John Beaumont, Kt., C.J.
1. This is a reference by the Income-Tax Commissioner under Section 66 (5) of the Indian Income-tax Act, in which rather reluctantly he propounds a question for our consideration. The facts are that the assessee is one of the agents for a certain mill company and in his capacity as such agent he has been called upon to pay a sum of Rs. 1,73,500 in respect of liabilities of the company guaranteed by the agent, and his contention is that under Section 24 of the Indian Income-tax Act he is entitled to deduct that payment from his income arising under other heads treating the payment as a loss incurred in respect of his business as an agent. The Income-tax Officer was not satisfied that any loss had been incurred and the matter was then referred by way of appeal on the part of the assessee to the Assistant Commissioner, and he made an order, which is Exhibit C, in which he says:-
After hearing the learned Counsel's arguments, I am of opinion thatso long as the mill is working it is impossible to say that the money advanced by the assesse therein can be regarded as bad debts.
The assessee then desired the Commissioner to state a case for the opinion of this Court, but the learned Commissioner was of opinion that the Assistant Commissioner's finding was purely one of fact and that there was no point of law which he could raise. The matter then came before this Court and we thought that there was a point of law, and we directed the learned Commissioner, therefore, to state a case raising this question :-
Whether it is necessary to constitute moneys due by a joint stock company a bad debt or a business loss to the creditor that the company should be actually wound up or have ceased to be a going concern.
The learned Commissioner has added to that question a further part which seems to state the same proposition over again but in a negative form, and then he has raised a second question:-
Whether for the purpose of assessment for the year 1929-30 the assessee is not entitled to deduct) the said sum of Rs. 1,73,500 from his income as a business loss or as a bad debt.
2. Now the question which arises, and which I think is a point of law in this sense that it raises a question as to the practice which should prevail in the Commissioner's office, is this : Where you have a company carrying on business as a going concern owing money to the assessee which it is unable to pay, can the assessee go to the Commissioner and say:-' The debt is a bad debt. I will satisfy you from evidence as to the value of the company's assets and evidence as to the extent of its liabilities that there is no reasonable possibility of this debt being recovered and therefore I claim it as a bad debt.' Or is the Income-tax Officer, faced with a claim of that sort, entitled to say :-'I am not going to consider your evidence at all. Here is a company which is a going concern. It is carrying on a business. I cannot say what the possibilities of the future may be. The debt may be recoverable or it may not. At the present moment it is impossible to say that the debt is irrecoverable.'
3. I think that is a question of law with which we can deal, and I think that the answer to it is that the Income-tax Officer is entitled to say that he is not going to consider the possibilities of the future. We are dealing in this case with a joint stock company engaged in the business of a cotton mill, and I think our answer to the question ought to be limited to companies carrying on business. Different considerations may apply to an individual. An individual may be a pauper without its being worth while for anybody to make him an insolvent, or he may leave the country and it may be difficult or impossible to trace him; or he may grow old and past the capacity for earning money. None of those considerations apply to a company. The company is always fixed in its domicile in the particular country where it is registered. It is always possible for a creditor who cannot get paid to wind up the company. If the company ceases to carry on business, the Registrar is required to strike it off the register after taking the necessary steps under Section 247 of the Indian Companies Act. But as long as the company is on the register and as long as it is carrying on business as a going concern, it seems to me that it is impossible to say that any debt which it owes is necessarily irrecoverable. That being so, I think the Income-tax Officer was entitled to act on that view and to decline to go into evidence as to the value of the assets or extent of the liabilities of the company. We should, therefore, answer the first question in a slightly amended form by saying: To constitute moneys due by a joint stock company engaged in business a bad debt or a business loss to the creditor it is necessary that the company should have ceased to be a going concern.
4. The assessee should pay the costs on the original side scale.
1. I agree with the answer as proposed by the learned Chief Justice.
2. The point of law which is the subject-matter of this reference does not appear to be covered by any direct authority. Section 24 of the Indian Income-tax Act under which the present loss may be said to be claimable deals with loss which an assessee has actually sustained and not with losses which he might apprehend that he would sustain in the future. The case for the assessee seems to be this, that having regard to the present position of the company there is no likelihood of his recovering the sum of Rs. 1,73,500 which he has advanced to the company during the year for which he is to be assessed. The loss to be sustained by the assessee cannot be ascertained until the company admits that it is unable to pay this debt or on being taken into liquidation is found to be unable to pay its debts. The company is a going concern and the assessee has not even written oft' this amount as a bad debt, which he does not expect to recover from the company in the nature. The finding of fact by the Commissioner is that this amount has not become irrecoverable although its recovery is doubtful.
3. The only other provision under the Indian Income-tax Act under which an alleged loss of the kind like the present could be claimed to be deducted, is Section 10. Clause 2 of Section 10 enumerates the kind of deductions which are to be allowed. The list does not include a bad debt and the list must be held to be exhaustive, See Tata Industrial Bank, Limited, In re I.L.R. (1921) Bom 567 : 24 Bom. L.R. 118