1. This is a reference under Section 66(1) of the Income-tax Act, 1922. The assessee is a Hindu undivided family. This family carried on various business including money-lending. The year of assessment in question is 1953-54. The assessee was a partner in a firm styled Kaniram Jankidas of Daltonganj in which the assessee's share was 0-12-0 while that of the other partner was 0-4-0. Pending this partnership, the other partner Ramniranjan Kejriwal, withdrew from time to time certain amounts of money. Evidently he withdrew more money than what he was then entitled to on his own share. It may be that the sums the said partner withdrew from the said firm did constitute no debt on the dates of withdrawal. The said partner did not become on those dates a debtor either to the firm or to the other partner ; but the firm was dissolved during the year ending on 20th October, 1949.
2. Accounts were then taken of the said firm and it was found that Ramniranjan Kejriwal had withdrawn a sum of Rs. 52,903-14-0 in excess of what he would have been entitled to withdraw and, therefore, this sum was found due to the assessee during the year which ended on the 20th October, 1949. On the next date, that is, on the 21st October, 1949, in the money-lending books of the assessee kept in Calcutta, Ramniranjan Kejriwal was debited with this amount of Rs. 52,903 and odd. There is nothing before us to show whether Ramniranjan Kejriwal agreed to treat this debt as a loan to him. There is no promissory note executed by Ramniranjan Kejriwal in favour of the assessee in lieu of the said debt on accounting amounting to Rs. 52,903. All that appears to us from the records before us is that the assessee unilaterally on 21st October, 1949, debited the same amount of Rs. 52,903 against Kejriwal in his money-lending books. There is nothing before us to show that this Ramniranjan Kejriwal even paid any sum either on account of principal or interest to the assessee at any time but it has been stated that the assessee sought to charge Ramniranjan Kejriwal with interest by debiting him with a further sum of Rs. 3,868 and odd. This was merely in the money-lending books of the assessee but because it was in the money-lending books of the assessee and because it was thus chargeable, income-tax was charged and the department realised tax in two years on the sums charged as interest due to the assessee. It appears that thereafter there was a suit between the parties and an agreement was arrived at and by virtue of that agreement Ramniranjan Kejriwal agreed to pay a sum of Rs. 15,000 and the balance became irrecoverable because no decree was passed for the same.
3. Under such circumstances the assessee claims that the balance, which is Rs. 45,604, should be deducted and he should get allowance undersection 10(2)(xi) of the Indian Income-tax Act, 1922, as a bad or irrecoverable debt.
4. When the matter came up before the Income-tax Officer, the Income-tax Officer was of opinion that it was no bad or irrecoverable debt in course of the money-lending business of the assessee. The Income-tax Officer relied upon the fact that the original liability of Ramniranjan Kejriwal to the assessee arose because certain amounts were overdrawn and because on accounting that money was found to be due to the assessee and there was no lending by the assessee to Ramniranjan at the initial stage. An appeal was filed by the assessee. The appeal was allowed. According to the appellate officer, both the appellant and the department treated the said sum as investment because it was transferred to the money-lending account and because income-tax was realised. The Appellate Assistant Commissioner found that it was no capital investment ; after the decree the amount became irrecoverable and therefore he allowed the deduction under Section 10(2)(xi) of the Indian Income-tax Act. The matter then went before the Tribunal as the Income-tax Officer preferred an appeal before the Tribunal. The Tribunal considered the facts of the case in Commissioner of Income-tax v. R. S. A. Sankara Ayyar, : 20ITR597(SC) .and it held that, in view of the decision of the Supreme Court in Commissioner of Income-tax v. R. S. A. Sankara Ayyar at page 601, as the amount was entered into the money-lending account of the assessee, the amount should be considered to be a loan as if advanced by the assessee to Ramniranjan and on that view of the matter the Tribunal dismissed the appeal. Against that order of the Tribunal the Commissioner of Income-tax applied for a reference to this court and the matter has been referred to this court where the question for reference is as follows :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 45,605 was not a capital loss but was allowable as a bad debt of the money lending business under Section 10(2)(xi) of the Indian Income-tax Act '
5. Before we enter into the question itself, some doubt has been raised by Mr. Jyotish Chandra Pal as to the meaning of the question referred to. According to Mr. Jyotish Chandra Pal the phrase 'capital loss' refers to the ' capital loss of the money-lending business'. Therefore, according to him the question for decision is :
' Whether there was a capital loss in the money lending business or there was a bad debt in the money lending business ?'
6. We, however, do not agree because we find that before the Income-tax Officer as well as before the Tribunal and at all stages of the proceedings the case of the department was that it was a capital loss in thepartnership business of the assessee with Ramniranjan. The department's case was that the money due to the assessee on accounting would be due with respect to that partnership business and has nothing to do with the money-lending business and therefore it was a capital loss of the partnership business and not of the money-lending business. The order of the Income-tax Officer, the order of the appellate officer and the order of the Tribunal make it clear that none of them ever had in mind the question as to whether it would be a capital loss of the money-lending business of the assessee. Therefore, we propose to consider the question as framed in the light of the observations made aforesaid.
7. The assessee claimed deduction under Section 10(2)(xi) of the Income-tax Act. His claim was that the amount Rs. 45,604 became irrecoverable during the assessment year and he was, therefore, entitled to deduction. Section 10(2)(xi) provides that:
'......in the case of an assessee carrying on a banking or money-lending business, such sum in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee.'
8. Hence, the question for consideration is whether the sum of Rs. 45,604 became irrecoverable ' in the ordinary course of money-lending business '. It is clear from the facts stated aforesaid that originally Ramniranjan Kejriwal did not borrow any money from the assessee but Ramniranjan and the assessee were the partners of a firm and Ramniranjan withdrew sums which could not be considered at the dates of withdrawal to be a debt owing either to the partnership or to the other partner but subsequently when the firm was dissolved and accounts were taken it was found that Ramniranjan Kejriwal owed a sum of about Rs. 52,903 to the assessee. The sum at that stage during that year became a debt. The next question is how did this debt become a part of the money-lending business of the assessee. It is true that a liability originally of the nature of a debt on accounting could, by virtue of operation of law or by act of parties, become a loan. Therefore, as a legal proposition it could not be . said that the said amount could never become a loan but the question is whether this amount which was money due on accounting became a loan advanced by the assessee to Ramniranjan at any stage either by act of parties or by operation of law.
9. Mr. J. C. Pal says that there were certain facts before the income-tax authorities and the Tribunals below; on those facts the authorities came to a conclusion that this debt subsequently became a loan in the money-lending business. According to Mr. J. C. Pal, the factors which were present were that Ramniranjan Kejriwal became liable to the assessee forpayment of a certain sum. That sum was transferred to the money-lending account of the assessee. Thirdly, income-tax was charged on the amount of interest noted in the books of account. Fourthly, a suit was brought by the assessee against Ramniranjan and the matter was settled at Rs. 15,000 and finally the balance of the money due became irrecoverable. From these facts, Mr. J. C. Pal says, the authority below came to a conclusion on a mixed question of fact and law as to whether the debt on accounting had become by act of parties and by operation of law a loan and a part of the money-lending business of the assessee. The Tribunal has accepted the view that it became a loan for the reason that it was transferred to the money-lending account; and further because income-tax was paid on interest. The Tribunal has referred to a decision of the Supreme Court in the case of Commissioner of Income-tax v. Sankara Ayyar. The facts of that case are:
A partnership advanced- certain money to a debtor ; thereafter, by a mutual arrangement between the partners without any reference to the debtor, the loan was divided as between the partners. The question was, could it become a loan advanced by the assessee without a tripartite agreement. In the circumstances of that case there were two partners on one side and the borrower on the other, the contract was made by these three persons and it was urged that the contract could not have been varied in any manner by any one or two of the contracting parties--if the contract was required to be varied it could have been varied only by a tripartite agreement. Against that background the observation of the Madras High Court and the Supreme Court was that there was an usage in Madras where money-lenders, without reference to the debtors used to distribute their fund as between themselves and that was a matter of usage in Madras and therefore the Madras High Court and also the Supreme Court, in the circumstances of that case, found that the loan which originally was due to the partnership could by such act of the creditors only become a loan payable to each of the partners separately. In the circumstances of this case, there is no evidence of any usage or practice by which the debtor will become a borrower by merely transferring to another account. Secondly, the original transaction between the partnership and the borrower in the case of Sankara Ayyar was a loan transaction. The question was whether this loan by joint creditors could be distributed as between creditors separately without reference to the debtor but, in the circumstances of the case before us, the original nature of the transaction was not a loan at all. It was formerly one partner taking money from the partnership. Later on, on dissolution, one partner was liable to anotherpartner on accounts and this liability on accounts could have been converted into a liability for a loan if the contracting parties had so elected. But there is nothing to show that the other party, namely, Ramniranjan Kejriwal, at any stage did anything by which it could be said that Ramniranjan and the assessee came to an arrangement by which the original debt on accounting would be deemed to have been paid off and a new relationship of lender and borrower would arise between the parties because of an agreement between themselves. There is no evidence like that. A debt on accounts may give rise to a loan if both the parties so agree. We have absolutely no evidence regarding what did Ramniranjan do in the matter. The Tribunal below did not come to any finding of fact on the evidence before them as urged by Mr. Jyotish Chandra Pal. They followed merely the judgment of the Supreme Court in Commissioner of Income-tax v. R. S. A. Sankara Ayyar, where the circumstances appeared to be similar ; the transaction in that case was a loan at its inception and there was a practice or usage in Madras where the creditors could separate a joint loan into separate loans by act of the creditors without reference to the debtors. Therefore, the proposition which was established by the Supreme Court could not have been applied to the facts of the case before us. Here the original transaction was not a transaction of a loan. Secondly, there is no practice, usage or custom known in Bengal or in Bihar where such an accounting liability could be converted into a liability as loan without reference to both the parties by merely including it in the money-lending book. A liability arises because of the act of the parties and unless those parties agree or unless there is specific provision in the law, the character of the liability remains as it is and there is no evidence which would show that the character changed at any point of time. We are, therefore, of opinion that the Tribunal below was not right in applying the principle in Commissioner of Income-tax v. R. S. A. Sankara Ayyar to the facts of this case because the facts are completely different.
10. It is next urged that the department realised taxes for two years. Having realised taxes on the interest stated to have become due on the aforesaid sum the department cannot now turn round and say that it was no loan at all and what they realised was not tax on interest on loan. It is true that a Tribunal may be authorised by law to determine a matter finally. If a Tribunal is authorised by law to determine a matter finally and parties may raise a dispute before such a Tribunal and if that Tribunal allows both the parties to adduce such evidence as they think fit and proper and if after consideration of such evidence and having considered the case of each side the Tribunal decides a dispute in a particular manner, it may be that no other Tribunal would be authorised to disturbthat finding except on fresh evidence or on grounds of fraud. The question before us is whether the transaction which was ' money due on accounting ' did become ' money due on loan '. There is no provision in the Income-tax Act which authorises the income-tax authorities to determine that matter finally. But none the less the authorities under the Income-tax Act may have to determine that matter for the determination of a party's liability for tax or for the claim of deduction or for exemption. If such questions arise before the Tribunal for such purposes the Tribunal may determine those matters or such other matters but such a determination would therefore be a decision which is incidental to the main determination, viz., whether a party is liable to be taxed or whether a party is entitled to some deduction or whether a party is entitled to some exemption or not. So far as the facts of this case are concerned, it may be that the Tribunal, viz., the Income-tax Officer was authorised by law to determine this matter incidentally for the purpose of the proceedings before the income-tax authorities. But then there is nothing before us to show that when the department realised taxes for two years on the interest any dispute was raised by anybody. There is nothing before us to show that the parties had any opportunity to adduce full and complete evidence on the matter. There is also nothing to show that the Income-tax Tribunal at the earlier stage did decide that dispute at all. Merely because tax was realised it may be said that the sum was reated as loan and the amount was treated as interest but it cannot be said that the amount was found by the Income-tax Officer to be interest nor can it be said that the amount due was found by the Income-tax Officer to be loan. We have been referred to a judgment of the Bombay High Court where it has been said that ordinarily the doctrine of estoppel may not apply to decisions of the Income-tax Tribunal but there are certain limitations. There may be limitations but the question whether it was loan or not, not being raised specifically before the Income-tax Officer at the earlier proceeding and no dispute being raised, there was no occasion for him to decide the said question ; no question of any limitation to the doctrine of estoppel would arise. Therefore, if tax on the interest had been realised by the department wrongly, the assessee may have other remedies but the mere fact of such realisation is no evidence of a dispute being raised or of a dispute being decided. Hence this point is overruled. The next point is that the department cannot blow hot and cold. The assessee stated that he had earned certain income and on that admission, without more, the department realised the tax. If the department realised it wrongly the assessee may realise it back righty but that is another matter. The department made no representation to the assessee at any stage; the doctrine of blowing hot and cold does not apply becausetax was realised on the statement of the assessee itself. Hence the realisation of the taxes for two years does not entitle the assessee to say that the question as to whether the debt on accounting was converted into a loan or not has been finally determined between the parties. Hence we cannot say on the materials before us that there was any loan and hence the sum of Rs. 45,604 could not become irrecoverable nor could it become a bad debt in the ordinary course of money-lending business of the assessee. The unilateral act of the assessee in including the sum due on accounts into the money-lending books of the assessee is not sufficient to hold that it did become a loan to Ramniranjan without anything being done by Ramni-ranjan. We, therefore, answer the question in the negative. In view of the special circumstances of the facts we direct that each party will bear its costs.
Sankar Prasad Mitra, J.
11. I argee.