BEAUMONT, C. J. - In this case the Commissioner of Income Tax has referred two questions for our decision under Section 66(2) of the Indian income Tax Act or any other section thereof under which a deduction could be allowed from the income of the firm liable to the tax, in respect, of the sums of money referred to in paragraph 2 above aggregating in all to Rs. 55,694, on account of moneys due from its former partners.' The facts are that the year of assessment is the year 1932-33, that is the year expiring on the 31st March, 1933, and the 'previous year', as that expression is defined in Section 2 Clause (11) is the Samwat year 1987. During the year of assessment and during the previous year there were two partners in the assessee firm. But it appears that in former times there were four other partners. One of them retired in the Samwat year 1982, one of them at the end of Samwat year 1983, and two of them at the end of Samwat year 1984, and on their retirements they owed large sums of money to the firm of which they were partners and those sums seems to have been treated as due to the continuing partners, that is to say, to the new firms constituted on their several retirements. Part of those sums were eventually recovered, but in the Samwat year 1987, the balance of the debts amounting to the sum of Rs. 55,694 referred to in the 1st question was written of as irrecoverable. The question is whether that sum can be allowed as a deduction from income liable to tax. In my opinion it is quite clear that the answer to the question must be in negative. These debts due from previous partners were never revenue of the continuing firm and they were never brought into the income tax accounts as revenue. They were capital sums and all that had happened in the Samwat year 1987 was that the firm lost part of its capital assets. There is no ground on which that loss can be written off against revenue of the year in which the loss finally occurred.
The second question relates to interest on the sums in question, and on the facts I have some difficulty in seeing how any question really arises. It appears that interest on these debts was brought into the income tax accounts for the Samwat year 1983, but since no income tax has been charged on any interest partly because in subsequent years there were losses and not gains. In the Samwat years 1986 and 1987 it appears that no charge was made against the debtors for interest and certainly for the previous year with which we have to deal, Samwat year 1987, no interest was brought into account for income tax purposes on these debts. All that has really happened as it seems to me that the assessee firm has lost an asset which at one time produced revenue, but now produces no revenue, and I can see no ground on which any deduction can be allowed on that account.
I think, therefore, that both questions must be answered in the negative. Cost on the original side scale to be taxed by the taxing master to be paid by the assessee.
RANGNEKAR, J. - I agree.
Questions answered in the negative.