1. The assessee is the heir and legal representative of one Chimanlal Lallubhai Shah. One Jivanlal and dealings with this Chimanlal and he became the debtor of Chimanlal. The transactions between Jivanlal and Chimanlal continued up to S. Y. 1994 and thereafter there were no further transactions. In S. Y. 1995 and 1996 the debit balance was carried forward and interest was added to it. In S. Y. 1993 Chimanlal obtained a transfer of mortgage from one Doongershi Goculdas to whom Jivanlal and mortgaged his property and he maintained in his books of account an account in respect of this mortgage. In S. Y. 1996 the mortgaged property was sold and a balance of Rs. 2,952 was found in favour of the mortgagor. A sum of Rs. 25 being tax paid in respect of this property was debited to this account and the balance of Rs. 2,927 was transferred to the debtor's account in S. Y. 1997. As a result of this transfer there was a final debit balance of Rs. 14,898. Chimanlal wrote off this amount as a bad debt and claimed it as a bad debt for S. Y. 1997, and the taxing authorities have held that this amount became a bad debt not in the S. Y. 1997 but in S. Y. 1996 and that view has been accepted by the Tribunal, and it is in respect of this decision that the assessee has now come on this reference before us.
2. The main contention urged by Mr. Palkhivala on behalf of the assessee is that both in S. Y. 1995 and in S. Y. 1996 Chimanlal not only debited Jivanlal with interest, but actually paid tax on this interest. It may be mentioned that Chimanlal maintained his accounts on the mercantile system and therefore Chimanlal made entries in respect of interest due from Jivanlal in S. Y. 1995 and S. Y. 1996, and although interest was not actually received on the accrual basis he paid tax. This contention is put forward on the basis of two decisions of the Patna High Court viz., Hanutram Bhuramal v. Commissioner of Income-tax, Bihar, Bansidar Podda v. Commissioner of Income-tax, Bihar. Now, on identical facts the Patna High Court has taken the view that accounts of a continuing business must be treated by the Income-tax department in a consistent manner, and as the debt had been treated by the authorities as a good debt in that case in 1931-32 it was not open to them to hold that it must have become bad before 1932-33. In that case also the debt had been carried forward as an asset bearing interest and the assessee had paid tax on that interest and from that fact the Patna High Court drew the conclusion that the taxing department were precluded from taking up an inconsistent attitude, the inconsistency lying in this that they accepted the debt as good for the purpose of recovering tax on the interest and then subsequently treating that very asset which bore interest as a bad debt. This judgment follows the principle laid down in the earlier judgment in Bansidar Podda v. Commissioner of Income-tax. With very great respect to the Patna High Court, we find it difficult to accept this decision as correct. When one analyses this decision, it is based on the principle of estoppel, and what the Patna High Court in effect has laid down is that the taxing department having in one assessment held that a debt was good, it could not in another assessment contend that the debt was bad. Now, it is well-settled that the doctrine of estoppel does not apply in cases of successive assessments. An assessment is complete in itself and the taxing department is not bound by any contention it took up in one assessment when the question arises with regard to a different assessment, and even assuming that the representation made by the department was that the debt was good when it assessed the assessee to tax on that debt in respect of interest, even so it would be open to the department to take up a contrary and inconsistent attitude in a different assessment. But again, with respect, what we do not understand is how the Patna High Court took the view that the department had taken up an inconsistent attitude. When the assessee paid tax on interest on the debt no question arose and no question could possibly arise as to whether the debt was a bad debt or not. It was only when in the subsequent assessment the assessee claimed the debt to be a bad debt and wanted to deduct it from his income that the department was called upon on consider that question, apply its mind and decide that question. Therefore it would not be correct to say that when the assessee paid tax on interest the department had come to any conclusion as to the nature of the debt. There is a further difficulty in our way of accepting this decision to be correct. The learned Judges say that it is incumbent upon the Income-tax department to consider the accounts of a continuing business in a consistent manner. We do not understand how the department treats the accounts of the assessee in an inconsistent manner because in one assessment year it receives tax on interest on a debt due to the assessee and in a subsequent year when the assessee claims that debt to a bad debt it says that the debt did not become bad in that year but on previous year. This has nothing whatever to do with the accounts of he assessee. The accounts are perfectly proper. The question that the department is called upon to decide is a question of fact independently of the accounts, and the question of fact is whether in a particular year a debt which the assessee claims to have become a bad debt became a an debt, and that is to be decided not with reference to the books of account of the assessee but with reference to fact established aliunde the books of account.
3. Now, the test of a bad debt was laid down by us in Sidhramappa v. Commissioner of Income-tax, Bombay, and at page 343 in the judgment it was observed : 'Now the question as to whether a debt is bad debt or not is a question of fact and that question should be determined from the point of view of the possibility of the realisation of the debt. If there is any possibility that the debt can be realised, then the debt does not become a bad debt but when there is no possibility at all and when it is ascertained as a fact that on a particular date the debt became finally irrecoverable that is the date when the debt becomes a bad debt.'
4. Therefore, the approach must be from the point of view of the possibility of the realisation of the debt. It is also well-settled that it does not depend upon the volition of the creditor to decide when a debt becomes a bad debt. It is not open to the creditor merely by making an entry to convert a debt which might be a good debt into a bad debt, and that is why we said earlier that entries in the books of account have very little bearing on the question as to whether a particular debt has become a bad debt or not. In that very judgment, again, on the same page, we said :
'In my opinion it cannot be left to the volition of the assessee to decide by his own conduct as to when the debt becomes a bad debt. His making entries in his books of account is an exercise of his own volition. It is not left to his option to fix the date as to when the debt becomes a bad debt.'
5. And in laying down this principle we were following a very early decision of the Privy Council in Sir S. M. Chitnavis v. Commissioner of Income-tax, C. P. & Berar, where the Privy Council laid down that whether a debt and when it became bad but by the appropriate Tribunal upon a consideration of all relevant and admissible evidence.
6. Therefore, what we have to consider is whether there is any evidence to justify the finding of fact given by the Tribunal. In this case the Tribunal has agreed with the finding of the Appellate Assistant Commissioner that when the property of the debtor was sold in S. Y. 1996 the debtor had no other assets from which the creditor could have recovered the debt, and he has also held that the assessee did not have any ray of hope that he would be able to recover the debt from his debtor. It is difficult to understand how it could be urged that there is no evidence to justify this finding of fact. There is this outstanding and important fact on which the Tribunal has relied that when the property was sold and the sale proceeds received the debtor was left with nothing at all with which he could satisfy his debt. But what is urged by Mr. Palkhivala is that although the Tribunal has taken into consideration this fact, it has not taken into consideration other important facts, and Mr. Palkhivala says that even assuming that the decision of the Patna High Court may not be correct in the way it has been put, even so the fact that the creditor paid tax on interest was a relevant fact which should have been taken into consideration. It may be that the fact that a creditor pays tax on interest accrued to him in respect of the debt may go to show that he still thinks that the debt is recoverable. It may be said that a hard-headed businessman would not pay tax unless he felt that there was some possibility at some time of realising the debt. On the other hand, it is equally possible that an astute business man may pay tax on interest which would after all be a very small amount, in order to show that the debt was a good debt, so that he may write it off as a bad debt in a year which may be most convenient and suitable to him. If we were to hold that the fact that a creditor pays tax on interest is conclusive, then we would again be leaving it to the volition of the creditor to decide when a debt becomes a bad debt. Nothing that the creditor does either by making an entry with regard to interest or by paying tax on it can have much bearing on the fact which has got to be decided whether there was a possibility of realising the debt. That fact cannot be decided by any act performed by the creditor. It is not correct to say as Mr. Palkhivala has contended that the Tribunal has ignored this fact of the creditor paying to tax on interest. In the order under reference the fact is stated not only that the interest was debited but also that interest was subjected to tax.
7. There are two other circumstances which according to Mr. Palkhivala the Tribunal has not taken into consideration. One is that the debt became barred by limitation in S. Y. 1997 and according to Mr. Palkhivala that was an important circumstance which led the debtor to write it off in S. Y. 1997. Now, the Privy Council in the case to which we have referred has emphasised that the mere fact that a debt was incurred at a date beyond the period of limitation will not by itself make the debt a bad debt. Still less will it fix the date on which it becomes a bad debt. A statute barred debt is not necessarily bad, neither is a debt which is not statutorily barred necessarily good. Therefore the mere fact that a debt had not become time barred is not a conclusive circumstance in favour of holding that it had not become bad within the period of limitation. The other circumstance on which Mr. Palkhivala has relied is that tax in respect of the mortgaged property in the sum of Rs. 25 was paid in S. Y. 1997 and according to Mr. Palkhivala it is only after this amount was paid that the debt due was ascertained and it was only after the debt was finally ascertained that it could be written off and claimed as a bad debt. Now, the Tribunal has found that this payment of tax was in respect of a liability which had arisen earlier. In the very nature of things it must be so because the property was sold in 1996 and tax in respect of that property must have become due in S. Y. 1996 or even some time earlier. As the assessee keeps his books on a mercantile basis, it was incumbent upon him to make an entry with regard to this sum of Rs. 25 when the liability arose and not when the liability was discharged. If the assessee does not choose to ascertain the debt which was ascertainable in S. Y. 1996, but waits till S. Y. 1997, his act cannot alter the true situation with regard to the debt becoming a bad debt. In our opinion it is impossible to accept the contention on this reference that the decision of the Tribunal was arrived at on a total absence of any evidence in support of its finding. It may be that another Tribunal or this Court might have come to a contrary conclusion on these very facts, but that is neither here nor there. All that we are to satisfied. In our opinion it certainly was. Mr. Palkhivala asks us to make a note in our judgment that this is a proper case which the taxing authorities will consider whether some relief should not be given to the assessee in respect of the assessment year S. Y. 1996. Mr. Palkhivala says that the finding is that the debt became bad is S. Y. 1996 and not in S. Y. 1997 and as he claimed it in S. Y. 1997 he could not get the necessary relief for the accounting year S. Y. 1996. It is for the Central Board of Revenue to consider whether under the circumstances of this case relief should be given to the assessee or not.
8. The answer we give to the question is : 'The debt became a bad debt in S. Y. 1996.'
9. Assessee to pay the costs.
10. Notice of motion dismissed with costs.
11. Reference answered accordingly.