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Girdhari Lal Gian Chand Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 343 of 1963
Judge
Reported in[1971]79ITR561(All)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantGirdhari Lal Gian Chand
RespondentCommissioner of Income-tax
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Excerpt:
- - 4. the income-tax officer disallowed the claim holding that it was a loss of capital and not of revenue and his decision was upheld by the appellate assistant commissioner as well as by the tribunal. 39,302 being the amount of interest debited to the account at the end of the relevant accounting year as bad debt under section 10(2)(xi) of the act. as already stated, the firm used to carry on business in arhat as well as in guy and shakkar......it could not be recovered, can be allowed as a deduction from the total income of the previous year (samvat 2011--samvat 2012) because the receipt of the said interest was included in the total income of the respective years being revenue receipts ?'2. the statement of the case relates to the assessment year 1956-57, the corresponding previous year being the samvat year 2011-2012, ending on kartik sudi 2012 samvat.3. the assessee is a registered firm carrying on business as commission agents. it also deals in gur and shakkar on its own account. previously, the firm consisted of nine partners including sri jagannath prasad who was a working partner. at the close of the samvat year 2009-2010, jagannath prasad retired from the firm. at the time of retirement there was a debit balance in.....
Judgment:

T.P. Mukerjee, J.

1. This is a case stated by the Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, on the following question :

'Whether the amount of Rs. 39,302 which was found due on account of interest charged from Jagannath, working partner, and which was written off because it could not be recovered, can be allowed as a deduction from the total income of the previous year (Samvat 2011--Samvat 2012) because the receipt of the said interest was included in the total income of the respective years being revenue receipts ?'

2. The statement of the case relates to the assessment year 1956-57, the corresponding previous year being the Samvat year 2011-2012, ending on Kartik Sudi 2012 Samvat.

3. The assessee is a registered firm carrying on business as commission agents. It also deals in gur and shakkar on its own account. Previously, the firm consisted of nine partners including Sri Jagannath Prasad who was a working partner. At the close of the Samvat year 2009-2010, Jagannath Prasad retired from the firm. At the time of retirement there was a debit balance in the capital account of Sri Jagannath Prasad which stood at Rs. 94,544 at the end of Samvat year 2011-2012. The amount consisted of the following two items : (i) Rs. 55,242, on account of excess drawings and losses during the period Samvat 2000 to Samvat 2012; and (ii) Rs. 39,302, on account of interest charged during the said period. At the end of the relevant previous year the assessee wrote off the entire sum of Rs. 94,544 and in the assessment for the assessment year under reference, it claimed the amount as a revenue loss.

4. The Income-tax Officer disallowed the claim holding that it was a loss of capital and not of revenue and his decision was upheld by the Appellate Assistant Commissioner as well as by the Tribunal.

5. The present reference has been made at the instance of the assessee.

6. There is no dispute that the firm used to charge interest on the debit balance in the capital account of Sri Jagannath Prasad and such interest was debited to his account all along. The firm was also assessed from year to year, on the amounts of interest debited to his account. Nevertheless, it appears to us, the firm cannot claim the sum of Rs. 39,302 being the amount of interest debited to the account at the end of the relevant accounting year as bad debt under Section 10(2)(xi) of the Act. As already stated, the firm used to carry on business in arhat as well as in guy and shakkar. The amount in question cannot, therefore, be regarded as a trading debt.

7. Moreover, the assessee-firm, which is a successor to the original firm of nine partners, took over the business with all its assets and liabilities which constituted the consideration for such take over. That being so, the amount in question, which is an asset in the hands of the succeeding firm, cannot be held to be a trading loss. This view finds support from the decision of the Bombay High Court in Amarchand Madhavji and Co. v. Commissioner of Income-tax, (1) [1935] 3 I.T.R. 462 (Bom.). The facts in that case were very similar. In that case, there was a firm constituted of six partners. Four of them retired and the debts due to the firm by the retiring partners were treated as debts of the firm constituted of the remaining two partners, and it was written off as irrecoverable. Thereupon, the assessee claimed a deduction of Rs. 53,694 being the amount written off, in computing the assessable profits. Beaumont C. J., who delivered the leading judgment of the Bench, observed that the debts due from the retiring partners were never revenue of the continuing firm ; they were capital sums and- the loss could not be written off as against the profits of the year in which they were written off.

8. In our opinion, the point has been correctly decided by the Tribunal and the question referred must be answered in the negative and against the assessee. The respondent will get Rs. 200 as costs of this reference from the assessee. Counsel's fee is also assessed at the same figure.


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