This is an application made under Section 66 (2) of the Indian Income-tax Act by one Rai Bahadur Seth Ganga Sagar Jatia praying that the Income-tax Appellate Tribunal be directed to state the case and to refer certain questions of law arising our of its order. During the pendency of this application in this Court, Rai Bahadur Seth Ganga Sagar Jatia died and his widow, Shrimati Indermani Jatia has been substituted in his place. The facts giving rise to these reference are very short and maybe stated as follows :-
The original applicant, who was the assessee, carried on money-lending and other businesses. The assessment year with which this reference is concerned is 1941-42 and the year of account is from Diwali Sambat, 1996, to Diwali Sambat, 1997, corresponding to November, 1939, to October, 1940. It appears that a sum of Rs. 1,73,197 was, at one time, due to the assessee from Messrs. Hargobind Rai Madanlal of Calcutta. In the course of the assessment, the assessee claimed a deduction of this sum from the receipts upon the ground that it is represented a bad debt in accordance with the provisions of Section 10, sub-section (2), clause (xi), of the Indian Income-tax Act. The Income-tax officer disallowed the claim of the assessee upon the ground that the debt in question had become bad prior to the year of account. This finding was confirmed by the Appellate Assistant Commissioner, who was of the opinion that it was known before of account that the defaulters had no assets to pay and that there was no hope of realisation long before the year under consideration. In the appeal before the Income-tax Appellate Tribunal, it was held that 'the appellant had lost all hope of recovering this amount in August 1939, which was about two months prior to the beginning of the accounting year under appeal.' This finding was based, inter alia, upon the fact that the assessee had sent two of his munibs to Calcutta and after exhaustive enquiries with regard to the financial condition of the debtor, the assessee had came to the conclusion that a civil suit for the recovery of the debt would be unprofitable. The Appellate Assistant Commissioner also relied upon the statement made by the assessee in the criminal case that there was no hope of realisation of the debt sometime before the year of account. In our judgement, the finding arrived at by the Income-tax Appellate Tribunal concludes the matter and we are unable to appreciate how a question of law arises out of the order of the Tribunal.
Learned counsel for the appellant has contended that it was not for the Income-tax Department or the Income-tax Appellate Tribunal to determine when the debt in question became bad and that that question should be decided with reference to the time when the debt was written off by the assessee. It was further contended that so long as the limitations for recovery of the debt in question had not run out, it could not be said that the debt had become legally irrecoverable - the sense in which, according to learned counsel, the word ' bad' has been used in clause (xi) to sub-section (2) of Section 10. We cannot accede to either of these contentions. Before clause (xi) was introduced in the Indian Income-tax Act, bad debts were always treated as a permissible deduction in computing the assessable income. Both these contentions were raised in the case of Commissioner of Income-tax, Central Provinces and Berar v. Sir S. M. Chitnavis. While repelling these contentions, their Lordships of the Privy Council came to the conclusion that 'a debt, which had in fact become a bad debt before the conclusion 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 proceeded :-
'Whether a debt is a bad debt, and, if so, at what point of time it became a bad debt, are questions which is in their Lordships view are questions of fact, to be decided in the event of dispute by the appropriate tribunal, and not by the ipse dixit of any one else. The mere fact that a debt was incurred at a date beyond the period of limitations will not of itself make the debt a bad debt; still less will it fix the date at which it became a bad debt. A statue-barred debt is not necessarily bad; neither is a debt which is not statue-barred necessarily good. The age of the debt is no doubt a relevant matter to take into consideration. In every case it is a question of fact, to be determined after consideration of all relevant circumstances.'
It would follow, therefore, that the questions whether a particular debt has become bad or not and what time it became bad are questions of fact. The decisions of this questions would depend mainly upon the state of mind of the assessee and although the time when the assessee writes off the debt in question may be a relevant circumstance, yet it is not conclusive upon the question when the debt became bad. The question of the state of mind of an assessee is one of fact and has to be determined upon the evidence before the Income-tax authorities and the Income-tax Tribunal. The finding arrived at by the Income-tax Tribunal upon this matter is not open to challenge unless it is clear that that finding has been arrived at through error of law. In other words, no question of law can be said to arise out of the order of the income-tax Tribunal, unless some principle of law has been violated by that Tribunal in arriving at the finding. We are not satisfied that the Tribunal has ignored or violated any principle of law in arriving at the finding at which it was arrived. We have no doubt that that finding is based upon admissible and relevant evidence.
Learned counsel next contended that unless it was clear that there was no ray of hope of recovering the debt in question, it could not be said that the debt had become bad. In the first place, we are of opinion that such an argument is not open to the assessee in face of finding that he had lost all hope of recovering the debt in question in August, 1939, and, in the second place, it should enough to hold that the assessee had lost all reasonable hope of recovering the debt. In any event, that was essentially a question of fact. Learned counsel has also raised the contention that the law has been changed by the introduction of clause (xi) to sub-section (2) of Section 10, inasmuch as, according to learned counsel, while in the case of a money-lender the estimate of the Income-tax Officer as to be irrecoverable nature of the debt would be binding upon the assessee, in the case of an assessee other than a money-lender it will be the assessees treatment of the debt as a 'bad and doubtful debt' and not the Income-tax Officers estimate that would conclude the matter. We do not find any justification in the language of the clause in question for these contention. In our Judgement, even with regard to bad and doubtful debts due to the assessees other than money-lenders, it would be the finding of the Income-tax Officer as to the nature of the debt and also as to the time when the debt become 'bad and doubtful' that would be decisive of the question. We have given our careful consideration to the submission by learned counsel for the assessee, but we are of opinion that the law has not been changed, in this respect, by the Amendment Act of 1939. The Legislature has merely codified what was understood to be the law before.
For the reasons indicated above, we are of opinion that there is no substance in this application and we, accordingly, dismiss it with costs.
We assess the fee of counsel for the department at Rs. 100 Six weeks time is allowed to him to file a fee certificate.