1. This is a reference on a case stated under s. 256(1) of the I.T. Act, 1961.
2. We propose to set out the facts very briefly, as all the relevant facts in respect of the transactions out of which the question in this reference arises have been set out by a Division Bench of this court in Sassoon J. David & Co. (P.) Ltd. v. CIT : 98ITR50(Bom) .
3. The assessee is a private limited company and was incorporated in 1922. Twenty-five per cent. of the shares of the company were held by Sir Percival David in his individual capacity, while 75 per cent. of the shares were held by a trust of which he was the sole beneficiary. One Alwyn Ezra joined the company in 1925. In 1931 he was appointed as a director. The only other director was Sir Percival David, who was out of India at all material times, and Alwyn Ezra was in the sole charge of the business of the company from 1937 to 1943. He held a general power-of-attorney on behalf of the assessee-company. Between 16th March, 1943, and 1st December, 1943, he withdrew a sum of Rs. 27,50,000 from the bank account of the company and embezzled it. He utilised this sum for his own private needs. Pursuant to the order in the arbitration proceedings, the said sum of Rs. 27,50,000 was directed to be paid by the said Alwyn Ezra to the assessee, and Alwyn Ezra created a mortgage for that sum, on two properties purchased by him, in favour of the assessee. On the sale of these properties, a sum of Rs. 15,00,000 was realised and the assessee got this sum. It may be mentioned that, in the meantime, Alwyn Ezra was adjudicated as an insolvent in the year 1951. In April, 1958, the assessee was informed by the official assignee that there was no likelihood of any payment being made towards its claim. The assessee-company wrote off a sum of Rs. 9,00,000 on 31st December, 1957, that is, on the closing day of the accounting year relevant to the assessment year 1958-59, and it wrote off the balance amount of Rs. 89,112 in the previous year relevant to the assessment year 1969-70, which is the assessment year with which we are concerned. The assessee claimed a deduction of Rs. 9,00,000 as a bad debt in the assessment year 1958-59. This claim was disputed by the I.T. authorities. Ultimately, by the decision in the aforesaid case, namely, Sassoon J. David & Co. (P.) Ltd. v. CIT : 98ITR50(Bom) , it was held that as far as this sum of Rs. 9,00,000 was concerned, it must be held to be a loss caused to the company on account of embezzlement of its agent, Alwyn Ezra, and, therefore, the company was entitled to deduct the same in computing its assessable profits under s. 10(1) of the Indian I.T. Act, 1922. The main dispute before the Tribunal in this case seems to be whether the assessee was entitled to write off the sum of Rs. 9,00,000 in the assessment year 1958-59 and write off the balance amount of Rs. 89,112 in the relevant assessment year, namely, 1969-70. In this regard, the facts found by the Tribunal show that the Tribunal took the view that, except for an honest and bona fide belief that there was a chance of recovering the balance amount of Rs. 89,113, there was no conceivable reason why the assessee should have written off and claimed the loss of Rs. 9,00,000 in the assessment year 1958-59 and claimed the said balance amount as a loss in the relevant assessment year. It was pointed out by the Tribunal that the assessee-company did not stand to gain any advantage by doing this. It was held by the Tribunal that the assessee was entitled to write off and claim the loss of Rs. 89,113 in the relevant assessment year. It is from this decision of the Tribunal that the following question has been referred to us :
'Whether, on the facts and in the circumstances of the case, the loss of Rs. 89,112 was a business loss ?'
4. It is not disputed before us that in view of the aforesaid decision in Sassoon J. David & Co. (P.) Ltd. v. CIT : 98ITR50(Bom) , and the facts found by the Tribunal, the question referred to us must be answered in favour of the assessee, as the Tribunal has found as a fact that the assessee genuinely entertained a hope of recovering the aforesaid sum till the relevant previous year, and it was only in that year that it lost its hope of recovering that amount.
5. In the result, the question referred to us is answered in the affirmative and in favour of the assessee. Looking to the facts and circumstances of the case, there will be no order as to the costs of the reference. It is pointed out to us that there is a notice of motion taken out by the Commissioner in this reference. The same is dismissed with no order as to costs.