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Roop Narain Ram Chandra vs Addl. Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|29 January, 1976


1. The Income-tax Appellate Tribunal, Allahabad, has under Section 256(1) of the Income-tax Act, 1961, referred the following question for our opinion :
"Whether, on the facts and in the circumstances of the case, the claim for deduction of Rs. 3,00,114 was admissible under Section 36(1)(vii)/ 36(2)(ii)/41(4) of the Income-tax Act, 1961, in the present assessment ?"
2. The assessee was the sole selling agent of Messrs. Elgin Mills Company Ltd. and Messrs. Kanpur Textiles Ltd. In the accounting year corresponding to the assessment year 1959-60, the assessee claimed a deduction of Rs. 3,00,114 as bad debt. The basis of the claim were these. An amount of Rs. 3,00,114 was advanced by the assessee to Sri Brahmaputra Tea Company (India) Ltd. on September 13, 1957. In the immediately preceding year, the assessee had advanced an amount of Rs. 2,50,000 to Messrs. S. B. Industrial Development Company (P.) Ltd., Calcutta, and Rs. 50,000 to Messrs. F. & Cosier (India), Calcutta, and a further amount of Rs. 5,40,000 to this party. These amounts were claimed as bad debts in the assessment year 1958-59.
3. The Income-tax Officer did not accept the claim on the ground that the assessee had not been carrying out any banking or money-lending business, and as such it could not be said that the money had been advanced during the course of business. That decision was upheld for the assessment year 1958-59 by the Tribunal as well. In the present assessment, the Income-tax Officer took the same view and did not accept the assessee's claim. An appeal filed by the Appellate Assistant Commissioner failed. The assessee thereafter filed a second appeal before the Tribunal.
4. Before the Tribunal, it was urged that the amount had been advanced on September 13, 1957, and the amount was written off on June 19, 1958, i.e., on the last date of the relevant previous year. According to the asses-see, it had been earning commission on sale of the goods manufactured by the mills, which was under the control of Sri Mundra, and in order to please him, as a matter of commercial expediency, it had to advance the loin to Sri Brahmaputra Tea Company (India) Ltd. A suit for recovery of this amount was filed on April 1, 1960, before the High Court at Calcutta. The suit was decreed bat the amount could not be realised as the company went into liquidation. It was urged that as such the amount in question should be allowed as a trading loss. It was also urged that under Articles 12 and 16 of the memorandum of association of the assessee-company, it was permitted to do money-lending business, and this advance could be treated as having been made for money-lending purposes. It was pointed out that in the year 1962-63, the assessee received an income of Rs. 1,41,863 which was taxed and it also paid interest at Rs. 2,58,083 which was debited in the books. The Tribunal found that although under the memorandum of association, the assessee could start money-lending, it had not been shown that before advancing that money, the assessee had passed any resolution authorising it to start such business, and neither had the assessee obtained any licence for carrying on money-lending business, and hence it could not be held that the money was advanced during the course of such money-lending business. It also held that there was nothing on the record to indicate that the money had been advanced on the request of Sri Mundra or Sri Brahmaputra Tea Company (India) Ltd. It found that there was no contemporaneous document to support the advance or to show the circumstances under which it was made. Neither was there anything to indicate when it was payable. It found that, in these circumstances, it could not be said that the debt had become bad during the year of account, specially so in view of the fact that the debt was written off only after nine months. It also found that the mere fact the debtor-company had gone into liquidation was not itself proof of the fact that the debtor-company did not have any assets to pay the amount, and neither had it been shown by the assessee that any steps were taken before the liquidator for realising the money. It also found that the advance had not been made in connection with any other business which the assessee had been carrying on and as such it could not be taken as a business loan. Neither could it be said that it was justified by business expediency.
5. On the findings recorded by the Tribunal, we are unable to see how the loss in question could either be claimed as a business loss or a trading loss or a loss which occurred in the course of the assessee's money-lending business. The finding of fact recorded by the Tribunal is that the assessee was not carrying out any money-lending business, and that the amounts in question were not given for the purpose of the assessee's business or on considerations of business expediency, not having been challenged by any appropriate question to this effect, an answer in favour of the assessee cannot be entered in this reference. Further, the Tribunal has found as a fact that the debt in question had not become bad or irrecoverable in the year of account. This completely demolishes the petitioner's claim to claim this amount as bad debt.
6. In view of our conclusions above, we answer the question referred in the negative, against the assessee and in favour of the department. The department is entitled to its costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.
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Roop Narain Ram Chandra vs Addl. Commissioner Of Income-Tax


High Court Of Judicature at Allahabad

29 January, 1976
  • C Singh
  • R Sahai