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Commissioner of Income-tax Vs. Hindustan Commercial Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 867 of 1975
Judge
Reported in[1980]122ITR645(All)
ActsIncome Tax Act, 1961 - Sections 36, 36(2) and 155(6)
AppellantCommissioner of Income-tax
RespondentHindustan Commercial Bank Ltd.
Appellant AdvocateR.K. Gulati and ;A. Gupta, Advs.
Respondent AdvocateA.N. Mehrotra, Adv.
Excerpt:
.....tribunal was justified in admitting the additional ground raised by the assessee in respect of bad debt claim of rs. it was contended that the decision of the tribunal as regards the allowability of the bad debt in the assessment year 1965-66 could not be relied upon for disposing of the appeal for the assessment year 1966-67. the first contention is exemplified by the cases, cit v. act, 1922. that provision, although it provided for the deduction of a bad debt, did not have a provision as beneficial as section 36(2)(iii) or (iv) of the present act. the result was that in case the claim of an assessee for a bad debt in a particular year was turned down on the score that it had not become bad debt in that year, the assessee in the majority of cases could not claim it as a bad debt in any..........tribunal was justified in admitting the additional ground raised by the assessee in respect of bad debt claim of rs. 8,086 and in then allowing the assessee's claim '2. sri r. k. gulati, appearing for the department, has raised a number of ingenious arguments to defeat the claim of the assessee. it has been urged that as the assessee had not made the claim before the ito or before the aac, the claim could not be raised before the tribunal for the first time. elaborating the argument, it was urged that the tribunal can consider only such claims as have been made either before the ito or the aac, but as that was not done, the assessee was not aggrieved by the orders passed by these authorities and as such could not be permitted to raise a new contention on the score that these authorities.....
Judgment:

C.S.P. Singh, J.

1. The assessee, which is a banking company, had a trade debtor, M/s. Usha Cycle Industries, the amount of debt being Rs. 18,086. This was written off in the previous year relevant to the assessment year 1965-66. The claim was, however, not allowed for the assessment year 1965-66 as the assessee had claimed a portion of the amount from the insurance company, which had insured the goods of the debtor, which were stolen. In fact, the assessee was able to recover an amount of Rs. 10,000 out of this debt in the subsequent previous year relevant to the present reference, viz., the year 1966-67. This view of the ITO was upheld by the Tribunal in appeal relating to the assessment year 1965-66. While disposing of the appeal for the assessment year 1965-66, the Tribunal observed on facts, that the assessee would be at liberty to claim it in the subsequent year, if the facts stated by the assessee before the Tribunal were found to be correct by the lower authorities. In the assessment year 1966-67, the assessee neither made any claim for bad debt before the ITO, nor did it do so before the AAC. At the time, when the appeal was filed before the Tribunal no ground relating to deduction of any amount of bad debt was taken in the memorandum of appeal. On the 19th June, 1974, by which time the appeal for the assessment year 1965-66 had been disposed of, the assessee made an application for deduction of Rs. 8,086 as bad debt before the Tribunal by making an application for the the addition of a ground in the memo of appeal. The claim of Rs. 18,086 made in the assessment year 1965-66 was scaled down to Rs. 8,086, for, the assessee had recovered an amount of Rs. 10,000 out of its total claim from the insurance company. Objection was taken to the addition of this ground by the departmental representative, but that was overruled. The Tribunal while rejecting the objection referred to its appellate order for the year ' 1965-66, and stated that the only ground on which the claim for bad debt was rejected in the earlier assessment year was because of the fact that the assessee had been able to realise an amount of Rs. 10,000 out of the amount of Rs. 18,086 in the subsequent previous year, and as such the reduced claim for the bad debt should be entertained. They then took the view that the balance, viz., Rs. 8,086, had become a bad debt during the previous year relating to the assessment year 1966-67 and allowed the claim of the assessee. The Commissioner filed an application against this order and has obtained reference of the following question of law from the Tribunal:

' Whether, on the facts and circumstances, the Tribunal was justified in admitting the additional ground raised by the assessee in respect of bad debt claim of Rs. 8,086 and in then allowing the assessee's claim '

2. Sri R. K. Gulati, appearing for the department, has raised a number of ingenious arguments to defeat the claim of the assessee. It has been urged that as the assessee had not made the claim before the ITO or before the AAC, the claim could not be raised before the Tribunal for the first time. Elaborating the argument, it was urged that the Tribunal can consider only such claims as have been made either before the ITO or the AAC, but as that was not done, the assessee was not aggrieved by the orders passed by these authorities and as such could not be permitted to raise a new contention on the score that these authorities did not have an occasion to consider the new claim. It was also urged that the Tribunal while deciding an appeal for a particular assessment year cannot give any binding direction for another year. It was contended that the decision of the Tribunal as regards the allowability of the bad debt in the assessment year 1965-66 could not be relied upon for disposing of the appeal for the assessment year 1966-67. The first contention is exemplified by the cases, CIT v. Karamchand Premchand P. Ltd. : [1969]74ITR254(Guj) , Smt. Arun-dhati Balkrishna v. ITO : [1976]103ITR763(Guj) , amongst various others which are not necessary to be mentioned as they reiterate the same principle. The proposition that the Tribunal cannot give binding directions for a year other than the one with which it is concerned in the appeal is indubitable. We, however, feel that these principles cannot be applied to the claim which has been allowed by the trial court in view of the statutory provisions of Section 36(2)(iii) of the Act. A perusal of Section 36 dispels the mirage created by Mr. Gulati. Before we turn to these provision it might be useful to refer to a decision of the Bombay High Court in the case of Karamsey Govindji v. CIT : [1957]31ITR953(Bom) . Chagla, Chief Justice, in that case was concerned with a case arising under section 10(2)(xi) of the Indian I.T. Act, 1922. That provision, although it provided for the deduction of a bad debt, did not have a provision as beneficial as Section 36(2)(iii) or (iv) of the present Act. The result was that in case the claim of an assessee for a bad debt in a particular year was turned down on the score that it had not become bad debt in that year, the assessee in the majority of cases could not claim it as a bad debt in any other year, Chagla, Chief Justice, noticed this lacuna, and observed as under (p. 958):

' As we had occasion to point out before, the present income-tax law with regard to bad debts makes the position of the assessee extremely difficult. He may write off a debt in a particular year and may claim it and the claim may be disallowed. In the next year he cannot make that claim because it would be urged against him that he did not write off the debt in that year. Therefore, the assessee always finds himself on the horns of a dilemma and it is the duty of the department to take a sympathetic view of the matter if in fact the debt was never recovered.Therefore, if the debt was not allowed to the assessee in the year of account, there is no reason why the department should not consider allowing him this debt in the next year when admittedly the debt became irrecoverable, although the assessee may not have written it off in that year.'

3. As we shall presently show the assessee has now been relieved of this difficulty. We may now read the relevant part of Section 36(1) which begins with these words:

' The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--......... '

4. Coming to Section 36(2)(iii) and (iv) of the Act, which is in the following terms:

' 36. (2) In making any deduction for a bad debt or part thereof the following provisions shall apply:--.........

(iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year, but the Income-tax Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year;

(iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year and the Income-tax Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of Sub-section (6) of Section 155 shall apply.'

5. These provisions indicate that the ITO, while calculating the true income of the assessee for the purpose of this Act, is under a duty to make the deductions set out therein. That, however, does not mean that the ITO can do so without any material being available on the record. The deductions can be allowed only in case there is material permitting such a deduction. All that we stress is that a statutory duty has been cast upon the ITO to make the deductions set out under section 36. Section 36(2)(iii), with which we are concerned in the present case, clearly indicates that the ITO can refuse to allow the bad debt written off in an earlier previous year in a subsequent year on the ground that the assessee had failed to establish that it had become a bad debt in that year. The provision as it stands does not insist that any claim for the debt having become bad in the subsequent year should have been made by the assessee so as to invest the ITO with the power to write it off as a bad debt in that year. The Legislature while enacting these provisions thought that the necessary material for allowing the bad debt would be available with the ITO in the record of the assessee for the earlier previous year. The same is the position in Section 36(2)(iv), where the ITO can by recourse to Section 155(6) amend the assessment of earlier previous years not falling beyond the year of four previous years so as to grant relief for a bad debt. We are satisfied that the bad debt claimed in the assessment year in question had become bad and irrecoverable much earlier. It appears to us that these provisions were purposely engrafted in the Act so as to relieve the assessee of the dilemma in which he was put, when he claimed a bad debt in a particular previous year, but later the authorities found that the debt, although bad, did not relate to the particular assessment year. On this view, the principles enunciated in the cases relied upon by Mr. Gulati do not place any impediment to the claim being allowed, for they relate to cases where the assessee could have made the claim, and where there was no specific statutory provision which cast a duty on the ITO of the nature set out in Section 36(2)(iii) and (iv) of the Act.

6. The Tribunal was, therefore, justified in allowing the assessee to urge the additional ground and to allow an amount of Rs. 8,086 as bad debt on the ground that the assessee had been able to recover only Rs. 10,000, out of Rs. 18,086 claimed by it, from its trade debtors. We, accordingly, answer the question in the affirmative, in favour of the assessee and against the department. The assessee is entitled to its costs, which is assessed at Rs. 250.


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