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Mukundlal Bansilal Vs. Commissioner of Income-tax, Excess Profit-tax, Bombay City - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Ref. No. 40 of 1951
Judge
Reported inAIR1952Bom494
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantMukundlal Bansilal
RespondentCommissioner of Income-tax, Excess Profit-tax, Bombay City
Appellant AdvocateJamshedji Kanga, Adv.
Respondent AdvocateC.K. Daphtary, Solicitor General and ;G.N. Joshi, Adv.
Excerpt:
.....words, it is not left to the creditor's choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide. one of the conditions is the writing off of the bad debt or the loan which has become irrecoverable; 297): it thus follows that a debt, which had in fact become a bad debt before the commencement of a particular year, could not properly be deducted in ascertaining the profits of that year, because the loss had not been sustained in that year. ' their lordships further observe (p, 297): whether a debt is a had debt, and, if so, at what point of time it became a bad debt, are questions which, in their lordships' view, are questions of fact, to be decided in the event of dispute by an appropriate tribunal, and no by..........words, it is not left to the creditor's choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide. when a loan or part of it became irrecoverable, by merely writing off tho debt or the loan or part of it in his books. one of the conditions is the writing off of the bad debt or the loan which has become irrecoverable; but it is not sufficient. the assessee must satisfy tho income-tax officer that in fact tho debt or the loan became irrecoverable in the year of account. now, the tribunal has pointed out in the statement of the case that it felt some doubt and required guidance from us and they have referred to a privy council case, viz. income-tax commissioner v. chitnavis 69 ind. app. 290. now, that case itself.....
Judgment:

Chagla, C.J.

[1] This reference raises a question as to the interpretation of Section 10(2)(xi). Income. tax Act. We entirely agree with the Tribunal when it takes the view that this particular clause has not been very happily drafted. If anything, the Tribunal has used very moderate language in considering the wording used by the Legislature. But, we have to construe it as we find it, and when we turn to that clause, it deals with a deduction under Section 10(2); and the deduction, in case of a person who is doing business, and whose accounts are not kept on cash basis, is

'such sum, in respect of bad and doubtful debts .... as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of tho assessee.'

It is difficult to understand what distinction is sought to be made between bad and doubtful debts; but the difficulty and ambiguity is cleared by tho fact that whether tho debt is had or doubtful, it must in the estimate of the Income-tax Officer be irrecoverable. Therefore, in tho case of persons doing business, and whose accounts are not kept on cash basis in order to be entitled to a deduction under Section 10(2)(xi) these conditions are necessary; the debt must be bad or doubtful debt; the Income-tax Officer must take the view that it is irrecoverable and further it must be written off in the books of the assesses. However, when a debt is written off in the books of tho assesses, the Income-tax Officer may take the view that although the assessee has written off the debt, it became irrecoverable not in the accounting year but in an earlier year. If he takes that view, then the assessee would not be allowed to claim a deduction in tho year of account. However, in the case of bankers and money-lenders what can be claimed as a deduction is a loan or part of a loan which may become irrecoverable in the opinion of the Income-tax Officer, and there again, the banker or tho money-lender has to write off the (sic) or the part of tho loan and in his case also (sic) mere fact that he chooses to write off the loan depart of it in a particular year does not necessarily mean that it had become irrecoverable in that particular year. In other words, it is not left to the creditor's choice to determine when a particular debt became a bad debt or irrecoverable, nor is it left to the banker or money-lender to decide. when a loan or part of it became irrecoverable, by merely writing off tho debt or the loan or part of it in his books. One of the conditions is the writing off of the bad debt or the loan which has become irrecoverable; but it is not sufficient. The assessee must satisfy tho Income-tax Officer that in fact tho debt or the loan became irrecoverable in the year of account. Now, the tribunal has pointed out in the statement of the case that it felt some doubt and required guidance from us and they have referred to a Privy Council case, viz. Income-tax Commissioner v. Chitnavis 69 Ind. App. 290. Now, that case itself furnishes sufficient guidance to the Tribunal with regard to the matter in which they felt doubt, because when we turn to that case, their Lordships point out as follows (p. 297):

'It thus follows that a debt, which had in fact become a bad debt before the commencement of a particular year, could not properly be deducted in ascertaining the profits of that year, because the loss had not been sustained in that year.'

Their Lordships further observe (p, 297):

'Whether a debt is a had debt, and, if so, at what point of time it became a bad debt, are questions which, in their Lordships' view, are questions of fact, to be decided in the event of dispute by an appropriate tribunal, and no by the ipse dixit of any one else.'

[2] Now, in the light of these observations let us look at the facts of this case. The assessee does money-lending business and on 28-10-1936, he agreed to advance to one Niranjan Prakash a sum not exceeding Rs. 40,000 for the completion of a motion picture 'Path of Glory'. Niranjan absconded in 1937 and the picture was got completed by the assessee. It was approved by the Board of Censors. The picture was not a success, and, therefore, on 16-4-1941, the assessee entered into an agreement with one Garcher, who had to improve the picture and then exploit it. Under the agreement with Garcher certain amounts were received by tho assessee. There were no receipts in S.Y. 1999, and, therefore, on 11-10-1944 (S.Y. 2000) the assessee sold four positive prints of the picture for R3. 850, and then wrote off the balance due to him from Niranjan. It is, therefore, with the S. y.. 2000 that we are concerned, as the assessee claims that the balance due to him from Niranjan had become an irrecoverable debt in that year. Now, a loan becomes irrecoverable or a debt becomes a bad debt when the creditor has no reasonable expectations of recovering it from the debtor; or, as it has been put in some cases, when them is no ray of hope at all on which the creditor can rely for recovering the amount from his debtor, that it can be said that a debt has become bad or a loan has become irrecoverable. But, it the correct principle ia applied by the Department, then it must be a question of fact as to whether a debt has become a bad debt or not. Now, unfortunately in this case the Tribunal has expressed an opinion that the loan had become 'practically irrecoverable' in S. Y. 1997, and in the question which has been submitted to us also the expression used is,

'Whether there was material of which the Tribunal could have come to the conclusion that the loan to Niranjan Prakash had become practically irrecoverable in S. Y. 1997 if not earlier ?'

Row, if the assesses claims, as he did, that the loan had become irrecoverable in S. y. 2000, if, is not sufficient for the Tribunal to hold that it had become 'practically irrecoverable' in S. Y. 1997 in order to deprive the assessee of his claim to deduction under Section 10(2)(xi). The Tribunal must find as a fact that the loan had become, not 'practically irrecoverable' but, 'irrecoverable' at a time prior to S. y. 2000. The Solicitor General says that there were materials before the Tribunal on which they could have come to that conclusion. It is pointed out that in S. Y. 1996 the assessee had received only its. 28; there were no receipts in S. y. 1997. In S. y. 1998 only Its. 206 were received; there were again no receipts in S. Y. 1999. It may be that on those facts the Tribunal could have come to the conclusion that the loan had become irrecoverable prior to S. y. 2000. But unfortunately the Tribunal has not so found, and, therefore, the proper thing that we should do in this case is to send the matter back to them and ask them, in the light of this judgment, to find as to whether on the materials before them the loan had become irrecoverable prior to S. y. 2000. If they come to that conclusion, then the assessee would not be entitled to a deduction under Section 10(2)(xi). If, on the other hand, they take a view that the loan became irrecoverable only in S. Y. 2000 and could not be said to be irrecoverable prior to that, then the assessee would be entitled to a deduction under Section 10(2)(xi).

[3] With regard to the first question submitted to us, viz.,

'Whether the monetary transaction of the assessee withNiranjan Prakash was a loan made by the assesses to.Niranjn Prakash in the course of his money-lendingbusiness,'

the Tribunal has found as a fact that the aasesseewas a money-lender and what he was doing was:advancing moneys on the security of the film.Here again the finding of the Tribunal is not veryclearly expressed. They say:

'Regard being had to all circumstances, it is difficulty' hold that the transaction entered into by the assessee wit Niranjan was an ordinajry money-lending transaction is more like a business transaction. We are however pre pared to agree with Mr. Sankara Narayana that it was money-lending transaction.'

With respect to the Tribunal, it is rather diffcult to appreciate as to what exactly they desire the finding of fact should be. But on the whowe take the view that they have found as a (sic)faxthat this transaction was a transaction in thecourse of money-lending business, which was being carried on by the assessee. Therefore; we mustanswer the first question in the affirmative. Withregard to the second question, viz.,

'If the answer to the first question be in the affirmative whether on a, true interpretation of Section 10(2)(xi), Income-tax Act, it is open to an Income-tax Officer to disallow a claim under that section OB the ground that the loan had become irrecoverable in a year of account earlier than that in which it was written off.'

We should have thought that there was nodoubt as to what the answer to this question shouldbe, because as laid down by their Lordships ofthe Privy Council in Commr. of Income-tax v..Chitnavis 59 Ind. App. 290. it was for the In-come-tax Officer to determine when the loan became irrecoverable. Therefore, the answer to the:question would be in the affirmative. We do notanswer the third question, but we have remandedthe matter as pointed out in our judgment. Therewill be no order as to costs.

[4] Answer accordingly


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