tax Reference No 65 of 1960

Dated:15.10.1962

KOHINOOR MILLS CO. LTD

COMMISSIONER OF INCOME-TAX, BOMBAY CITY I

Bench

Y. S. TAMBE C.J. (AG.)

STATEMENT OF CASE

By this application, the assessee requires the Tribunal to refer to the High Court two questions of law, which are said to arise out of the Tribunal's order in I.T.A. No. 11040 of 1958-59. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Bombay under section 66(1) of the Income-tax Act.

2. The assessee carried on business as a manufacturer of textile piece goods at all material times. Labourers and workmen had to be employed. Sometimes wages remained unclaimed. The assessee's practice up to 1952-53, admittedly, was to add back to the profits the wages unclaimed for more than three years.

3. On June 17, 1953, an Act called the Bombay Labour Welfare Fund Act (XL of 1953) was passed whereby all unclaimed wages were directed to be paid into the Bombay Labour Welfare Fund constituted under the said Act.

4. For the assessment year 1954-55, there were no unclaimed wages. In the assessment year 1955-56 (accounting year 1954), the assessee did not credit in its accounts any unclaimed wages because of the provisions of the said Bombay Labour Welfare Fund Act (XL of 1953) under which the unclaimed wages were directed to be paid to the Welfare Commissioner for the benefit of the said Bombay Labour Welfare Fund. In that year, the Income-tax Officer, however, treated the unclaimed wages amounting to Rs 9,314 as the assessee's income for the assessment year 1955-56 and the assessee acquiesced thereto.

5. The relevant assessment year is 1956-57 (accounting year 1955). The Income-tax Officer again added a sum of Rs 30,190, being unclaimed wages of 1952, as profits of the assessee for the said assessment year 1956-57 and levied income-tax thereon.

6. The Appellate Assistant Commissioner rejected the appeal of the assessee and confirmed the inclusion of the aforesaid sum representing unclaimed wages.

7. On appeal to the Tribunal, it was contended that it is only on remission or cessation of liability that section 10(2A) comes into operation, that when a liability becomes barred by the law of limitation there is neither remission nor cessation of the liability, the liability is not extinguished, only the creditor's remedy becomes barred and, therefore, there can be no cessation under section 10(2A) in the year in which the trading liability becomes time-barred.

8. By the time the appeal came on for hearing before the Tribunal, the Supreme Court had delivered a judgment in the case of Bombay Dyeing&Manufacturing Co. Ltd. v. State of Bombay(1), holding that section 3(1) of Act 40 of 1953, in so far as it relates to unclaimed accumulation of wages, was unconstitutional and void. The Tribunal for the reasons set out in its order dated March 11, 1960, held that in the hands of the assessee the trading liability in respect of unclaimed wages could not be enforced by the workers and, as such, there was a cessation of the trading liability within the meaning of section 10(2A) of the Act. A copy of the Tribunal's order is annexed hereto as annexure "A" and forms part of the case.

9. From the facts stated above, the question that arises is:

"Whether, on the facts and circumstances of the case, was there a cessation of the trading liability within the meaning of section 10(2A) of the Act?"

N. A. Palkhivala with R. J. Kolah, for the assessee.

G. N. Joshi with R. J. Joshi, for the Commissioner.

JUDGMENT

Y.S. TAMBE, AG. C.J.-

The question referred to us in this reference under section 66(1) is in the following terms:

"Whether, on the facts and circumstances of the case, was there a cessation of the trading liability within the meaning of section 10(2A) of the Act?"

The question arises in the following manner: The assessee, a limited company, carried on business as a manufacturer of textile piece-goods at all material times. A large number of labourers and workmen had been employed by the company for the purpose of its business. In certain years, however, certain wages due to the labourers and workmen were not paid to them because some of them did not turn up to receive them. Previously it was the practice that such amounts of wages which remained unclaimed for a period of three years were added back to the profits of the assessee after the expiry of three years. We are here concerned with the assessment year 1956-57, the relevant accounting year being the calendar year 1955. It appears that the amount of wages which had become due to the labourers and workmen, but which were not claimed by them, amounted to Rs 30,190. The income-tax authorities added that amount of Rs 30,190 in the income of the relevant assessment year on the ground that the liability to pay the amount to labourers and workmen had ceased by reason of the expiry of the period of three years. The claim of the income-tax authorities was founded on section 10(2A) of the Act. The assessee objected to the inclusion of the said amount in its income. According to the assessee, the liability did not cease though the remedy to recover the amount of wages by the labourers and workmen may have become barred. The Tribunal did not accept this contention of the assessee; but, on the other hand, held that in the hands of the assessee the trading liability in respect of unclaimed wages could not be enforced by the workmen and as such there was a cessation of the trading liability within the meaning of section 10(2A) of the Act.

It is not in dispute before us that in view of the provisions of section 10(2A), it is open to the income-tax authorities to include in the income of the assessee the amount of the trading liability of the assessee, which had ceased to be its trading liability in the relevant accounting year. The question, however, is whether the trading liability to the extent of Rs 30,190 representing the unclaimed wages, which was the trading liability of the assessee incurred in the year 1952 had ceased to be its trading liability in the year 1955 by reason of the expiry of three years, and thus barring the remedy of the labourers and workmen to recover that amount by way of suits. The answer to this question has been given by their Lordships of the Supreme Court in Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay [1958] S.C.R. 1122 . At page 1135, their Lordships observed:

"The position then is that, under the law, a debt subsists notwithstanding that its recovery is barred by limitation...."

That being the principle of law laid down by their Lordships, it is hardly possible to sustain the view taken by the Tribunal, that the trading liability incurred by the assessee in respect of the said amount of Rs 30,190 had ceased to be its trading liability in the year 1955 by reason of the expiry of the period of three years.

We therefore answer the question referred to us in the negative. We make no order as to costs.

Question answered in the negative.