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Issues Involved:
1. Whether a sum of Rs. 55,040 is allowable as a deduction under section 10(2)(xi) or 10(2)(xv) of the Income-tax Act, 1922. Issue-Wise Detailed Analysis: 1. Deduction under Section 10(2)(xi) or 10(2)(xv): The primary issue is whether the sum of Rs. 55,040, written off by the assessee as an irrecoverable debt, is allowable as a deduction under section 10(2)(xi) or 10(2)(xv) of the Income-tax Act, 1922. The assessee, a private company, initially engaged in transport operations, shifted to body-building during the relevant accounting year. The Income-tax Officer disallowed the deduction of Rs. 55,040, arguing it could not be treated as a bad debt under section 10(2)(xi). 2. Advances to Sungo Limited: The assessee had financial transactions with Sungo Limited, a firm with common directors, since 1942. The interest from these transactions was assessed as "business income." By March 31, 1950, the interest due was Rs. 30,172. The assessee waived interest for certain years, and by April 1, 1956, the amount due was Rs. 56,300. The assets of Sungo Limited were sold, and the balance Rs. 55,040 was written off as irrecoverable on March 31, 1957. The revenue contended that these advances were outside the course of the assessee's business. 3. Tribunal's Findings: The Tribunal, referencing a previous judgment, concluded that the advances to Sungo Limited were made in the course of the assessee's business and amounted to a trade debt. The Tribunal noted that both the assessee and Sungo Limited dealt in shares, and past interest had been treated as business income. Consequently, the Tribunal allowed the deduction under section 10(2)(xi). 4. Applicability of Section 10(2)(xv): The court noted that the applicability of section 10(2)(xv) was neither argued nor considered at any stage. Therefore, the focus was solely on section 10(2)(xi). 5. Revenue's Argument: The revenue argued that for a bad debt to be deductible under section 10(2)(xi), it must be such that if realized, it would swell the profits of the assessee. This principle is distinct from money-lending businesses, where the lent amount itself is part of the stock-in-trade. 6. Interpretation of Section 10(2)(xi): Section 10(2)(xi) allows deduction of bad and doubtful debts if they are related to the business and would have swelled the profits if realized. The court emphasized that a deductible bad debt must be of a revenue nature, impacting the profits of the business. The court cited several precedents supporting this interpretation, including Commissioner of Income-tax v. S. R. Subramanya Pillai and Commissioner of Income-tax v. Abdullabhai Abdulkadar. 7. Previous Assessments and Business Profits: The court noted that the interest from advances to Sungo Limited had been treated as business income in previous assessments. This indicated that the debt, if realized, would have swelled the business profits of the assessee. The memorandum of association empowered the assessee to carry on business as financiers, and the advances to Sungo Limited were within this scope. 8. Tribunal's Consideration: The Tribunal had considered whether the debt, if realized, would swell the business profits of the assessee. It found that the interest charged in the past had contributed to the assessee's profits. Conclusion: The court concluded that the debt of Rs. 55,040, written off by the assessee, was allowable as a deduction under section 10(2)(xi). The question under reference was answered against the department, with costs awarded to the assessee.
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