Universal Electrics Ltd Vs Commissioner of Income Tax - Citation 872212 - Court Judgment

Excerpt:
- ajit k. sengupta, j. 1. these four references -- two at the instance of the commissioner and two at the instance of the assessee -- relating to the assessment years 1975-76, 1976-77, 1977-78 and 1978-79, are heard together as common issues are involved.2. income-tax reference no. 359 of 1982, under section 256(1) of the income-tax act, 1961, and income-tax reference no. 42 of 1990 under section 256(2) of the act, both at the instance of the assessee, relate to the assessment year 1975-76.3. income-tax reference no. 73 of 1985, at the instance of the revenue is for the assessment year 1976-77 and income-tax reference no. 38 of 1987, is also at the instance of the revenue and is for the assessment years 1977-78 and 1978-79.4. the questions in these four references involve four issues, viz. --(a) bonus amounting to rs. 8,03,086 claimed as deduction for the assessment year 1975-76 and consequential addition for the assessment year 1976-77.(b) claim for liquidated damages amounting to rs. 6,00,638 payable to the department of defence supplies for breach of contract for the assessment year 1975-76 and consequential addition for the assessment year 1977-78.(c) claim for initial depreciation on electric generators installed in the factories for the assessment year 1975-76.(d) liabilities becoming time-barred and written back for the assessment years 1976-77, 1977-78 and 1978-79.5. we shall first take up question no. 1 in income-tax reference no. 359 of 1982, questions nos. 1, 2 and 3 in income-tax reference no. 42 of 1990 and question no. 2 in income-tax reference no. 73 of 1985, together as they deal with the same issue. the said questions are as follows :question no. 1 in i. t. reference no. 359 of 1982 :' whether, on the facts and in the circumstances of the case and on a proper interpretation of the amendments made to the payment of bonus act, 1956, and the income-tax act, 1961, with effect from september 25, 1975, the tribunal was right in holding.(i) that the provisions of the payment of bonus (amendment) ordinance, 1975, including those contained in section 29 thereof whichamended section 36 of the income-tax act, 1961, applied to the payment of bonus in respect of the accounting period of the assessee commencing on april 1, 1974, and ending on march 31, 1975?(ii) that, in terms of the aforesaid amended provisions of the payment of bonus act and the newly inserted proviso to sub-clause (ii) of sub-section (1) of section 36 of the income-tax act, 1961, the assessee's claim for deducting payment of bonus at 20% was not justified ?(iii) that deduction for bonus liability could not be allowed in excess of 4% of the salaries and wages of the employees payable in respect of the aforesaid previous year corresponding to the assessment year 1975-76 ?(iv) that the assessee was not entitled to deduction for the bonus liability even at 8.33% for the aforesaid year? and(v) that, in view of the above provision of law, the assessee was not entitled to claim deduction of rs. 8,03,086 on account of bonus provided for the year ending on march 31, 1975?'question no. 1 in i. t. reference no. 42 of 1990 :' whether the finding of the tribunal that the liability to pay bonus at 20% for the year ending on march 31, 1975, did not accrue to the assessee as there was no agreement, is perverse ?'question no. 2 in i. t. reference no. 42 of 1990 :' whether, on the facts and in the circumstances of the case and on a proper interpretation of the amendments made to the payment of bonus act, 1965, and the income-tax act, 1961, on september 25, 1975, the tribunal was right in holding that the proviso to sub-clause (ii) of sub-section (1) of section 36 of the income-tax act, 1961, was applicable in respect of the assessment year 1975-76 and as such the claim of the assessee for deduction of the bonus liability had to be determined with reference to the said proviso ?'question no. 3 in i. t. reference no. 42 of 1990 :' whether, on the facts and in the circumstances of the case and on a proper interpretation of the proviso to sub-clause (ii) of sub-section (1) of section 36 of the income-tax act, 1961, the tribunal was right in holding that payments made in excess of the minimum bonus provided under the payment of bonus act, 1965, but within the maximum limit of 20%was not an allowable deduction on the ground that it was not payable under the said bonus act ?'question no. 2 in i. t. reference no. 73 of 1985 :' whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was justified in holding that the provision of rs. 8,02,086 under the head ' provision of bonus' for earlier years written back during the year under appeal should not be added back even though the assessee has contested the tribunal's order for the assessment year 1975-76 involving this issue?'6. the facts relating to the aforesaid five questions are that, for the assessment year 1975-76, the assessee claimed that it should be allowed deduction at 20% of the wages as bonus. the tribunal, however, allowed minimum bonus statutorily payable at 4%. the assessee actually paid the minimum statutory bonus of 4% and the extra 16% which it had claimed in the assessment year 1975-76 was written back by it in the assessment year 1976-77 and offered for taxation. the claim for deduction of the said extra 16% bonus was disallowed by the tribunal for the assessment year 1975-76 and, consequently, the same amount written back in the previous year relevant to the assessment year 1976-77 has been deleted from the assessment in the assessment year 1976-77.7. at the hearing, mr. bajoria, learned counsel for the assessee, has submitted that the assessee is a limited company and that the rate of tax is the same. it would make no difference in the overall tax position if deduction for bonus at 20% is allowed for the assessment year 1975-76 and, thereafter, 16% of the bonus written back is taxed in the assessment year 1976-77 since bonus was not paid to that extent. in the circumstances, in order to avoid unnecessary controversy, mr. bajoria has very fairly stated that he was not pressing for an answer to question no. 1 in i.t. reference no. 359 of 1982, and questions nos. 1, 2 and 3 in i.t. reference no. 42 of 1990, for the assessment year 1975-76. we, therefore, decline to answer the aforesaid questions.8. the only question which remains to be considered is question no. 2 in i.t. reference no. 73 of 1985, for the assessment year 1976-77. since extra 16% of the wages claimed as bonus was not allowed for the assessment year 1975-76, the said amount was assessed to tax for the assessment year 1975-76. the assessee, however, wrote back the said amount for the assessment year 1976-77, but the tribunal deleted the said addition in view of the fact that the amount in question had been assessedfor the assessment year 1975-76. the same cannot be taxed twice and, accordingly, if it was taxed for the assessment year 1975-76, as is the case here, question no. 2 in i.t. reference no. 73 of 1985, for the assessment year 1976-77 has to be answered in the affirmative and in favour of the assessee. we return our answer accordingly.9. we shall now turn to the next issue which is raised in question no. 2 in i.t. reference no. 359 of 1982. this issue is also involved in question no. 2 in i.t. reference no. 38 of 1987 for the assessment year 1977-78. the said questions are as follows :question no. 2 in i. t. reference no. 359 of 1982 :' whether, on the facts and in the circumstances of case and on a proper construction of the contract entered into by the assessee with the department of defence supplies on january 12, 1972, and the subsequent amendments thereto, the tribunal was right in holding that the liability for liquidated damages to the extent of rs. 6,00,638 did not accrue to the assessee during the relevant previous year ended on march 31, 1975?'question no. 2 in i t. reference no. 38 of 1987 :' whether, on the facts and circumstances of the case, the tribunal was justified in deleting the addition of rs. 6,00,638 being liquidated damages debited as provision in the assessment year 1975-76 but written back in the accounts in the assessment year 1977-78 as the provision is no longer required '10. the controversy is with regard to the claim for deduction of rs. 6,00,638 for the assessment year 1975-76 on account of liquidated damages which, according to the assessee, became payable on account of the breach on its part of the contract entered into with the department of defence supplies. the deduction for the said sum was not allowed by the tribunal on the ground that it did not accrue to the assessee in the relevant previous year. ultimately, however, the assessee did not have to pay the said sum of rs. 6,00,638 on account of damages to the department of defence supplies and, accordingly, it wrote back the said sum in the previous year relevant to the assessment year 1977-78 and offered the same for taxation.11. the tribunal, in view of disallowance of the claim in the assessment year 1975-76, deleted the addition made in the assessment year 1977-78 when the said sum was written back in the accounts.12. mr. bajoria, learned counsel for the assessee, has submitted that there is no difference in the overall tax position if deduction for the said sum is allowed for the assessment year 1975-76 and then assessed in the assessment year 1977-78 when it was written back. the assessee, in order to avoid unnecessary controversy, does not press for answer to question no. 2 in its reference no. 359 of 1982. we, therefore, decline to answer question no. 2 in i. t. reference no. 359 of 1982. in view of the fact that question no. 2 in i. t. reference no. 359 of 1982 has not been pressed and we have declined to answer the question, it must necessarily follow that question no. 2 in i. t. reference no. 38 of 1987 has to be answered in the affirmative and in favour of the assessee. we return our answer accordingly.13. the third issue arises only for the assessment year 1975-76 in both the references, viz., i. t. reference no. 359 of 1982 and i. t. reference no. 42 of 1990.14. the questions are as follows :question no. 3 in i.t. reference no. 359 of 1982 :' whether, on the facts and in the circumstances of the case, the tribunal was justified in holding : (i) that the assessee was not engaged in the business of generation of electricity during the previous year under consideration and that, therefore,(ii) it was not entitled to initial depreciation in respect of the generators installed at its factories within the meaning of section 32(1)(vi) of the income-tax act, 1961?' question no. 4 in i. t. reference no. 42 of 1990 :' whether, on the facts and in the circumstances of the case, the finding of the tribunal that the assessee was not engaged in the business of generation of electricity within the meaning of section 32(1)(vi) of the income-tax act, 1961, is perverse?'15. the facts admitted and/or found by the tribunal on this issue are that the assessee, inter alia, manufactures and sells electrical relays which are devices for protecting insulations, transmission lines and electrical equipment, electrical meters and other stores required by the defence services. such goods are supplied by it to the state electricity boards and the department of defence supplies of the government of india. its factories are situated in the state of haryana and in the state of west bengal.16. it installed electrical generating sets at its said two factories after may 31, 1974, and claimed that initial depreciation should be allowed under section 32(1)(vi) of the act. the income-tax officer disallowed the claim on the ground that the assessee was not engaged in the business of generation and distribution of electricity but was engaged in the business of manufacturing electrical meters and defence stores and as such it was not entitled to claim such initial depreciation. on appeal, the commissioner of income-tax (appeals) accepted the contention of the assessee that, although the electricity generated by it was used for captive consumption, still it could not be said that the assessee was not engaged in the business of generation of electricity and as such the claim of the assessee for initial depreciation was valid. on appeal by the income-tax officer against the order of the commissioner of income-tax (appeals), the tribunal held that the assessee was not engaged in the business of generation of electricity since (i) it had not sold such electricity to outsiders and had used it captively, and (ii) the business of generation of electricity and electric meters and defence stores constituted the same business. the tribunal reversed the order of the commissioner of income-tax (appeals) and disallowed the claim of the assessee for initial depreciation.17. the short question which calls for determination is whether the assessee which installed electrical generating sets could claim to be engaged in the generation or distribution of electricity and is, therefore, entitled to the benefit of initial depreciation under section 32(1)(vi) of the act. the relevant provisions of section 32(1)(vi) of the act are as under :'... in the case of new machinery or plant . . . installed . . . for the purposes of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the ninth schedule ... a sum equal to twenty per cent. of the actual cost of the . . . machinery or plant to the assessee ...'18. it is contended by mr. bajoria, learned counsel for the assessee, that it is not necessary that the electricity generated must be distributed or sold to third parties for claiming the benefit of the allowance under the said sub-clause. the said sub-clause uses the expression ' generation or distribution '. the word used is ' or ' and not ' and '. it would, accordingly, cover cases of generation simpliciter or distribution simpliciter or both of generation and distribution. this would be obvious if one takes an illustration. in a case where electricity is generated by a state electricityboard or any hydro-electric project, then for the machinery used for such generation, such electricity board or hydro-electric project would be entitled to claim the benefit of allowance under the said section. in a case where an electric supply company purchases such electricity generated by such electricity board or hydro-electric project and then distributes it to its consumers, then such electricity company would also be entitled to get the benefit of the allowance in respect of the machinery used by it for such distribution of electricity. accordingly, the allowance under the said section would be available in cases of generation or distribution of electricity simpliciter or of both generation and distribution. in the instant case, admittedly, the claim of the assessee is not on the basis that it is engaged in distribution of electricity since the electricity generated is consumed by it for its own business purposes. merely because the generation of electricity is for captive consumption. mr. bajoria contends, it cannot be said that the assessee is not engaged in the business of generation of electricity. according to him, the concept of 'business' does not rule out cases of captive consumption. it does not require that the transaction must be with third parties. it is contended that merely because an article produced or manufactured is not sold to third parties but used by the assessee for its own business requirement, it cannot mean that the assessee is not engaged in the business of manufacture or production of such article captively consumed.19. mr. bajoria has relied on several decisions in support of his contention that although the assessee is not engaged in the business of generation and distribution of electricity, the electricity generated by it through the generators is used for its captive consumption and as such it cannot be denied the benefit of initial depreciation.20. the first decision cited by mr. bajoria is in the case of cit v. hindusthan motors ltd. : [1981]127itr210(cal) . there the question involved was about allowance of development rebate under section 33(1)(iii)(c)(a)(a) of the act. the provisions of the said section are analogous and similar to section 32(1)(vi) of the act involved herein. the development rebate which was claimed in the said case was allowable only in respect of machinery installed for the purpose of business of production of any one or more of the articles or goods specified in the list in the fifth schedule. in the list in the fifth schedule, motor cars were not specified but motor trucks and buses and automobile ancillaries were specified. the contention of the revenue was that the assessee was engaged in the business of manufacture of motor cars and although itmanufactured automobile ancillaries also, it could not claim any development rebate since such automobile ancillaries were captively consumed by it for the manufacture of the motor cars. the contention was that since there was captive consumption of the articles manufactured or produced, the assessee could not be treated as being engaged in the business of production of such articles. this contention of the revenue was rejected by this court. there this court held thus (at page 216) :' in the fifth schedule the list of articles or things are mentioned under section 33(1)(iii)(c)(a)(a). we have already set out the item (10) which read motor trucks and buses and item (20) which provides for automobile ancillaries. it has to be borne in mind that the assessee manufactures automobiles. it is true that motor car has not been specifically included as emphasised by the appellate assistant commissioner in these provisions while motor trucks and buses have been mentioned. therefore, motor trucks and buses have been treated separately from motor cars. but automobile ancillaries have been mentioned in its full amplitude, that is to say, ancillaries which are used for all types of automobiles including automobiles, motor cars, trucks, buses and other types, if there be. the second aspect that has to be borne in mind is that though, on profits and gains, certain reliefs and rebates were allowed, the rebates and reliefs are allowed not in respect of the profits and gains made mainly or solely or exclusively from certain types of operations. the profits and gains had to be attributable and not derived from the operation contemplated by the schedule, but the distinction is important because, as emphasised by the supreme court in cambay electric supply industrial co. ltd. v. cit : [1978]113itr84(sc) , where the supreme court expressed the view that the expression attributable had a wider amplitude than the expression derived from, thereby intending to cover receipts from sources other than the actual conduct of the business of the specified industry. therefore, whatever total profits the assessee-company was making were certainly attributable to one of the types of transactions contemplated by the schedule. here the assessee was carrying on the operation of assembly and also manufacture. as such, the profits and gains of any operation are entitled to relief or rebate as contemplated under the section. the assessee is also carrying on the operation of the manufacture of automobile ancillaries and the total profits and gains of the assessee were attributable to some of the operations being carried out in production and manufacture of automobile ancillaries. if that is the position, then, the very fact that the assessee was using part of the automobile ancillaries produced by it and used for itself and not for salein the market separately would not deprive the assessee of the relief granted on the plea that one could not trade with oneself or earn any profit in respect of transaction with oneself. the learned advocate for the revenue drew our attention to the various authorities which held that one could not trade with oneself and as such contended that any part which was attributable to the transaction of the assessee should not be entitled to relief. we are unable to accept this position. it is not the question whether the assessee carries on trade with itself. the assessee is carrying on business of earning the profit and one of the operations the assessee is carrying on is the production and manufacture of automobile ancillaries. if a portion of it is attributable to the automobile ancillaries as provided in the relief granted under the section as we have mentioned before, then the assessee should not be deprived of the same as we have mentioned in para f of part i of the first schedule of the finance act, 1965, and similar is the position under section 80e of the income-tax act, 1961. column a provides the type of company. it does not require that the company must be exclusively or wholly or mainly involved in the production of ancillaries, but if it is so, then, under column b, the rebate is allowed on so much of its articles which are in manufacture or production of any one of the articles mentioned in part iii of the schedule and any one of the articles includes one of the articles --'automobile ancillaries'. therefore, it does not become disentitled to such relief simply because part of those automobile ancillaries is consumed or utilised by the assessee for itself. it is true that the relief provisions must be strictly construed. but, in construing the provisions for relief, if the logical conclusion is, in some context, the assessee might be entitled to relief in respect of part of the units which is utilised for its production, it does not become disentitled to it, is now fairly well settled. reference in this connection may be made to the observations of the supreme court in the case of tata iron and steel co. ltd. v. state of bihar : [1963]48itr123(sc) , in the case of cit v. orient paper mills ltd. : [1974]94itr73(cal) , in the case of cit v. hindustan motors ltd. : [1977]107itr164(cal) as well as in the decision of the supreme court in the case of textile machinery corporation ltd. v. cit : [1977]107itr195(sc) . in the aforesaid view of the matter, we are of the opinion that the tribunal was right in its conclusion.'21. the next decision cited is in the case of cit v. orient paper mills ltd. : [1974]94itr73(cal) . in this case, the assessee was engaged in the business of manufacturing paper. for the manufacture of such paper, it was purchasing caustic soda from the market. it decided to set up its ownplant for manufacture of caustic soda and the soda so manufactured was used by it captively for the manufacture of paper. the assessee's claim for allowing relief in respect of caustic soda plant as a new industrial undertaking was rejected on the ground that the assessee was captively consuming the said caustic soda and what it was purchasing from the market earlier was now being produced by it and it was a mere case of reconstruction of its existing business. the contention of the revenue was rejected by this court and it was held that the assessee was entitled to claim relief in respect of its caustic soda plant as a new industrial undertaking. the fact that the caustic soda produced was captively consumed and not sold to third parties did not stand in the way of holding that the assessee was engaged in the business of manufacturing caustic soda in its new industrial undertaking.22. the said decision of this court has been affirmed by the supreme court in cit v. orient paper mills ltd. : [1989]176itr110(sc) .23. the next decision cited is in the case of tata iron and steel co. ltd. v. state of bihar : [1963]48itr123(sc) . there, the supreme court laid down the principle that merely because an article produced or manufactured is captively consumed, it could not be said that no profit accrues from such an activity. the supreme court laid down that such profits had to be computed notionally with reference to the market value of the goods or materials which were so captively consumed.24. according to learned counsel, these decisions clearly lay down that the captive consumption of an article or goods produced does not derogate from or affect the existence of the business of manufacture or of production of such article or goods. it is not necessary that the article or goods so produced must be sold to third parties and not merely consumed by the assessee itself in its other business activites.25. reference in this connection has also been made to the decision of the gujarat high court in the case of anil starch products ltd. v. cit : [1966]59itr514(guj) .26. in our view, the contention of learned counsel for the assessee cannot be accepted for more than one reason. development rebate allowable under section 33 was withdrawn in respect of ships acquired, or machinery or plant installed, after may 31, 1974, except in certain cases specified in section 16 of the finance act, 1974 (later amended by the finance act, 1975). section 32(1)(vi) for providing initial depreciation was introduced with effect from april 1, 1975. it is available in respect of the followingassets, namely (i) new ships and new aircraft acquired by a person engaged in the business of operation of ships or aircraft, after may 31, 1974 ; (ii) new machinery or plant (other than office appliances or road transport vehicles) installed after may 31, 1974, for the purpose of business of generation or distribution of electricity or any other form of power ; (iii) such new machinery or plant installed after may 31, 1974, for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in items nos. 1 to 24 (items nos. 1 to 23, for the assessment year 1975-76) of the ninth schedule to the act ; and (iv) such new machinery or plant installed after may 31, 1974, in a small-scale industrial undertaking (as defined) for manufacture or production of any article or thing.27. it will be evident from the scheme of the act that initial depreciation is allowable in respect of machinery and plant installed in certain selected industries after may 31, 1974. the object of the introduction of the said provision was to encourage and give an impetus to the business of operation of ships or aircraft, generation and distribution of electricity or any other form of power and 24 specified items mentioned in the ninth schedule which are connected with industrial development. thus, the object of the provision is to give an impetus and encouragement to the industry which is engaged in the business of generation or distribution of electricity or any other form of power. admittedly, the assessee was not engaged in the business of generation or distribution of electricity or any other form of power. unless a licence is obtained by the assessee for generation or distribution of electricity under the indian electricity act, 1910, and the electricity (supply) act, 1948, it cannot generate or distribute electricity. as for example, cesc ltd. is engaged in the business of generation and distribution of electricity and it can claim initial depreciation for the installation of any machinery which is installed for the purpose of its business of generation and/or distribution of electricity ; so also are the state electricity boards which are engaged in generation or distribution of electricity. in this case, the assessee is not engaged in the business of generation or distribution of electricity. it manufactures, inter alia, electrical items which are sold to the defence services and state electricity boards. in the production of such items, the assessee, because of shortage of power, installed generators in its two factories. these generators are meant to meet the exigencies when there is a power cut. installation of generators by the assessee in its factories is not in connection with any business of generation or distribution of electricity or power. because of the shortage of power to run the factories,generators have been installed by which mechanical power is converted into electrical energy. it has nothing to do with the end product manufactured by the assessee. the conversion of mechanical power cannot be held to be generation or distribution of electricity. this conversion of mechanical power into electrical energy may have a bearing on the carrying on of the business of the assessee, but by no stretch of imagination can it be said that an assessee installing a generator to meet the exigencies of power cut is engaged in the business of generation or distribution of electricity or any other form of power. in that case, all assessees would be entitled to initial depreciation on the generators installed, irrespective of the nature of business carried on by them. this is not the intention under section 32(1)(vi).28. our attention has been drawn to a decision of this court in cit v. century enka ltd. : [1981]130itr267(cal) . in that case, the question was whether nylon came within the expression 'petrochemical' under item (18) of schedule v and the machinery or plant installed for its production was entitled to higher development rebate. this court held that deduction or exemption is available to the industries which are producing articles or goods included, inter alia, in the fifth schedule. there the court observed as follows (at page 290) :' in this connection, we also appreciate the arguments advanced on behalf of the assessee that an industry is not known by the raw material which it uses but it is known by the finished product which it produces. for example, a glass industry is not known as a sand industry which is the basic raw material for the purpose of production of glass water nor a textile industry is known as cotton industry, because textile is manufactured from cotton. similarly, though the company may be manufacturing nylon-6 from caprolactum, yet it could only be considered in its broad sense as petrochemical industry.'29. electricity cannot be taken to be a raw material. it is necessary to operate machines or plants. it has got nothing to do with the ultimate product that is produced. if this contention is accepted that electricity is raw material for the production of articles or things or electricity as such is generated for captive consumption, then all the industries irrespective of the articles or things produced would be eligible to claim investment allowance wherever and whenever generators are installed.30. this is not a case where goods have been manufactured or produced for captive consumption. if a car manufacturer instals a plant for manufacture of tyres, batteries, steel plates or other components andcaptively uses the same in the manufacture of the car, the car manufacturer cannot, for that reason, be said to be not engaged in the manufacture of tyres, batteries, steel plates, etc. the goods which are manufactured for captive consumption must be such which are inextricably connected with the products manufactured by the assessee. a car requires tyres, batteries, steel plates or other components. all these components would be parts of the car to be manufactured. in hindusthan motors : [1981]127itr210(cal) automobile ancillaries were manufactured by the assessee-company which was engaged in the business of manufacture of motor cars. this court held that because parts of the automobile ancillaries are consumed or utilised by the assessee for itself, the assessee does not become disentitled to the relief. this decision cannot have any application to the facts of this case. whether the assessee is engaged in the manufacture of motor car, caustic soda, paper or steel, it requires electricity for running such industry. it has nothing to do with the end product which will be manufactured by such an assessee. a manufacturer of cars would require those items which are integral parts of the manufactured product, i.e., the car. a car must have a motor, tyres, batteries, etc. these are ancillary items. instead of buying such articles, if a manufacturer of cars, manufactures these items in its own factory, it cannot be said that such an assessee is not engaged in the manufacture of those items also. the installation of the generator is necessitated not because the assessee, instead of buying the energy from the state electricity board, would generate such electricity itself for its consumption. the generation or distribution of electricity is altogether a different business. admittedly, the assessee is not engaged in generation or distribution of electric energy. it is not a licensee under the electricity act for generating electricity. because of the shortage of power to run the factory, every factory may have to instal a generator. as we have said, by the generator, mechanical power is converted into electrical energy. it has nothing to do with the end product manufactured by the assessee. this change of mechanical power into electric energy may have a bearing on the running of the industry, but it is not an integral part or a component or ancillary of the end product manufactured by the assessee.31. mr. bajoria has commented on the finding of the tribunal that the business of generation of electricity and manufacture of electricity meters constitute one and the same business. according to him, the tribunal had created a confusion in holding that the activity of generating electricity and manufacture of electricity meters and defence stores constitute the same business. according to mr. bajoria, because twobusiness activities constitute the same business, the nature and identity of such different businesses are lost and only one of them exists. the question is not whether the assessee was carrying on one or two different businesses. the question is whether generation of electricity can be said to be a business activity of the assessee in the sense in which it is commonly understood.32. in section 2(13) of the income-tax act, 1961, ' business' has been defined as under :''business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.'33. the words used in this definition are wide, but underlying each of them is the fundamental idea of the continuous exercise of an activity. the word 'business' connotes some real, substantive and systematic or organised course of activity or conduct with a set purpose. if one of two activities cannot be stopped without affecting the framework of the other, it would be a good (though not conclusive) indication that they constitute the same business ; but the converse is not true, and the possibility of stopping one without affecting the other is not an indication that they are different businesses.34. one test which has been frequently invoked in order to determine whether two or more businesses are separate businesses or constitute the same business is whether there is an interconnection, an interlacing, an interdependence between and a unity embracing the business. the interdependence may be financial ; the unity may be unity of management and control.35. in our view, it is immaterial whether the two activities, namely, that of conversion of mechanical power into electricity by installing generators and the manufacture of electric meters constituted one and the same business or not. admittedly, the assessee did not carry on business of generation and distribution of electricity. as we have held that installation of generator for the purpose of running factories during power cuts cannot be treated as a business activity carried on by the assessee, we are, therefore, of the view that the assessee was not engaged in the business of generation of electricity and, accordingly, it is not entitled to initial depreciation in terms of section 32(1)(vi) of the act.36. for the foregoing reasons question no. 3 in i. t. reference no. 359 of 1982, is answered in the affirmative and question no. 4 in i. t. reference no. 42 of 1990, is also answered in the affirmative and in favour of the revenue and against the assessee.37. the only other issue involved in these references is with regard to liabilities written back. this issue is involved in i. t. reference no. 73 of 1985, for the assessment year 1976-77 and i. t. reference no. 38 of 1987, for the assessment years 1977-78 and 1978-79. the questions are as follows :i. t. reference no. 73 of 1985 for the assessment year 1976-77 :' whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was justified in holding that the sum of rs. 37,555 being the liabilities written back which were time-barred was not assessable?'i. t. reference no. 38 of 1987 for the assessment year 1977-78 :'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was justified in deleting the addition of rs. 83,174 representing liabilities written back in the assessment year 1977-78 ?'for the assessment year 1978-79 :'whether, on the facts and in the circumstances of the case, the tribunal was justified in deleting the addition on account of liabilities no longer required and so written back in the assessment year 1978-79 ?'38. the facts out of which the question for the assessment year 1976-77 arose are that, during the year under reference, the assessee wrote back certain trade liabilities amounting to rs. 37,555 on the ground that the liabilities had ceased to exist, being time-barred. the income-tax officer, invoking the provisions of section 41(1) of the act, added the same to the income of the assessee.39. against the addition made by the income-tax officer, the assessee came in appeal before the commissioner of income-tax (appeals). the commissioner of income-tax (appeals), following the decision of this court in cit v. sugauli sugar works p. ltd. : [1983]140itr286(cal) , deleted the addition. the tribunal, after hearing the parties, upheld the finding of the commissioner of income-tax (appeals) on this issue, following the decision of this court in cit v. sugauli sugar works p. ltd. : [1983]140itr286(cal) .40. the facts relating to the assessment years 1977-78 and 1978-79 as recorded by the tribunal in the statement of case are as follows :' the fourth question relates to the assessee's claim for deducting a sum of rs. 83,174 representing liabilities written back. this amount was claimed as a deduction in the assessment year 1975-76 by the assessee. the income-tax officer did not allow the claim on the ground that it was in the nature of a provision. the assessee appealed to the commissioner of income-tax (appeals) but without any success. its second appeal to the tribunal was also unsuccessful because the tribunal found that the said amount was not allowable as a deduction because it did not represent an accrued liability. however, a reference under section 256(1) was granted to the assessee in that year and is now pending before the hon'ble high court. during the year under consideration, the assessee found that the provision was no longer required and the assessee was not liable to pay the said amount. hence, the assessee wrote back the amount in the profit and loss account by making corresponding entries in the provision account. the income-tax officer brought this amount to tax during this year. on appeal, the commissioner of income-tax (appeals) deleted the amount on the ground that this amount was not allowed earlier as a deduction and so there is no question of taxing it during this year because it has already suffered tax in the assessment year 1976-77. however, there is a reference pending for that year before the hon'ble high court and in case that reference is decided in favour of the assessee in that year, then the amount would become taxable during the year under consideration, as, otherwise, it will escape tax in both the years.'41. the tribunal also noted that the facts for the assessment year 1978-79 are similar to those pertaining to the assessment year 1977-78.42. the question for the assessment years 1977-78 and 1978-79 was whether the amounts of rs. 83,174 and rs. 55,625, respectively, representing liabilities written back were rightly taxed under section 41(1).43. it appears that the tribunal, while drawing up the statement of case, has mixed up the facts relating to the other issues involved regarding claim for liquidated damages made in the earlier assessment year which had been disallowed in such earlier year and written back in the later year. the issue involved, however, is with reference to the unilateral writing back of the past liabilities on the part of the assessee to the extent of rs. 83,174 for the assessment year 1977-78. it is not a case of disallowance of any expenditure in the earlier years and the amount relating thereto being written back and being taxed in the later assessment year. the amounts representing the said sum of rs. 83,174 were allowed in full as deduction in the respective assessment years and there is no questionof it not having been allowed in the earlier years or any dispute pending before this court on the question of their allowability. as indicated, the issue involved is with reference to the writing back of the sums which have been allowed in the earlier years with reference to the provisions of section 41(1) of the act on the ground that there has been a remission of cessation of liability. unfortunately, at the time when the statement of case was prepared, the attention of the tribunal was not drawn to the above error. it appears that there was no representation on behalf of the assessee at the time of finalisation of the draft statement of case.44. with regard to the assessment year 1978-79, the tribunal has not stated any facts separately but has simply stated that the facts are similar to those of the assessment year 1977-78. this statement also is incorrect for the same reasons as given earlier for the assessment year 1977-78.45. in the assessment order for the assessment year 1977-78, the facts regarding the said sum of rs. 83,174 being liabilities written back as time-barred are stated as under :'the amount of rs. 83,174 has been written back as the liability has ceased to exist on becoming time-barred. according to the assessee, writing back is the result of the assessee's unilateral action and hence the amount is not income under section 41(1). i do not agree with the assessee's contention. the action is not unilateral, because the creditors, by their action, have allowed the debts to become time-barred. the aforesaid amount of rs. 83,174 includes an amount of rs. 40,845 being interest which was short paid to uco bank. the bank claimed this amount. the assessee raised an objection and the bank remained silent. in the circumstances, the amount of rs. 83,174 (rs. 36,932 for meter, rs. 9,432 for relay and rs. 43,810 for mujesar) is an income under section 41(1) to be included in the total income.'46. the commissioner of income-tax (appeals) has recorded the description of the item as liabilities written back and has directed allowance of the relief for the same reasons as in the earlier assessment year 1976-77, in which a sum of rs. 37,555 was similarly written off.47. the commissioner of income-tax (appeals) recorded as follows :' ground no. description of the item. liabilities written back amounting to rs. 83,174.the income-tax officer is directed to allow relief in respect of the abovementioned grounds in accordance with the decisions contained in my order for the assessment year 1976-77.'48. on further appeal, the tribunal referred to the order for the earlier assessment year 1976-77 and deleted the addition without any discussion.49. the tribunal held thus :' the next common ground pertains to the deletion of the additions on account of liabilities written back. the point at issue stands concluded by the order of the tribunal in the case of the assessee for the assessment year 1976-77 in ita no. 343 (cal) of 1983, dated april 11, 1984. respectfully following the aforesaid order of the tribunal, we would uphold the order of the commissioner of income-tax (appeals) on this point.'50. for the assessment year 1978-79, the income-tax officer has recorded the facts relating to existing liabilities written back and sought to be taxed under section 41(1). he recorded thus :' profit and loss account has been credited with a sum of rs. 3,12,984 being excess liabilities written back. it is claimed that, out of this amount, a sum of rs. 55,625 is to be ignored for the purpose of computation of total income on the ground that the company will have to pay the amount to the creditors on demand by the creditors. the claim of the assessee is not acceptable. the amount of rs. 55,625 has been written back as the liability has ceased to exist on becoming time-barred. according to the assessee, writing back is the result of the assessee's unilateral action and hence the amount is not income under section 41(1). i do not agree with the assessee's contention. the action is not unilateral because the creditors, by their action, have allowed the debts to become time-barred. in the circumstances, the amount of rs. 55,625 (rs. 35,640 for meter department, rs. 8,653 for relay department and rs. 11,332 for mujesar division) is an income under section 41(1) of the income-tax act and is, accordingly, included in the total income of the assessee.'51. the commissioner of income-tax (appeals) has referred to the said issue and ordered deletion of the amount in view of his order for the earlier years. the commissioner recorded as follows :'addition of rs. 55,625 being liability written back. the income-tax officer is directed to allow relief in respect of the abovementioned grounds in accordance with the decisions contained in my order for the assessment years 1976-77 and 1977-78.'52. similarly, the tribunal simply followed the earlier year's order without any discussion.53. in the reference application for the assessment year 1977-78 and in the reference application for the assessment year 1978-79, the facts relating to the writing back of the said two sums are stated as under :' the profit and loss account of the assessee had been credited with a sum of rs. 9,75,062 being excess liabilities written back. it was claimed by the assessee that, out of that amount, a sum of rs. 83,174 was to be ignored for the purpose of computation of total income on the ground that the company would have to pay the amount to the creditors on demand by the creditors. the income-tax officer, on examination, found that the liabilities amounting to rs. 83,174 had been written back when they ceased to exist on becoming time-barred. it was submitted by the assessee before the income-tax officer that writing back of the liability was the result of its unilateral action, and hence the amount did not represent income under section 41(1) of the income-tax act. but the income-tax officer was of the view that the assessee's action was not unilateral because the creditors, by their own volition, had allowed the debts to become time-barred. the aforesaid amount of rs. 83,174 included an amount of rs. 40,845 representing interest which was payable to the uco bank. the bank claimed the interest due from the assessee. but the assessee raised objections against the claim. the bank remained silent. considering all these facts and circumstances, the amount of rs. 83,174 was treated by the income-tax officer as income under section 41(1) and included the same in the total income of the assessee.'54. it would thus be evident that the facts stated in the statement of case by the tribunal are erroneous relating to these two assessment years 1977-78 and 1978-79. there is no question of any sum not having been allowed in the earlier years which was being written back in these years and which was sought to be taxed. as already stated, the amount in question had been allowed as deduction in the earlier years and these sums were being unilaterally written back on the ground that the liabilities had become barred by limitation.55. since the details of the nature of the liabilities and the amounts written back have not been incorporated in the statement of case by the tribunal, we directed the parties to produce before us the details. by consent, the statement which has been furnished has been looked into by us. from the details, it appears that the amounts related to supply of raw materials, components, stores and spare parts for the different divisions of the company. very small amounts ranging from rs. 4.55 to rs. 4,392 have been shown as liabilities from 1972-73 till march 31, 1976,relevant to the assessment year 1976-77 and the liabilities in the aggregate amounted to rs. 37,555 which was written back in the assessment year 1976-77. similar is the case for the assessment year 1977-78 excepting that, in this year, a sum of rs. 40,845 was shown as a liability to uco bank which was written back. the said sum represents interest which was short-paid to the bank. although it was contended that the bank had claimed the said sum and the assessee had objected to it, the said sum had remained outstanding, but no details had been given. it is not the case of the assessee that the bank had instituted any proceedings for the realisation of the aforesaid sum. this amount was, as indicated, shown as a liability in the year 1973-74 and it was written back in the assessment year 1977-78. similar is the case in respect of the assessment year 1978-79. it is true that the liabilities do not relate to payment to the workmen on account of bonus, provident fund, wages, etc., but all the, amounts are relating to trading liabilities. our attention has been drawn to the decisions of this court in the case of cit v. sugauli sugar works p. ltd. : [1983]140itr286(cal) and cit v. b.n. elias and co. p. ltd. : [1986]160itr45(cal) . it has been contended that there was no cessation or remission of liability. no addition under section 41(1) can be made merely because the assessee, ultimately, writes back the liability provided for in the earlier years and for which deduction was allowed in such years. the unilateral writing back does not lead to any remission or cessation of liability within the meaning of section 41(1) of the act. it is contended that the amounts were written back because their recovery was barred by limitation. the fact that action for recovery is barred by limitation does not mean that there is cessation or remission of liability and the provision of section 41(1) of the act cannot, therefore, be attracted. mr. bajoria has also submitted that the decision of this court in cit v. agarpara co. ltd. : [1986]158itr78(cal) related to writing back of unpaid statutory bonus and is distinguishable on facts. in view of the principles as laid down by this court in agarpara co. ltd. : [1986]158itr78(cal) and in an unreported decision of this court in income-tax reference no. 320 (821 ?) of 1986 (since reported as kesoram industries and cotton mills ltd. v. cit : [1992]196itr845(cal) ), where judgment was delivered on march 1, 1991, the contention of the assessee cannot be accepted. it has been held that the onus is upon the assessee to establish that, in law, it would not be entitled to treat the amounts written back as part of its income or its liability did not cease. whether or not the liability of the assessee has been fully discharged is within the special knowledge of the assessee, and it has to prove that, in fact, the liability subsists. when the assessee itselfcomes to the conclusion that the amount in question would not be claimed by the concerned persons and does not take such amount to the reserve account but writes it back in the profit and loss account, the reasonable inference that will follow from the facts and circumstances and the conduct of the assessee is that the amount which was provided for was not in fact necessary and it was an excess provision. no longer was there any liability. another fact is also relevant. it has been held that smallness of the amount involved in individual cases would furnish a reasonable basis for holding that such creditors were not interested in realising such small amounts or dues and in fact a smaller amount than due was accepted by them in full discharge of the whole amount. in this case also, as we have indicated, from 1971-72 onwards, small amounts had accumulated and, in the three assessment years, the assessee wrote back the liabilities after a lapse of 6 or 7 years.56. for the foregoing reasons, all the three questions relating to the liabilities written back for the assessment years 1976-77, 1977-78 and 1978-79 in income-tax reference no. 73 of 1985 and income-tax reference no. 38 of 1987 are answered in the negative and in favour of the revenue.57. there will be no order as to costs. bhagabati prasad banerjee, j. 58. i agree.

Judgment:

Ajit K. Sengupta, J.

1. These four references -- two at the instance of the Commissioner and two at the instance of the assessee -- relating to the assessment years 1975-76, 1976-77, 1977-78 and 1978-79, are heard together as common issues are involved.

2. Income-tax Reference No. 359 of 1982, under Section 256(1) of the Income-tax Act, 1961, and Income-tax Reference No. 42 of 1990 under Section 256(2) of the Act, both at the instance of the assessee, relate to the assessment year 1975-76.

3. Income-tax Reference No. 73 of 1985, at the instance of the Revenue is for the assessment year 1976-77 and Income-tax Reference No. 38 of 1987, is also at the instance of the Revenue and is for the assessment years 1977-78 and 1978-79.

4. The questions in these four references involve four issues, viz. --

(a) Bonus amounting to Rs. 8,03,086 claimed as deduction for the assessment year 1975-76 and consequential addition for the assessment year 1976-77.

(b) Claim for liquidated damages amounting to Rs. 6,00,638 payable to the Department of Defence Supplies for breach of contract for the assessment year 1975-76 and consequential addition for the assessment year 1977-78.

(d) Liabilities becoming time-barred and written back for the assessment years 1976-77, 1977-78 and 1978-79.

5. We shall first take up question No. 1 in Income-tax Reference No. 359 of 1982, questions Nos. 1, 2 and 3 in Income-tax Reference No. 42 of 1990 and question No. 2 in Income-tax Reference No. 73 of 1985, together as they deal with the same issue. The said questions are as follows :

Question No. 1 in I. T. Reference No. 359 of 1982 :

' Whether, on the facts and in the circumstances of the case and on a proper interpretation of the amendments made to the payment of Bonus Act, 1956, and the Income-tax Act, 1961, with effect from September 25, 1975, the Tribunal was right in holding.

(i) that the provisions of the Payment of Bonus (Amendment) Ordinance, 1975, including those contained in Section 29 thereof whichamended Section 36 of the Income-tax Act, 1961, applied to the payment of bonus in respect of the accounting period of the assessee commencing on April 1, 1974, and ending on March 31, 1975?

(ii) that, in terms of the aforesaid amended provisions of the Payment of Bonus Act and the newly inserted proviso to Sub-clause (ii) of Sub-section (1) of Section 36 of the Income-tax Act, 1961, the assessee's claim for deducting payment of bonus at 20% was not justified ?

(iii) that deduction for bonus liability could not be allowed in excess of 4% of the salaries and wages of the employees payable in respect of the aforesaid previous year corresponding to the assessment year 1975-76 ?

(iv) that the assessee was not entitled to deduction for the bonus liability even at 8.33% for the aforesaid year? and

(v) that, in view of the above provision of law, the assessee was not entitled to claim deduction of Rs. 8,03,086 on account of bonus provided for the year ending on March 31, 1975?'

Question No. 1 in I. T. Reference No. 42 of 1990 :

' Whether the finding of the Tribunal that the liability to pay bonus at 20% for the year ending on March 31, 1975, did not accrue to the assessee as there was no agreement, is perverse ?'

Question No. 2 in I. T. Reference No. 42 of 1990 :

' Whether, on the facts and in the circumstances of the case and on a proper interpretation of the amendments made to the Payment of Bonus Act, 1965, and the Income-tax Act, 1961, on September 25, 1975, the Tribunal was right in holding that the proviso to Sub-clause (ii) of Sub-section (1) of Section 36 of the Income-tax Act, 1961, was applicable in respect of the assessment year 1975-76 and as such the claim of the assessee for deduction of the bonus liability had to be determined with reference to the said proviso ?'

Question No. 3 in I. T. Reference No. 42 of 1990 :

' Whether, on the facts and in the circumstances of the case and on a proper interpretation of the proviso to Sub-clause (ii) of Sub-section (1) of Section 36 of the Income-tax Act, 1961, the Tribunal was right in holding that payments made in excess of the minimum bonus provided under the Payment of Bonus Act, 1965, but within the maximum limit of 20%was not an allowable deduction on the ground that it was not payable under the said Bonus Act ?'

Question No. 2 in I. T. Reference No. 73 of 1985 :

' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the provision of Rs. 8,02,086 under the head ' Provision of Bonus' for earlier years written back during the year under appeal should not be added back even though the assessee has contested the Tribunal's order for the assessment year 1975-76 involving this issue?'

6. The facts relating to the aforesaid five questions are that, for the assessment year 1975-76, the assessee claimed that it should be allowed deduction at 20% of the wages as bonus. The Tribunal, however, allowed minimum bonus statutorily payable at 4%. The assessee actually paid the minimum statutory bonus of 4% and the extra 16% which it had claimed in the assessment year 1975-76 was written back by it in the assessment year 1976-77 and offered for taxation. The claim for deduction of the said extra 16% bonus was disallowed by the Tribunal for the assessment year 1975-76 and, consequently, the same amount written back in the previous year relevant to the assessment year 1976-77 has been deleted from the assessment in the assessment year 1976-77.

7. At the hearing, Mr. Bajoria, learned counsel for the assessee, has submitted that the assessee is a limited company and that the rate of tax is the same. It would make no difference in the overall tax position if deduction for bonus at 20% is allowed for the assessment year 1975-76 and, thereafter, 16% of the bonus written back is taxed in the assessment year 1976-77 since bonus was not paid to that extent. In the circumstances, in order to avoid unnecessary controversy, Mr. Bajoria has very fairly stated that he was not pressing for an answer to question No. 1 in I.T. Reference No. 359 of 1982, and questions Nos. 1, 2 and 3 in I.T. Reference No. 42 of 1990, for the assessment year 1975-76. We, therefore, decline to answer the aforesaid questions.

8. The only question which remains to be considered is question No. 2 in I.T. Reference No. 73 of 1985, for the assessment year 1976-77. Since extra 16% of the wages claimed as bonus was not allowed for the assessment year 1975-76, the said amount was assessed to tax for the assessment year 1975-76. The assessee, however, wrote back the said amount for the assessment year 1976-77, but the Tribunal deleted the said addition in view of the fact that the amount in question had been assessedfor the assessment year 1975-76. The same cannot be taxed twice and, accordingly, if it was taxed for the assessment year 1975-76, as is the case here, question No. 2 in I.T. Reference No. 73 of 1985, for the assessment year 1976-77 has to be answered in the affirmative and in favour of the assessee. We return our answer accordingly.

9. We shall now turn to the next issue which is raised in question No. 2 in I.T. Reference No. 359 of 1982. This issue is also involved in question No. 2 in I.T. Reference No. 38 of 1987 for the assessment year 1977-78. The said questions are as follows :

Question No. 2 in I. T. Reference No. 359 of 1982 :

' Whether, on the facts and in the circumstances of case and on a proper construction of the contract entered into by the assessee with the Department of Defence Supplies on January 12, 1972, and the subsequent amendments thereto, the Tribunal was right in holding that the liability for liquidated damages to the extent of Rs. 6,00,638 did not accrue to the assessee during the relevant previous year ended on March 31, 1975?'

Question No. 2 in I T. Reference No. 38 of 1987 :

' Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 6,00,638 being liquidated damages debited as provision in the assessment year 1975-76 but written back in the accounts in the assessment year 1977-78 as the provision is no longer required '

10. The controversy is with regard to the claim for deduction of Rs. 6,00,638 for the assessment year 1975-76 on account of liquidated damages which, according to the assessee, became payable on account of the breach on its part of the contract entered into with the Department of Defence Supplies. The deduction for the said sum was not allowed by the Tribunal on the ground that it did not accrue to the assessee in the relevant previous year. Ultimately, however, the assessee did not have to pay the said sum of Rs. 6,00,638 on account of damages to the Department of Defence Supplies and, accordingly, it wrote back the said sum in the previous year relevant to the assessment year 1977-78 and offered the same for taxation.

11. The Tribunal, in view of disallowance of the claim in the assessment year 1975-76, deleted the addition made in the assessment year 1977-78 when the said sum was written back in the accounts.

12. Mr. Bajoria, learned counsel for the assessee, has submitted that there is no difference in the overall tax position if deduction for the said sum is allowed for the assessment year 1975-76 and then assessed in the assessment year 1977-78 when it was written back. The assessee, in order to avoid unnecessary controversy, does not press for answer to question No. 2 in its Reference No. 359 of 1982. We, therefore, decline to answer question No. 2 in I. T. Reference No. 359 of 1982. In view of the fact that question No. 2 in I. T. Reference No. 359 of 1982 has not been pressed and we have declined to answer the question, it must necessarily follow that question No. 2 in I. T. Reference No. 38 of 1987 has to be answered in the affirmative and in favour of the assessee. We return our answer accordingly.

13. The third issue arises only for the assessment year 1975-76 in both the references, viz., I. T. Reference No. 359 of 1982 and I. T. Reference No. 42 of 1990.

14. The questions are as follows :

Question No. 3 in I.T. Reference No. 359 of 1982 :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding :

(i) that the assessee was not engaged in the business of generation of electricity during the previous year under consideration and that, therefore,

(ii) it was not entitled to initial depreciation in respect of the generators installed at its factories within the meaning of Section 32(1)(vi) of the Income-tax Act, 1961?'

Question No. 4 in I. T. Reference No. 42 of 1990 :

' Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the assessee was not engaged in the business of generation of electricity within the meaning of Section 32(1)(vi) of the Income-tax Act, 1961, is perverse?'

15. The facts admitted and/or found by the Tribunal on this issue are that the assessee, inter alia, manufactures and sells electrical relays which are devices for protecting insulations, transmission lines and electrical equipment, electrical meters and other stores required by the Defence Services. Such goods are supplied by it to the State Electricity Boards and the Department of Defence Supplies of the Government of India. Its factories are situated in the State of Haryana and in the State of West Bengal.

16. It installed electrical generating sets at its said two factories after May 31, 1974, and claimed that initial depreciation should be allowed under Section 32(1)(vi) of the Act. The Income-tax Officer disallowed the claim on the ground that the assessee was not engaged in the business of generation and distribution of electricity but was engaged in the business of manufacturing electrical meters and defence stores and as such it was not entitled to claim such initial depreciation. On appeal, the Commissioner of Income-tax (Appeals) accepted the contention of the assessee that, although the electricity generated by it was used for captive consumption, still it could not be said that the assessee was not engaged in the business of generation of electricity and as such the claim of the assessee for initial depreciation was valid. On appeal by the Income-tax Officer against the order of the Commissioner of Income-tax (Appeals), the Tribunal held that the assessee was not engaged in the business of generation of electricity since (i) it had not sold such electricity to outsiders and had used it captively, and (ii) the business of generation of electricity and electric meters and Defence Stores constituted the same business. The Tribunal reversed the order of the Commissioner of Income-tax (Appeals) and disallowed the claim of the assessee for initial depreciation.

17. The short question which calls for determination is whether the assessee which installed electrical generating sets could claim to be engaged in the generation or distribution of electricity and is, therefore, entitled to the benefit of initial depreciation under Section 32(1)(vi) of the Act. The relevant provisions of Section 32(1)(vi) of the Act are as under :

'... in the case of new machinery or plant . . . installed . . . for the purposes of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Ninth Schedule ... a sum equal to twenty per cent. of the actual cost of the . . . machinery or plant to the assessee ...'

18. It is contended by Mr. Bajoria, learned counsel for the assessee, that it is not necessary that the electricity generated must be distributed or sold to third parties for claiming the benefit of the allowance under the said sub-clause. The said sub-clause uses the expression ' generation or distribution '. The word used is ' or ' and not ' and '. It would, accordingly, cover cases of generation simpliciter or distribution simpliciter or both of generation and distribution. This would be obvious if one takes an illustration. In a case where electricity is generated by a State ElectricityBoard or any hydro-electric project, then for the machinery used for such generation, such Electricity Board or hydro-electric project would be entitled to claim the benefit of allowance under the said section. In a case where an electric supply company purchases such electricity generated by such Electricity Board or hydro-electric project and then distributes it to its consumers, then such electricity company would also be entitled to get the benefit of the allowance in respect of the machinery used by it for such distribution of electricity. Accordingly, the allowance under the said section would be available in cases of generation or distribution of electricity simpliciter or of both generation and distribution. In the instant case, admittedly, the claim of the assessee is not on the basis that it is engaged in distribution of electricity since the electricity generated is consumed by it for its own business purposes. Merely because the generation of electricity is for captive consumption. Mr. Bajoria contends, it cannot be said that the assessee is not engaged in the business of generation of electricity. According to him, the concept of 'business' does not rule out cases of captive consumption. It does not require that the transaction must be with third parties. It is contended that merely because an article produced or manufactured is not sold to third parties but used by the assessee for its own business requirement, it cannot mean that the assessee is not engaged in the business of manufacture or production of such article captively consumed.

19. Mr. Bajoria has relied on several decisions in support of his contention that although the assessee is not engaged in the business of generation and distribution of electricity, the electricity generated by it through the generators is used for its captive consumption and as such it cannot be denied the benefit of initial depreciation.

20. The first decision cited by Mr. Bajoria is in the case of CIT v. Hindusthan Motors Ltd. : [1981]127ITR210(Cal) . There the question involved was about allowance of development rebate under Section 33(1)(iii)(c)(A)(a) of the Act. The provisions of the said section are analogous and similar to Section 32(1)(vi) of the Act involved herein. The development rebate which was claimed in the said case was allowable only in respect of machinery installed for the purpose of business of production of any one or more of the articles or goods specified in the list in the Fifth Schedule. In the list in the Fifth Schedule, motor cars were not specified but motor trucks and buses and automobile ancillaries were specified. The contention of the Revenue was that the assessee was engaged in the business of manufacture of motor cars and although itmanufactured automobile ancillaries also, it could not claim any development rebate since such automobile ancillaries were captively consumed by it for the manufacture of the motor cars. The contention was that since there was captive consumption of the articles manufactured or produced, the assessee could not be treated as being engaged in the business of production of such articles. This contention of the Revenue was rejected by this court. There this court held thus (at page 216) :

' In the Fifth Schedule the list of articles or things are mentioned under Section 33(1)(iii)(c)(A)(a). We have already set out the item (10) which read motor trucks and buses and item (20) which provides for automobile ancillaries. It has to be borne in mind that the assessee manufactures automobiles. It is true that motor car has not been specifically included as emphasised by the Appellate Assistant Commissioner in these provisions while motor trucks and buses have been mentioned. Therefore, motor trucks and buses have been treated separately from motor cars. But automobile ancillaries have been mentioned in its full amplitude, that is to say, ancillaries which are used for all types of automobiles including automobiles, motor cars, trucks, buses and other types, if there be. The second aspect that has to be borne in mind is that though, on profits and gains, certain reliefs and rebates were allowed, the rebates and reliefs are allowed not in respect of the profits and gains made mainly or solely or exclusively from certain types of operations. The profits and gains had to be attributable and not derived from the operation contemplated by the Schedule, but the distinction is important because, as emphasised by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , where the Supreme Court expressed the view that the expression attributable had a wider amplitude than the expression derived from, thereby intending to cover receipts from sources other than the actual conduct of the business of the specified industry. Therefore, whatever total profits the assessee-company was making were certainly attributable to one of the types of transactions contemplated by the Schedule. Here the assessee was carrying on the operation of assembly and also manufacture. As such, the profits and gains of any operation are entitled to relief or rebate as contemplated under the section. The assessee is also carrying on the operation of the manufacture of automobile ancillaries and the total profits and gains of the assessee were attributable to some of the operations being carried out in production and manufacture of automobile ancillaries. If that is the position, then, the very fact that the assessee was using part of the automobile ancillaries produced by it and used for itself and not for salein the market separately would not deprive the assessee of the relief granted on the plea that one could not trade with oneself or earn any profit in respect of transaction with oneself. The learned advocate for the Revenue drew our attention to the various authorities which held that one could not trade with oneself and as such contended that any part which was attributable to the transaction of the assessee should not be entitled to relief. We are unable to accept this position. It is not the question whether the assessee carries on trade with itself. The assessee is carrying on business of earning the profit and one of the operations the assessee is carrying on is the production and manufacture of automobile ancillaries. If a portion of it is attributable to the automobile ancillaries as provided in the relief granted under the section as we have mentioned before, then the assessee should not be deprived of the same as we have mentioned in Para F of Part I of the First Schedule of the Finance Act, 1965, and similar is the position under Section 80E of the Income-tax Act, 1961. Column A provides the type of company. It does not require that the company must be exclusively or wholly or mainly involved in the production of ancillaries, but if it is so, then, under column B, the rebate is allowed on so much of its articles which are in manufacture or production of any one of the articles mentioned in Part III of the Schedule and any one of the articles includes one of the articles --'automobile ancillaries'. Therefore, it does not become disentitled to such relief simply because part of those automobile ancillaries is consumed or utilised by the assessee for itself. It is true that the relief provisions must be strictly construed. But, in construing the provisions for relief, if the logical conclusion is, in some context, the assessee might be entitled to relief in respect of part of the units which is utilised for its production, it does not become disentitled to it, is now fairly well settled. Reference in this connection may be made to the observations of the Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963]48ITR123(SC) , in the case of CIT v. Orient Paper Mills Ltd. : [1974]94ITR73(Cal) , in the case of CIT v. Hindustan Motors Ltd. : [1977]107ITR164(Cal) as well as in the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT : [1977]107ITR195(SC) . In the aforesaid view of the matter, we are of the opinion that the Tribunal was right in its conclusion.'

21. The next decision cited is in the case of CIT v. Orient Paper Mills Ltd. : [1974]94ITR73(Cal) . In this case, the assessee was engaged in the business of manufacturing paper. For the manufacture of such paper, it was purchasing caustic soda from the market. It decided to set up its ownplant for manufacture of caustic soda and the soda so manufactured was used by it captively for the manufacture of paper. The assessee's claim for allowing relief in respect of caustic soda plant as a new industrial undertaking was rejected on the ground that the assessee was captively consuming the said caustic soda and what it was purchasing from the market earlier was now being produced by it and it was a mere case of reconstruction of its existing business. The contention of the Revenue was rejected by this court and it was held that the assessee was entitled to claim relief in respect of its caustic soda plant as a new industrial undertaking. The fact that the caustic soda produced was captively consumed and not sold to third parties did not stand in the way of holding that the assessee was engaged in the business of manufacturing caustic soda in its new industrial undertaking.

22. The said decision of this court has been affirmed by the Supreme Court in CIT v. Orient Paper Mills Ltd. : [1989]176ITR110(SC) .

23. The next decision cited is in the case of Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963]48ITR123(SC) . There, the Supreme Court laid down the principle that merely because an article produced or manufactured is captively consumed, it could not be said that no profit accrues from such an activity. The Supreme Court laid down that such profits had to be computed notionally with reference to the market value of the goods or materials which were so captively consumed.

24. According to learned counsel, these decisions clearly lay down that the captive consumption of an article or goods produced does not derogate from or affect the existence of the business of manufacture or of production of such article or goods. It is not necessary that the article or goods so produced must be sold to third parties and not merely consumed by the assessee itself in its other business activites.

25. Reference in this connection has also been made to the decision of the Gujarat High Court in the case of Anil Starch Products Ltd. v. CIT : [1966]59ITR514(Guj) .

26. In our view, the contention of learned counsel for the assessee cannot be accepted for more than one reason. Development rebate allowable under Section 33 was withdrawn in respect of ships acquired, or machinery or plant installed, after May 31, 1974, except in certain cases specified in Section 16 of the Finance Act, 1974 (later amended by the Finance Act, 1975). Section 32(1)(vi) for providing initial depreciation was introduced with effect from April 1, 1975. It is available in respect of the followingassets, namely (i) new ships and new aircraft acquired by a person engaged in the business of operation of ships or aircraft, after May 31, 1974 ; (ii) new machinery or plant (other than office appliances or road transport vehicles) installed after May 31, 1974, for the purpose of business of generation or distribution of electricity or any other form of power ; (iii) such new machinery or plant installed after May 31, 1974, for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in items Nos. 1 to 24 (items Nos. 1 to 23, for the assessment year 1975-76) of the Ninth Schedule to the Act ; and (iv) such new machinery or plant installed after May 31, 1974, in a small-scale industrial undertaking (as defined) for manufacture or production of any article or thing.

27. It will be evident from the scheme of the Act that initial depreciation is allowable in respect of machinery and plant installed in certain selected industries after May 31, 1974. The object of the introduction of the said provision was to encourage and give an impetus to the business of operation of ships or aircraft, generation and distribution of electricity or any other form of power and 24 specified items mentioned in the Ninth Schedule which are connected with industrial development. Thus, the object of the provision is to give an impetus and encouragement to the industry which is engaged in the business of generation or distribution of electricity or any other form of power. Admittedly, the assessee was not engaged in the business of generation or distribution of electricity or any other form of power. Unless a licence is obtained by the assessee for generation or distribution of electricity under the Indian Electricity Act, 1910, and the Electricity (Supply) Act, 1948, it cannot generate or distribute electricity. As for example, CESC Ltd. is engaged in the business of generation and distribution of electricity and it can claim initial depreciation for the installation of any machinery which is installed for the purpose of its business of generation and/or distribution of electricity ; so also are the State Electricity Boards which are engaged in generation or distribution of electricity. In this case, the assessee is not engaged in the business of generation or distribution of electricity. It manufactures, inter alia, electrical items which are sold to the Defence Services and State Electricity Boards. In the production of such items, the assessee, because of shortage of power, installed generators in its two factories. These generators are meant to meet the exigencies when there is a power cut. Installation of generators by the assessee in its factories is not in connection with any business of generation or distribution of electricity or power. Because of the shortage of power to run the factories,generators have been installed by which mechanical power is converted into electrical energy. It has nothing to do with the end product manufactured by the assessee. The conversion of mechanical power cannot be held to be generation or distribution of electricity. This conversion of mechanical power into electrical energy may have a bearing on the carrying on of the business of the assessee, but by no stretch of imagination can it be said that an assessee installing a generator to meet the exigencies of power cut is engaged in the business of generation or distribution of electricity or any other form of power. In that case, all assessees would be entitled to initial depreciation on the generators installed, irrespective of the nature of business carried on by them. This is not the intention under Section 32(1)(vi).

28. Our attention has been drawn to a decision of this court in CIT v. Century Enka Ltd. : [1981]130ITR267(Cal) . In that case, the question was whether nylon came within the expression 'petrochemical' under item (18) of Schedule V and the machinery or plant installed for its production was entitled to higher development rebate. This court held that deduction or exemption is available to the industries which are producing articles or goods included, inter alia, in the Fifth Schedule. There the court observed as follows (at page 290) :

' In this connection, we also appreciate the arguments advanced on behalf of the assessee that an industry is not known by the raw material which it uses but it is known by the finished product which it produces. For example, a glass industry is not known as a sand industry which is the basic raw material for the purpose of production of glass water nor a textile industry is known as cotton industry, because textile is manufactured from cotton. Similarly, though the company may be manufacturing nylon-6 from caprolactum, yet it could only be considered in its broad sense as petrochemical industry.'

29. Electricity cannot be taken to be a raw material. It is necessary to operate machines or plants. It has got nothing to do with the ultimate product that is produced. If this contention is accepted that electricity is raw material for the production of articles or things or electricity as such is generated for captive consumption, then all the industries irrespective of the articles or things produced would be eligible to claim investment allowance wherever and whenever generators are installed.

30. This is not a case where goods have been manufactured or produced for captive consumption. If a car manufacturer instals a plant for manufacture of tyres, batteries, steel plates or other components andcaptively uses the same in the manufacture of the car, the car manufacturer cannot, for that reason, be said to be not engaged in the manufacture of tyres, batteries, steel plates, etc. The goods which are manufactured for captive consumption must be such which are inextricably connected with the products manufactured by the assessee. A car requires tyres, batteries, steel plates or other components. All these components would be parts of the car to be manufactured. In Hindusthan Motors : [1981]127ITR210(Cal) automobile ancillaries were manufactured by the assessee-company which was engaged in the business of manufacture of motor cars. This court held that because parts of the automobile ancillaries are consumed or utilised by the assessee for itself, the assessee does not become disentitled to the relief. This decision cannot have any application to the facts of this case. Whether the assessee is engaged in the manufacture of motor car, caustic soda, paper or steel, it requires electricity for running such industry. It has nothing to do with the end product which will be manufactured by such an assessee. A manufacturer of cars would require those items which are integral parts of the manufactured product, i.e., the car. A car must have a motor, tyres, batteries, etc. These are ancillary items. Instead of buying such articles, if a manufacturer of cars, manufactures these items in its own factory, it cannot be said that such an assessee is not engaged in the manufacture of those items also. The installation of the generator is necessitated not because the assessee, instead of buying the energy from the State Electricity Board, would generate such electricity itself for its consumption. The generation or distribution of electricity is altogether a different business. Admittedly, the assessee is not engaged in generation or distribution of electric energy. It is not a licensee under the Electricity Act for generating electricity. Because of the shortage of power to run the factory, every factory may have to instal a generator. As we have said, by the generator, mechanical power is converted into electrical energy. It has nothing to do with the end product manufactured by the assessee. This change of mechanical power into electric energy may have a bearing on the running of the industry, but it is not an integral part or a component or ancillary of the end product manufactured by the assessee.

31. Mr. Bajoria has commented on the finding of the Tribunal that the business of generation of electricity and manufacture of electricity meters constitute one and the same business. According to him, the Tribunal had created a confusion in holding that the activity of generating electricity and manufacture of electricity meters and Defence stores constitute the same business. According to Mr. Bajoria, because twobusiness activities constitute the same business, the nature and identity of such different businesses are lost and only one of them exists. The question is not whether the assessee was carrying on one or two different businesses. The question is whether generation of electricity can be said to be a business activity of the assessee in the sense in which it is commonly understood.

32. In Section 2(13) of the Income-tax Act, 1961, ' business' has been defined as under :

''Business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.'

33. The words used in this definition are wide, but underlying each of them is the fundamental idea of the continuous exercise of an activity. The word 'business' connotes some real, substantive and systematic or organised course of activity or conduct with a set purpose. If one of two activities cannot be stopped without affecting the framework of the other, it would be a good (though not conclusive) indication that they constitute the same business ; but the converse is not true, and the possibility of stopping one without affecting the other is not an indication that they are different businesses.

34. One test which has been frequently invoked in order to determine whether two or more businesses are separate businesses or constitute the same business is whether there is an interconnection, an interlacing, an interdependence between and a unity embracing the business. The interdependence may be financial ; the unity may be unity of management and control.

35. In our view, it is immaterial whether the two activities, namely, that of conversion of mechanical power into electricity by installing generators and the manufacture of electric meters constituted one and the same business or not. Admittedly, the assessee did not carry on business of generation and distribution of electricity. As we have held that installation of generator for the purpose of running factories during power cuts cannot be treated as a business activity carried on by the assessee, we are, therefore, of the view that the assessee was not engaged in the business of generation of electricity and, accordingly, it is not entitled to initial depreciation in terms of Section 32(1)(vi) of the Act.

36. For the foregoing reasons question No. 3 in I. T. Reference No. 359 of 1982, is answered in the affirmative and question No. 4 in I. T. Reference No. 42 of 1990, is also answered in the affirmative and in favour of the Revenue and against the assessee.

37. The only other issue involved in these references is with regard to liabilities written back. This issue is involved in I. T. Reference No. 73 of 1985, for the assessment year 1976-77 and I. T. Reference No. 38 of 1987, for the assessment years 1977-78 and 1978-79. The questions are as follows :

I. T. Reference No. 73 of 1985 For the assessment year 1976-77 :

' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the sum of Rs. 37,555 being the liabilities written back which were time-barred was not assessable?'

I. T. Reference No. 38 of 1987 For the assessment year 1977-78 :

'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the addition of Rs. 83,174 representing liabilities written back in the assessment year 1977-78 ?'

For the assessment year 1978-79 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition on account of liabilities no longer required and so written back in the assessment year 1978-79 ?'

38. The facts out of which the question for the assessment year 1976-77 arose are that, during the year under reference, the assessee wrote back certain trade liabilities amounting to Rs. 37,555 on the ground that the liabilities had ceased to exist, being time-barred. The Income-tax Officer, invoking the provisions of Section 41(1) of the act, added the same to the income of the assessee.

39. Against the addition made by the Income-tax Officer, the assessee came in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), following the decision of this court in CIT v. Sugauli Sugar Works P. Ltd. : [1983]140ITR286(Cal) , deleted the addition. The Tribunal, after hearing the parties, upheld the finding of the Commissioner of Income-tax (Appeals) on this issue, following the decision of this court in CIT v. Sugauli Sugar Works P. Ltd. : [1983]140ITR286(Cal) .

40. The facts relating to the assessment years 1977-78 and 1978-79 as recorded by the Tribunal in the statement of case are as follows :

' The fourth question relates to the assessee's claim for deducting a sum of Rs. 83,174 representing liabilities written back. This amount was claimed as a deduction in the assessment year 1975-76 by the assessee. The Income-tax Officer did not allow the claim on the ground that it was in the nature of a provision. The assessee appealed to the Commissioner of Income-tax (Appeals) but without any success. Its second appeal to the Tribunal was also unsuccessful because the Tribunal found that the said amount was not allowable as a deduction because it did not represent an accrued liability. However, a reference under Section 256(1) was granted to the assessee in that year and is now pending before the Hon'ble High Court. During the year under consideration, the assessee found that the provision was no longer required and the assessee was not liable to pay the said amount. Hence, the assessee wrote back the amount in the profit and loss account by making corresponding entries in the provision account. The Income-tax Officer brought this amount to tax during this year. On appeal, the Commissioner of Income-tax (Appeals) deleted the amount on the ground that this amount was not allowed earlier as a deduction and so there is no question of taxing it during this year because it has already suffered tax in the assessment year 1976-77. However, there is a reference pending for that year before the Hon'ble High Court and in case that reference is decided in favour of the assessee in that year, then the amount would become taxable during the year under consideration, as, otherwise, it will escape tax in both the years.'

41. The Tribunal also noted that the facts for the assessment year 1978-79 are similar to those pertaining to the assessment year 1977-78.

42. The question for the assessment years 1977-78 and 1978-79 was whether the amounts of Rs. 83,174 and Rs. 55,625, respectively, representing liabilities written back were rightly taxed under Section 41(1).

43. It appears that the Tribunal, while drawing up the statement of case, has mixed up the facts relating to the other issues involved regarding claim for liquidated damages made in the earlier assessment year which had been disallowed in such earlier year and written back in the later year. The issue involved, however, is with reference to the unilateral writing back of the past liabilities on the part of the assessee to the extent of Rs. 83,174 for the assessment year 1977-78. It is not a case of disallowance of any expenditure in the earlier years and the amount relating thereto being written back and being taxed in the later assessment year. The amounts representing the said sum of Rs. 83,174 were allowed in full as deduction in the respective assessment years and there is no questionof it not having been allowed in the earlier years or any dispute pending before this court on the question of their allowability. As indicated, the issue involved is with reference to the writing back of the sums which have been allowed in the earlier years with reference to the provisions of Section 41(1) of the Act on the ground that there has been a remission of cessation of liability. Unfortunately, at the time when the statement of case was prepared, the attention of the Tribunal was not drawn to the above error. It appears that there was no representation on behalf of the assessee at the time of finalisation of the draft statement of case.

44. With regard to the assessment year 1978-79, the Tribunal has not stated any facts separately but has simply stated that the facts are similar to those of the assessment year 1977-78. This statement also is incorrect for the same reasons as given earlier for the assessment year 1977-78.

45. In the assessment order for the assessment year 1977-78, the facts regarding the said sum of Rs. 83,174 being liabilities written back as time-barred are stated as under :

'The amount of Rs. 83,174 has been written back as the liability has ceased to exist on becoming time-barred. According to the assessee, writing back is the result of the assessee's unilateral action and hence the amount is not income under Section 41(1). I do not agree with the assessee's contention. The action is not unilateral, because the creditors, by their action, have allowed the debts to become time-barred. The aforesaid amount of Rs. 83,174 includes an amount of Rs. 40,845 being interest which was short paid to UCO Bank. The bank claimed this amount. The assessee raised an objection and the bank remained silent. In the circumstances, the amount of Rs. 83,174 (Rs. 36,932 for meter, Rs. 9,432 for relay and Rs. 43,810 for mujesar) is an income under Section 41(1) to be included in the total income.'

46. The Commissioner of Income-tax (Appeals) has recorded the description of the item as liabilities written back and has directed allowance of the relief for the same reasons as in the earlier assessment year 1976-77, in which a sum of Rs. 37,555 was similarly written off.

47. The Commissioner of Income-tax (Appeals) recorded as follows :

' Ground No. Description of the item.

Liabilities written back amounting to Rs. 83,174.

The Income-tax Officer is directed to allow relief in respect of the abovementioned grounds in accordance with the decisions contained in my order for the assessment year 1976-77.'

48. On further appeal, the Tribunal referred to the order for the earlier assessment year 1976-77 and deleted the addition without any discussion.

49. The Tribunal held thus :

' The next common ground pertains to the deletion of the additions on account of liabilities written back. The point at issue stands concluded by the order of the Tribunal in the case of the assessee for the assessment year 1976-77 in ITA No. 343 (Cal) of 1983, dated April 11, 1984. Respectfully following the aforesaid order of the Tribunal, we would uphold the order of the Commissioner of Income-tax (Appeals) on this point.'

50. For the assessment year 1978-79, the Income-tax Officer has recorded the facts relating to existing liabilities written back and sought to be taxed under Section 41(1). He recorded thus :

' Profit and Loss Account has been credited with a sum of Rs. 3,12,984 being excess liabilities written back. It is claimed that, out of this amount, a sum of Rs. 55,625 is to be ignored for the purpose of computation of total income on the ground that the company will have to pay the amount to the creditors on demand by the creditors. The claim of the assessee is not acceptable. The amount of Rs. 55,625 has been written back as the liability has ceased to exist on becoming time-barred. According to the assessee, writing back is the result of the assessee's unilateral action and hence the amount is not income under Section 41(1). I do not agree with the assessee's contention. The action is not unilateral because the creditors, by their action, have allowed the debts to become time-barred. In the circumstances, the amount of Rs. 55,625 (Rs. 35,640 for meter department, Rs. 8,653 for relay department and Rs. 11,332 for mujesar division) is an income under Section 41(1) of the Income-tax Act and is, accordingly, included in the total income of the assessee.'

51. The Commissioner of Income-tax (Appeals) has referred to the said issue and ordered deletion of the amount in view of his order for the earlier years. The Commissioner recorded as follows :

'Addition of Rs. 55,625 being liability written back. The Income-tax Officer is directed to allow relief in respect of the abovementioned grounds in accordance with the decisions contained in my order for the assessment years 1976-77 and 1977-78.'

52. Similarly, the Tribunal simply followed the earlier year's order without any discussion.

53. In the reference application for the assessment year 1977-78 and in the reference application for the assessment year 1978-79, the facts relating to the writing back of the said two sums are stated as under :

' The profit and loss account of the assessee had been credited with a sum of Rs. 9,75,062 being excess liabilities written back. It was claimed by the assessee that, out of that amount, a sum of Rs. 83,174 was to be ignored for the purpose of computation of total income on the ground that the company would have to pay the amount to the creditors on demand by the creditors. The Income-tax Officer, on examination, found that the liabilities amounting to Rs. 83,174 had been written back when they ceased to exist on becoming time-barred. It was submitted by the assessee before the Income-tax Officer that writing back of the liability was the result of its unilateral action, and hence the amount did not represent income under Section 41(1) of the Income-tax Act. But the Income-tax Officer was of the view that the assessee's action was not unilateral because the creditors, by their own volition, had allowed the debts to become time-barred. The aforesaid amount of Rs. 83,174 included an amount of Rs. 40,845 representing interest which was payable to the UCO Bank. The bank claimed the interest due from the assessee. But the assessee raised objections against the claim. The bank remained silent. Considering all these facts and circumstances, the amount of Rs. 83,174 was treated by the Income-tax Officer as income under Section 41(1) and included the same in the total income of the assessee.'

54. It would thus be evident that the facts stated in the statement of case by the Tribunal are erroneous relating to these two assessment years 1977-78 and 1978-79. There is no question of any sum not having been allowed in the earlier years which was being written back in these years and which was sought to be taxed. As already stated, the amount in question had been allowed as deduction in the earlier years and these sums were being unilaterally written back on the ground that the liabilities had become barred by limitation.

55. Since the details of the nature of the liabilities and the amounts written back have not been incorporated in the statement of case by the Tribunal, we directed the parties to produce before us the details. By consent, the statement which has been furnished has been looked into by us. From the details, it appears that the amounts related to supply of raw materials, components, stores and spare parts for the different divisions of the company. Very small amounts ranging from Rs. 4.55 to Rs. 4,392 have been shown as liabilities from 1972-73 till March 31, 1976,relevant to the assessment year 1976-77 and the liabilities in the aggregate amounted to Rs. 37,555 which was written back in the assessment year 1976-77. Similar is the case for the assessment year 1977-78 excepting that, in this year, a sum of Rs. 40,845 was shown as a liability to UCO Bank which was written back. The said sum represents interest which was short-paid to the bank. Although it was contended that the bank had claimed the said sum and the assessee had objected to it, the said sum had remained outstanding, but no details had been given. It is not the case of the assessee that the bank had instituted any proceedings for the realisation of the aforesaid sum. This amount was, as indicated, shown as a liability in the year 1973-74 and it was written back in the assessment year 1977-78. Similar is the case in respect of the assessment year 1978-79. It is true that the liabilities do not relate to payment to the workmen on account of bonus, provident fund, wages, etc., but all the, amounts are relating to trading liabilities. Our attention has been drawn to the decisions of this court in the case of CIT v. Sugauli Sugar Works P. Ltd. : [1983]140ITR286(Cal) and CIT v. B.N. Elias and Co. P. Ltd. : [1986]160ITR45(Cal) . It has been contended that there was no cessation or remission of liability. No addition under Section 41(1) can be made merely because the assessee, ultimately, writes back the liability provided for in the earlier years and for which deduction was allowed in such years. The unilateral writing back does not lead to any remission or cessation of liability within the meaning of Section 41(1) of the Act. It is contended that the amounts were written back because their recovery was barred by limitation. The fact that action for recovery is barred by limitation does not mean that there is cessation or remission of liability and the provision of Section 41(1) of the Act cannot, therefore, be attracted. Mr. Bajoria has also submitted that the decision of this court in CIT v. Agarpara Co. Ltd. : [1986]158ITR78(Cal) related to writing back of unpaid statutory bonus and is distinguishable on facts. In view of the principles as laid down by this court in Agarpara Co. Ltd. : [1986]158ITR78(Cal) and in an unreported decision of this court in Income-tax Reference No. 320 (821 ?) of 1986 (since reported as Kesoram Industries and Cotton Mills Ltd. v. CIT : [1992]196ITR845(Cal) ), where judgment was delivered on March 1, 1991, the contention of the assessee cannot be accepted. It has been held that the onus is upon the assessee to establish that, in law, it would not be entitled to treat the amounts written back as part of its income or its liability did not cease. Whether or not the liability of the assessee has been fully discharged is within the special knowledge of the assessee, and it has to prove that, in fact, the liability subsists. When the assessee itselfcomes to the conclusion that the amount in question would not be claimed by the concerned persons and does not take such amount to the reserve account but writes it back in the profit and loss account, the reasonable inference that will follow from the facts and circumstances and the conduct of the assessee is that the amount which was provided for was not in fact necessary and it was an excess provision. No longer was there any liability. Another fact is also relevant. It has been held that smallness of the amount involved in individual cases would furnish a reasonable basis for holding that such creditors were not interested in realising such small amounts or dues and in fact a smaller amount than due was accepted by them in full discharge of the whole amount. In this case also, as we have indicated, from 1971-72 onwards, small amounts had accumulated and, in the three assessment years, the assessee wrote back the liabilities after a lapse of 6 or 7 years.

56. For the foregoing reasons, all the three questions relating to the liabilities written back for the assessment years 1976-77, 1977-78 and 1978-79 in Income-tax Reference No. 73 of 1985 and Income-tax Reference No. 38 of 1987 are answered in the negative and in favour of the Revenue.

57. There will be no order as to costs.

Bhagabati Prasad Banerjee, J.

58. I agree.

Subject	Direct Taxation
Court	Kolkata High Court
Decided On	Mar-25-1991
Case Number	Income-tax Reference Nos. 359 of 1982, 73 of 1985, 38 of 1987 and 42 of 1990
Judge	Ajit K. Sengupta and ;Bhagabati Prasad Banerjee, JJ.
Reported in	[1992]196ITR860(Cal)
Acts	Income Tax Act, 1961 - Section 32(1); ;Electricity Act
Appellant	Universal Electrics Ltd.; Commissioner of Income-tax
Respondent	Commissioner of Income-tax; Universal Electrics Ltd.
Advocates:	Bajoria, Adv.
Cases Referred	Tata Iron and Steel Co. Ltd. v. State of Bihar

Universal Electrics Ltd. Vs. Commissioner of Income-tax - Court Judgment