JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has under Section 256(1) of the Income-tax Act, 1961, referred the following questions for the opinion of this court :
"(1) Whether, on the facts and circumstances of the case, the sum of Rs. 1,34,667 is an allowable deduction under Section 36(1)(vii) and/or Section 37(1) of the Income-tax Act, 1961, in the present assessment year 1960-61 ?
(2) Whether the decision of the Tribunal rejecting the claim for deduction of Rs. 1,34,667 is vitiated by consideration of irrelevant material and a failure to consider the relevant material and facts ?
(3) Whether the decision of the Income-tax Appellate Tribunal is vitiated by taking reliance upon the Tribunal's decision in the assessment year 1961-62, which was given in connection with a different matter under entirely different facts and circumstances ?"
2. The aforesaid questions are stated to arise out of the Tribunal's order dated April 22, 1978, in I. T. A. No. 2001 (All) of 1971-72 for the assessment year 1960-61.
3. We have heard Sri R.S. Agarwal, learned counsel for the assessee, at whose instance this reference has been made and Sri A.N. Mahajan, learned standing counsel for the Commissioner.
4. The assessee-company was engaged in the business of manufacture and sale of sugar. There was another company by the name of Padrauna Raj Krishna Sugar Works Ltd. which owned a sugar mill. There were some arrears of public dues against that company for the realisation of which its sugar mill was sold in an auction which was held on November 8, 1955. The present assessee was the highest bidder for a sum of Rs. 26,00,000. The bid money was deposited by it on November 9, 1955. The owners of the said sugar mill challenged the auction sale in some legal proceedings and the Government of India appointed an authorised controller to ensure that the mill was run and the labourers and farmers were not put to inconvenience. One Sri T.D. Mundhra was appointed an authorised controller who operated the mill up to July 4, 1956, on which date the mill was handed over to the purchaser, i.e., the present assessee. For the running of the said mill, the authorised controller needed money and the present assessee advanced various amounts totalling Rs. 51,11,876 and was receiving back the amounts received by the authorised controller by way of sale proceeds of sugar, etc. Ultimately, there was a short-fall of Rs. 1,34,665 as on October 31, 1959, which the assessee claimed as a bad debt for the assessment year 1960-61, the accounting year for which had ended on October 31, 1959. This claim was disallowed by the Assessing Officer on the ground that the resolution of the board of directors of the assessee-company was passed on April 14, 1960, i.e., after closing of the accounting year, and, therefore, this alleged bad debt could not be allowed and that the same was not proved to have become bad in this year.
5. The assessee appealed to the Appellate Assistant Commissioner who came to the conclusion that the appellant company had advanced Rs. 20,00,000 to the authorised controller on a promissory note and regular transactions took place between the assessee and the authorised controller and the advance of Rs. 20,00,000 was in connection with the appellant's business so that the said mill should run properly and the investment of Rs. 26,00,000 made for the purchase of the assets of the mill was in jeopardy. The Appellate Assistant Commissioner was of the opinion that the short fall is a capital loss.
6. The assessee then carried the matter to the Tribunal who found that the authorised controller was managing the sugar mill on behalf of its true owner, namely, the assessee-company, and, therefore, there was no relationship of creditor and debtor between the assessee-company and the authorised controller. The amount in question could not be treated as a debt.
7. The Tribunal in its order has reproduced an extract from the note submitted by the assessee to the Income-tax Officer in relation to the aforesaid contention which is as under :
"After the purchase, the legal position was that we had purchased the properties and deposited the amount of sale consideration. The plant and machinery had not been over-hauled and it was not possible to work the factory. An authorised controller was proposed to be appointed that we were asked to nominate someone, but on our resistance the collector held out a threat that if we did not nominate one of us, he will have to nominate another person, and we should realise that he being not interested in the purchase of these properties, the factory may be worked to our detriment. We consequently agreed to the appointment of Shri T.D. Mundhra as authorised controller, and the Government of India, vide their notification dated November 25, 1955, appointed Shri T.D. Mundhra as authorised controller for Padrauna Raj Krishna Sugar Works Ltd., Distt. Deoria, a copy of which notification is attached hereto.
Now after the appointment of Shri T.D. Mundhra, the question arose as to how to obtain finances to operate the factory. Title over the properties, comprising the block of sugar factory, was in dispute because we were the auction purchaser, but the sale had not been confirmed in our favour and any confirmation of sale, under the law, would relate back as from the date of auction sale. The previous owners had, therefore in fact lost title over the properties, but retained it for themselves under the law only because no properties can remain for a day without an owner.
Under these circumstances, no bank was prepared to advance any amount to Padrauna Raj Krishna Sugar Works Ltd. of which Shri T.D. Mundhra was the authorised controller. The State Bank and the Govern ment of India were always insisting that the factory must be started. A threat was also held out about cancellation of the authorised controller-ship of Shri T.D. Mundhra and for the appointment of another authorised controller by the Collector of Deoria. Under these circumstances, in the interest of safeguarding our valuable properties, purchased at the court auction, Cawnpore Sugar Works Ltd. agreed to advance to Padrauna."
8. A perusal of the aforesaid note confirms the view taken by the Tribunal that it was in the interest of its business that the assessee co-operated for the running of a sugar mill through the authorised controller and it was receiving a sale price of sugar and reimbursing the various expenses incurred by the said authorised controller although initially a sum of Rs. 20,00,000 was advanced but subsequently various other amounts were also advanced during the course of the business and the total amount came to Rs. 51,11,876. The assessee received Rs. 35,94,050 and Rs. 15,56,323 on various dates. Therefore, it could not be said that any particular amount had not been recovered.
9. We do not find any legal error in the Tribunal's conclusion that the aforesaid sum of Rs. 1,34,667 was not allowable either as a bad debt or as an expenditure in computing the income for the assessment year 1960-61. We also find that the Tribunal has neither considered any irrelevant material nor has failed to consider the relevant material facts on record. As regards question No. 3, we find that the Tribunal has recorded an independent finding about the allowability of the claim of Rs. 1,34,667 and its reference to the decision for the assessment year 1961-62 has not vitiated its findings.
10. For the above reasons, we answer all questions in the negative, i.e., against the assessee and in favour of the respondent.