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Issues:
1. Determination of whether an irrecoverable debt was a capital loss or a revenue loss. Analysis: The High Court of Calcutta was tasked with deciding whether an irrecoverable debt claimed as a bad debt by an assessee was a capital loss or a revenue loss. The case involved an assessee who had claimed a bad debt of Rs. 2,15,751 related to interest on a loan advanced to Thakur Paper Mills Ltd. The Assessing Officer and the Commissioner of Income-tax (Appeals) held that the debt had not become bad in that year or, if at all, it could be considered a capital loss. The Tribunal also viewed it as a capital loss. The core issue revolved around whether the debt had indeed become bad and the nature of the loss incurred. The counsel for the assessee argued that the loan was assigned to Sterling Investment and Trading Co. for full and final settlement, supported by documentary evidence of the assignment. The counsel relied on precedents to establish that the debt should be considered a bad debt. On the other hand, the Revenue's counsel contended that since the loan could be recovered by Sterling Investment and Trading Co., the debt had not become bad and was rightly disallowed. The counsel further argued that the loan, once assigned, had taken the character of a capital asset. The High Court acknowledged that determining whether the debt had become bad was a question of fact but emphasized that if the finding was perverse, it could be challenged. The court examined the facts, including the assignment of the loan and the unrecovered interest, to ascertain the nature of the loss. Referring to legal precedents, the court highlighted that a debt could be considered bad even without legal proceedings for recovery and emphasized the subjective assessment of the debtor's financial position to determine bad debt. Ultimately, the High Court concluded that the interest loss claimed by the assessee should be treated as a revenue loss, not a capital loss. The court criticized the Tribunal's decision to categorize the unrecovered interest as a capital loss, stating that the character of the loan did not change merely due to its assignment. Therefore, the court ruled in favor of the assessee, holding that the interest loss was a revenue loss. The judgment disposed of the reference accordingly, directing all parties to act based on the court's decision.
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