KAPUR J. - The assessment relates to the assessment year 1945-46, the accounting period being October, 1943, to October, 1944. The assessee was a registered firm consisting of three partners, Lal Chand Jain, Mithan Lal Jain and Sunder Lal Jain. The business of the firm was manufacture and sale of bidis. During the accounting period, there were certain disputed between the three partners and, consequently, they decided to divide the territories for the purposes of their business with effect from April 29, 1944. Lal Chand Jain took over Punjab, Jammu and Kashmir area, Mithan Lal Jain was assigned U. P., Delhi and Rajasthan, while Sunder Lal Jain joined hands with Lal Chand Jain and continued to carry on business in the name and style of Seth Lal Chand Jain and Co. It was alleged that the outstanding debts of the firm were realized up to August, 1944, to August 11, 1944. The net loss suffered during the year was divided between the partners in proportion to their shares in the profits and losses of the firm. Though no application was made to the Income-tax Officer for change of 'previous year', which had hitherto been accepted, for the period ending October 17, 1944, yet while filing the return for the assessment year 1945-46, the previous year was shown as the period ending April 29, 1944, being the date on which the partners divided the territories for the purposes of business. A sum of Rs. 27,160 was due from Messrs. Tikkam Das Chaman Lal of Ahmedabad, which, according to the assessee had been acknowledged by the debtor from time to time, the last acknowledgement being in October, 1941. During the period May 19, 1944, to August 11, 1944, a sum of Rs. 4,770 was recovered and the balance of Rs. 22,389 was written off as a bad debts. This amount was claimed as a deduction under section 10(2)(xi) of the Indian Income-tax Act in the assessment year 1945-46. The Income-tax Officer held that the settlement between the assessee and the debtor took place on August 11, 1944, that is, long after the firm had been dissolved on April 29, 1944, and, therefore, the bad debt could not be claimed by the assessee. The Appellate Assistant Commissioner reversed the finding of the Income-tax Officer and, held that the accounting period, relevant for the previous year of the assessment year under consideration, was from October, 1943, to October, 1944, and since the settlement took place between the parties during the accounting period, the bad debt claimed by the assessee was a permissible one. The matter went up in appeal before the Income-tax Appellate Tribunal which by its order dated December 9, 1955, held that the accounting year of the assessee for the purpose of assessment for the assessment year 1945-46 ended on April 29, 1944, and since there was nothing to show that the debt became doubtful or irrecoverable before April 29, 1944, the same could not be claimed as bad debt. In these circumstances the following questions of law have been referred to this court under section 66(2) of the Indian Income-tax Act for decision :
'(1) Whether the Tribunal misdirected itself in considering that the previous year relevant to the assessment year 1945-46 ended on the 29th of April, 1944, for the purpose of allowing deductions under section 10(2) of the Indian Income-tax Act ?
(2) Whether, on the facts and circumstances of the case, the bad debt of Rs. 22,389 being the amount not recovered out of the sum due from Messrs. Tikkam Das Chaman Lal of Ahmedabad, should be allowed as a deduction under section 10(2)(xi) of the Indian Income-tax Act ?'
We are of the opinion that the Tribunal was clearly in error in limiting the accounting period to April 29, 1944. Where an assessee has, in respect of a particular source of income profits and gains, once been assessed, he cannot vary the previous year except with the consent of the Income-tax Officer. Under section 3 of the Act the tax is to be charged in respect of the total income of the previous year which in this case was the period ending October 17, 1944. Merely because the assessee had, may be by mistake, field a return for the period ending April 29, 1944, that would not deprive him of the right to contend that the bad debt relatable to the previous year should be allowed in the assessment for the assessment year in question. In our opinion, there is no warrant for the Tribunals view that the accounting year of the assessee for the purposes of assessment for 1945-46 ended on April 29, 1944. The disallowance by the Tribunal is based merely on the ground that there was nothing to show that the debt became doubtful or irrecoverable on or before April 29, 1944. Since the Tribunal was wring in limiting the period as it did, our answer to both the questions must be in favour of the assessee. We accordingly answer both the questions in the affirmative. D. K. MAHAJAN J. - I agree.
Question answered in the affirmative.