1. In this reference made at the instance of the High Court, under Section 66 (2) of the Income Tax Act, 1922, the question of law framed for consideration is:
'Whether on the facts and circumstances of the case the loss of Rs. 1,01,220 is to be allowed as a bad debt under Section 10 (2) (xi) of the Income Tax Act, 1922, in the assessment year 1959-60, or is to be treated as a business loss in the respective years during which the loss occurred.'
2. The assessee is an unregistered family firm carrying on business in money-lending. The aforesaid question relates to the assessment for the financial year 1959-60 corresponding to the accounting year 1958-59.
3. The claim of the assessee is that in the course of the money-lending business it had during the financial years 1950-51 to 1953-54, advanced loans to one Bhikary Ram, in all amounting to Rs. 2, 51,593.00 to procure and supply stationery articles to the Orissa Government Press. This Bhikary Ram was admittedly at all relevant times working as the registered clerk of Mr. Rao, who was the senior partner of the firm, and an Advocate of this Court. Out of the aforesaid sum of Rs. 2,51,593.00 a sum of Rs. 1,50,373.00 during that period was from time to time in various instalments paid back, Thus, at the end of the period the balance amount of Rs. 1,01,220.00 was left unpaid.
Mr. Bhikary Ram could not pay it and on the 5th February 1956, he wrote a letter to the assessee, promising therein that he would pay up the entire balance amount by 31st March 1956. But that promise also failed, and no payment was made. Ultimately, therefore, in the accounting year 1958-59 this sum of Rs. 1,01,220 was written off as a bad debt, and in the corresponding assessment year 1959-60 a claim was made by the assessee that this amount should be allowed as a deduction under Section 10 (2) (xi) of the Income Tax Act, 1922. The Income Tax Officer did not accept the claim and directed that-
'It is not a bad debt, but business loss for the years 1950-51 to 1953-54 which could not be allowed this year; as such it is added back to the total income of the assessee.'
4. In appeal, the Appellate Assistant Commissioner upheld that order. The conclusion come to by the Appellate Assistant Commissioner was that-
'The transactions have all the characteristics of being a business undertaken and carried on by appellant with Mr. B. Ram working as a working partner. The advances made in this business were not debts at all, made in the course of the appellant's money-lending business. No allowance can be claimed under Section 10 (2) (xi) unless the debts are in respect of and incidental to the business, profession, or vocation of an assessee, and unless loans are made in the ordinary course of banking or money-lending business. Since the amount claimed to be recoverable was not a loan made in the ordinary course of the appellant's money-lending business, the claim is clearly untenable and the Income Tax Officer was fully justified in refusing to allow it.'
The second appeal before the Income Tax Appellate Tribunal also met with the same fate. He found that-
'The appellant had entered into a joint venture with B.Ram to supply the Orissa Government Press with stationery articles. The nature of the transactions leads to the conclusion that the appellant would be entitled to claim a set-off of that loss in the respective years in which the loss occurred. As that particular business had ceased long ago the authorities below were right in disallowing the appellant's claim for a set-off of the amount of Rs. 1,01,220 from its income, from the money-lending business in the assessment year 1959-60.'
This led to the application made by the assessee for reference under Section 66 (1) of the Income Tax Act, 1922. The Tribunal by the order dated 18th May 1963, dismissed this petition as well and held that-
'The Tribunal's decision is based on findings of fact and no question of law could be said to arise out of the said order of the Tribunal.'
Thereupon, the assessee came to this Court for reference under Section 66 (2) of the Income Tax Act, 1922. This Court, by its order dated 23rd July 1964, allowed this application and held that the aforesaid question of law arose out of the Tribunal's order dated 18th May, 1963. Thus, the matter is now before this Court.
5. In the statement of the case made by the Tribunal, it is stated that-
'The Income Tax Officer stated that though no formal documents were executed between the assessee and B. Ram, there was an oral agreement to the effect that B. Ram will pay interest on the amounts borrowed and also share certain percentage of the profits of the business in supplying stationery articles to the Orissa Government Press.'
This finding has not been challenged before us. Further the admitted case of the assessee before the Department, as found by the Tribunal, was that-
'Tenders in respect of the contract for the supply of stationery articles to the Orissa Government Press were submitted by the assessee firm and that the contract was obtained by the assessee in its own name.'
And also that--
'bills were submitted to the Government in the name of the assessee.'
5-A. Further, it is also not disputed by Mr. Narasaraju appearing for the assessee, that there is no entry made in the accounts showing that the bills were ever submitted to the Government in the name of Bhikary Ram, or that there was any attempt made for the realisation of the unpaid dues from him through Court. Lastly, though-
'there was an oral agreement to the effect that B. Ram will pay interest on the amounts borrowed and also share certain percentage of the profits of the business in supplying stationery articles to the Orissa Government Press'
the assessee has not produced any part of those accounts whereunder the percentage of the profits of the business was distributed between the assessee and B. Ram.
6. Therefore there is no scope for the contention that the finding of fact given by the Appellate Tribunal to the effect that 'the advances were not at all made in the course of the appellant's money-lending business' is based on no evidence. In that view of the matter the loss of Rs. 1,01,220 cannot be held to be a bad debt, under the latter part of Section 10 (2) (xi) of the Income Tax Act, 1922, which has been relied upon by the assessee in support of his claim. The first part of the question is therefore answered in the negative. And this, in our opinion, is by itself sufficient to dispose of the entire reference. The other part of the question is nothing but the repetition of the first in the opposite form; or, to put it differently, the two parts of the question are mutually exclusive and nave been put in the alternative form only to emphasise the main point involved in the case.
7. It has, however, been contended by Mr. Narasaraju that it is the finding relating to the second part of the question which has been used by the Tribunal as the basis for holding against the assessee on the first part of the question. Therefore, unless the reasons given by the Tribunal in support of the finding as to the second part of the question are not found to have been correctly arrived at in accordance with law, the finding as to the first part of the question has also to go and as such that finding by itself is not sufficient to dispose of the reference.
In this connection the main submission made by Mr. Narasaraju is that in coming to the conclusion that the aforesaid amount of Rs. 1,01,220 was a business loss in the respective years during which the loss occurred, the Tribunal mainly proceeded on the assumption that the business was a partnership business between the assessee and Bhikary Ram, though the essential elements necessary to constitute such a concept, under the Partnership Act, are not present on the record. As such it has been contended that the finding given by the Tribunal as to the second part of the question is perverse and unsustainable in law; and if that finding is found vitiated the finding as to the first part of the question must also fall to the ground.
8. In our opinion, the submission made by Mr. Narasaraju is not correct. The Tribunal has not proceeded on the assumption that there was any partnership between the assessee and Bhikary Ram, as contemplated by the Partnership Act. All that it has found is that as between the assessee and Bhikary Ram; there was some arrangement made in consideration of the latter's working as a working hand, for sharing the profits of the business and not that the business was a partnership business. Thus, the finding of the Tribunal even as to the second part of the question, namely, that the aforesaid loss of Rs. 1,01, 220 was incurred in the course of the business is also as much a finding of fact as the one given in regard to the first part of the question, and does not involve any question of law. Accordingly the second part of the question is answered in the affirmative.
The reference is disposed of accordingly. Hearing fee is assessed at Rs. 250 (Rupees two hundred and fifty only).
9. I agree.