Judgment of the Court was delivered by
CHAGHA, C.J. - The Tribunal has submitted a statement of the case as required by us under section 66 (2) of the Income-tax Act, and the statement disclosed the following facts. The assessee suffered losses in bullion in the year of account. He dealt in this commodity both on his own account and as a broker for his constituents and he claimed that he had acted as a broker for nine constituents, that these constituents had not discharged their liability. that he had paid on the Bullion Exchange the amounts due by these persons had become irrecoverable, and therefore he claimed the amounts as bad debts. The two questions which we asked the Tribunal to refer were :
'(1) Whether the sum of Rs. 1,90,841 represented debts, and, if so, they became bad or doubtful debts in the year of account ?
(2) In the alternative, whether the said sum of Rs. 1,90,841 was an allowable deduction as a loss under section 10 (2) (XV) of the Indian Income-tax Act or as a loss incidental to the assessees business ?'
Mr. Palkhivala has strenuously argued the second question and has contended that as far as the second question is concerned he must succeed, whatever the view may be of the Tribunal with regard to the debtors being genuine or not. Now, out of these nine debtors, it has been found by the Tribunal that the first four were not the genuine constituents of the assessee. The first three names are the names of one party who according to the assessee traded in three names, and therefore these four names really represents two constituents, and with regard to the other five the Tribunal has held that these constituents were genuine constituents, but their debt did not become bad in the year of account.
Turning to the case of the first two constituents, where it has been held that they were not genuine constituents, what Mr. Palkhivala has argued is that if he satisfies us that he actually paid the loss to the Bullion Exchange, then if the loss was not paid on behalf of his constituents it must follow as an irresistible inference that the loss was paid by him as his own business loss, and therefore if the amount represented by this loss was not deductible as a bad debt, it was open to the assessee to claim a deduction as a loss under section 10 (2) (XV). It has been pointed out by the Tribunal that at no stage it ever suggested by the assessee that these losses were his own business losses. Throughout the proceedings, whether it was before the Income-tax Officer, the Appellate Assistant Commissioner or the Tribunal, it was strenuously urged by the assessee that these two constituents had given him instructions to put through the transactions, that he had acted as their broker, and that the loss suffered was the loss of the constituents and not his loss. It is difficult to understand how it is possible for Mr. Palkhivala now to urge before us that we should give him relief on the basis that these were his business losses and not losses of his constituents. Mr. Palkhivala says that it is open to him to set up alternative cases. An alternative case may be set up when two inferences are possible from the same set of facts, but it is difficult to understand how a party can put forward one set of facts and in the alternative a set of facts which are entirely inconsistent with the first set. Therefore, it is not open to Mr. Palkhivala on the record as it stands to urge before us the finding of fact which is contrary to the fact relied upon consistently and emphatically by the assessee throughout these proceedings.
Mr. Palkhivala then says that these losses should be permitted to be deducted by the assessee on the ground of commercial expediency. It is said that if a constituent denies his liability to pay his losses to the broker, the broker should be allowed those losses, if in fact he has paid those losses, as losses arising on the footing of commercial expediency. Now, that would undoubtedly be so if it had been held that the constituents were genuine constituents, that the business was effected by the assessee on behalf of these constituents, and that the constituents were falsely denying their liability. But what has been found is that these constituents have rightly denied their liability and that they were not the constituents of the assessee and no business was put through by the assessee on their behalf. If that is the position, then it is difficult to understand how an any ground it is open to the assessee to claim these losses as business losses and not as bad debts.
Mr. Palkhivala has strongly emphasised the fact that the Tribunal has accepted the position that the losses represented by the business done on behalf of these two constituents was actually paid by the assessee to the Bullion Exchange, and it is urged that if this payment was not on behalf of the constituents the only other inference is that it was a payment on behalf of the assessee himself as representing his own losses. Now, as pointed out by the Tribunal, these are not the only two inferences that necessarily arise from the fact of payment by the assessee. A third inference is possible that this payment was made to the Bullion Exchange to be ultimately paid to a third party who may not be an independent third party but may not be an independent third party but may be a benamidar of the assessee himself. Mr. Palkhivala countered this by saying that it was for the Department to establish that these losses were paid not to a genuine honest third party but to a benamidar of the assessee. It is difficult to understand why the Department should take upon itself to demolish something when no evidence has been led at all by the assessee himself to prove that these transactions were his own transactions and the losses were incurred in his own business. It is clear that the burden of establishing that these amounts represented business losses in respect of which the assessee is entitled to deduction is upon the assessee and if the assessee pinned his faith upon the case that he was entitled to these deductions not on the ground of business losses but on the ground of bad debts, it is not open to him to take a complete somersault now and urge before us that the business he did was not business on behalf of genuine constituents but on his own behalf.
With regard to the other five constituents, as already stated, the Tribunal has accepted the assessees contention that they were genuine constituents, but it has not accepted the assessees contention that the debts due from these constituents became bad in the year of account. Now, in order that a bad debt can be properly claimed by an assessee, he has got to establish that there was a debt and that, that debt became irrecoverable in the year of account. The burden of so proving is clearly upon the assessee. Mr. Palkhivala has very vehemently argued that on the evidence on the record it was not possible for either the Department or for the Tribunal to come to the conclusion that these debts did not become irrecoverable in the year of account. In our opinion, the finding given by the Tribunal is a finding of fact and it is not open to us with the limited jurisdiction that we are exercising to go behind that finding. It is also our opinion that it is impossible to suggest that there was no material whatever for the finding given by the Tribunal, especially when it is remembered that the burden was upon the assessee and not upon the Dapartment. But we do feel that there is considerable force in the grievance put forward by Mr. Palkhivala, and in putting forward that grievance he is not merely representing the cause of his own client but the cause of the business people in general. An honest businessman takes the view that a particular debt becomes irrecoverable in a particular year and on that basis he claims deduction. It takes a long time before the ultimate decision is given by the Tribunal. In this case we are dealing with the assessment year 1944-45, the year of account is 1943-44, and the decision of the Tribunal is given in 1955, and it is ultimately held by the Tribunal that the debt did not become a bad debt in the year in question. Now, what is the businessman to do. He cannot claim this in the next year because the assessment of that year has long ago been completed. Therefore, the businessman finds himself in this extraordinary predicament that although there is a genuine debt, although that debt some time or other has become irrecoverable and he has never received it, yet by a strange process he can never claim that bad debt as a deduction.
In this very case, although these bad debts claimed by the assessee - and they represented a fairly large amount -may not have become irrecoverable in the year of account, undoubtedly, except for a small amount here and there, they were never recovered by the assessee, and therefore it is clear that some time or other they became bad debts. Having put forward his contention that they became bad debts in the assessment year 1944-45 naturally, the businessman, the assessee, does not put forward the claim that they became bad debts in any subsequent year. The result is that when the Tribunal comes to the conclusion that the debts are irrecoverable in that particular year, he is unable to make a claim that those debts became irrecoverable in some other year by reason of the provisions of the Income-tax Act. We strongly with to urge upon the Government and the Taxing Authority the necessity of some provision in the law whereby it would be open to the Income-tax Officer, if the debt is held to be irrecoverable in a particular year, to permit a deduction in some later year in which the Income-tax Officer finds that the debt in fact became irrecoverable. As the position stands now, the Taxing Department is in this extremely happy position. All that they hold is that a debt becomes irrecoverable in a particular year, that is a finding of fact, that finding cannot be successfully assailed, and having come to that conclusion they can comfortably sit back in their chair and refuse to give any relief to the assessee because they know that the assessee cannot claim it in any subsequent year as the assessment for these subsequent years has already been concluded. If the Taxing Department should be strict and severe with business people who seek to evade payment of tax, they should be equally considerate to those business people who honestly claim deductions to which they are entitled in law. This particular case is an illustration of how procedure and questions of limitation can defeat the just claim of an assessee because he has to proceed in the manner laid down in the Act and the Act does not give him the necessary relief in the particular situation in which he finds himself. But apart from expressing our sympathy and making the suggestion with regard to the reform of the law, as far as this particular reference is concerned we do not see how we can give any relief to the assessee without extending our limited jurisdiction.
The result therefore is that our answer to the first question is : Items 1 to 4 were not debts and items 5 to 9 did not become bad debts. The answer to the second question is in the negative. The assessee to pay the costs.
Questions answered accordingly.