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Commissioner of Income-tax, Bihar and Orissa Vs. Lakshmi Kant Jha and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported in(1972)4SCC464a; 1971(III)LC759(SC)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantCommissioner of Income-tax, Bihar and Orissa
RespondentLakshmi Kant Jha and ors.
Cases ReferredMaharajadhiraj of Darbhanga v. Commissioner of Income
Excerpt:
.....bad debts in respect of some of the assets transferred to the assessee at a valuation of rs. 10,55,025/-as bad debt being in the nature of irrecoverable loan of the assessee's money-1ending business......statement.2. the statement of the case relates to the assessment year 1957-58. for this assessment year, the assessee changed his previous year into the financial year, and consequently, the previous year for the present assessment year covered a period of 18 months ending on 31-3-1957 the assessment has been made in the status of individual.3. the assessee succeeded to the impartible estate of the darbhanga raj after the death of his father, sir maharaj dhiraja rameshwar singh, on 3rd july 1929, during his lifetime sir maharaja dhiraja rameshwar singh carried on extensive money lending business.4. for the assessment year 1929 30, the question arose whether the assessee succeeded to the money lending business of his father with the meaning of section 26(2) of the income-tax act, as it.....
Judgment:

K.S. Hegde, J.

1. The question of law which we have to consider in this appeal by certificate is 'whether on the facts and circumstances of the case, the sum of Rs. 10,55,025/-due from Kunwar Ganesh Singh was allowable as a bad debt Under Section 10(2)(xi) of the Income-tax Act'. Both the Tribunal as well as the High Court has held against the department on the paint in issue.

2. The facts of the case are fully set out in the Statement of the case submitted by the Tribunal to the High Court. It is sufficient to extract the facts as set out in that statement.

2. The statement of the case relates to the assessment year 1957-58. For this assessment year, the assessee changed his previous year into the financial year, and consequently, the previous year for the present assessment year covered a period of 18 months ending on 31-3-1957 The assessment has been made in the status of individual.

3. The assessee succeeded to the impartible estate of the Darbhanga Raj after the death of his father, Sir Maharaj dhiraja Rameshwar Singh, on 3rd July 1929, During his lifetime Sir Maharaja dhiraja Rameshwar Singh carried on extensive money lending business.

4. For the assessment year 1929 30, the question arose whether the assessee succeeded to the money lending business of his father with the meaning of Section 26(2) of the Income-tax Act, as it then stood. The assessee contended that he did not succeed to the business and the Revenue held to the contrary. The matter was agitated right up to the Privy Council in the case reported as Maharajadhiraj of Darbhanga v. Commissioner of Income-tax (1934) 2, I.T.R. 345. Their Lordships of the Privy Council held that the assessee succeeeded to the money lending business which had been carried on by his father in his life-time.

5. By a registered deed dt. 4-8-1921, the assessee's father Maharajadhiraja Sir Rameshwar Singh (hereinafter referred to as the Maharajadhiraja) entered into an agreement with one Kunwar Ganesh Singh (hereinafter referred to as the debtor) to open a firm or 'gaddi' under the name of 'Sadhashiva Vishwanath' at Calcutta to do ready and forward transactions in gunnies hessians, linseed, jute etc and also for dealings in stocks and shares. In this agreement, the Maharajadhiraja was styled as the principal and the Debtor as the agent.

6. The business of 'Sadashiva Vishwanath' was apparently started as a partnership business, in which the debtor was to be the working partner entitled to /3/-share. The Maharajadhiraj supplied all the funds and the accounts of the Maharajadhiraja showed advanced aggregating to Rs. 32,30,000/-as under:

31-8-1621 To Kunwar Ganesh Singh Rs. for starting a Guddee for ready and forward transactions in various goods, import of goods and dealings in shares. 2,50,000/-17-9-1921 To Kunwar Ganesh Singh for dealings in shares 1,50,000/-' For starting a Guddee sty-led Sadashiva Vishwanath 2,00,000/-' To Kunwar Ganeshsingh for Guddi and other business 4,50,000/-Between 29-12-1921 And 30-5-1922 By transfer from various banks 10,50,000/-27-10-1922 For Howrah Jute share 2,00,000/-2-11-1922 Kunwar for jute shares 4,00,000/-30-11-1922 To Kunwar by transfer from banks 5,00,000/-Total : 32,00,000/-

7. The debtor, did not act up to the agreement and special efforts were made in 1923 to collect as much as possible from him. Between 1924 and 1925 several agreements were entered into, and later on, the Maharajadhiraja was recognised to be the sole owner of the business of Sadashiva Vishwanath.

8. On 30 4-1925, the debtor executed a registered document admitting his indebtedness to the Maharajadhiraja to the extent of Rs. 38,09,571/8/-, and in part satisfaction thereof, transferred to the Maharajadhiraja various assets valued at Rs. 20,74,973/-The debtor had also earlier executed two pronotes for Rs. 25,000/-each. In pursuance of the registered deed dated 30-4'1925 the debtor executed a promissory note for the balance of Rs. 16,84,596/1/5 which was to carry interest at the rate of 9% per annum. The sum of Rs. 16,84,596/1/5 itself included interest of Rs. 6,09,571/-due from the debtor on the original advance of Rs. 32,00,000/-while the balance represented the outstanding amount out of the original advances aggregating to Rs. 32,00,000/-.

9. In the year 1925, the assessee's father brought a suit in the Calcutta High Court against the debtor for Rs. 16,84,596/-. A decree was obtained on 14-3-1927 for Rs. 17,78,476/-inclusive of further accrued interest of Rs. 93,835/-. A part of the debt was realised and a sum of Rs. 16,64,596/-remainted unrealised as due from the debtor. The assessee wrote off the sum of Rs. 16,64,596/-in the accounting year and claimed the same as a bad debt arising in his money-1ending business.

10. The Income Tax Officer disallowed the claim of Rs. 6,09,571/-on the ground that it represented interest pertaining to the original advance of Rs. 32,00,000/-and not connected with the claim of irrecoverable loan in question. As regards the balance of Rs. 10,55,025/-the Income Tax Officer held that it did not relate to the money-1ending transactions of the assessee. Extract of Income Tax Officer's order (pages 8 to 11) is annexed hereto as Annexure 'A'.

11. On appeal, by an elaborate order, the Appellate Assistant Commissioner upheld the disallowance. Extract from Appellate Assistant Commissioner's order (paragraphs 20 to 26) is annexed hereto as Annexure 'B'

12. The matter came up in second appeal before the Tribunal. For the detailed reasons discussed in its order (paragraphs 1 to 26) the Tribunal allowed the claim of Rs. 10,55,025/-as bad debt and negatived the claims in respect of Rs. 6,09,571/-representing interest.

13. Though under the agreement dated 4-8-1921 the assessee's father had entered into a partnership business with the debtor, it was submitted that the Maharajadhiraja converted the entire transactions into one of loan to the debtor, and the relationship of partner into one of creditor and debtor, on the footing that the entire transaction was a loan. Claims of bad debts in respect of some of the assets transferred to the assessee at a valuation of Rs. 20,74, 973/-(in connection with the very transaction), and the legal expenses in connection therewith, had come up before the High Court and the Privy Council. The decisions proceeded on the footing that the assessee was a money-1ender, and that the assets in question had been acquired in the course of the money-1ending business on account of loan of Rs. 32,00,000/-made to the debtor. The tribunal, therefore, agreed with the submission of the learned Counsel for the assessee that at this distance of time, it was not open to the Tribunal to disturb the finding that the whole of the sum of Rs. 32,00,000/-represented money lending advances made by the Maharajadhiraja. The assessee succeeded to the money-1ending business of the father. The Tribunal further held that the assessee continued to carry on the money lending business in the accounting year and allowed deduction of Rs. 10,55,025/-as bad debt being in the nature of irrecoverable loan of the assessee's money-1ending business.'

14. The findings reached by the Tribunal are finding of fact. The High Court also pointed out that they are all findings of fact. This is what the High Court says as regards the findings reached by the Tribunal.

All the questions we have referred above were the question of fact and the Tribunal came to its own findings on those facts It was not as it could not be urged before us that those findings were not based upon the materials or findings of fact.

Strangely enough that even after coming to the conclusion the High Court certified this case to be a fit case for appeal to this Court, Under Section 66A(2) of the Income-tax Act, 1922 The High Court did not give any reason in support of the certificate granted by it. In the ordinary course we would have revoked that certificate and sent back the case to the High Court for giving reasons in support of the certificate. But as we see no merit in this appeal no useful purpose will be served in prolonging this litigation Finding arrived at by the Tribunal are findings of fact. Those findings are based on evidence. Hence neither the High Court could have interfered with those findings, nor can we interfere with the same.

15. In the result this appeal fails and is dismissed with costs.


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