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Issues Involved:
1. Whether the sum of Rs. 20,593 could be treated as advances made by the applicant to the firm in the course of her money-lending business and, hence, was not admissible as bad debt. 2. Whether the amount can alternatively be claimed as a business loss. Issue-wise Detailed Analysis: 1. Treatment of Rs. 20,593 as Advances in Money-Lending Business: The primary issue was whether the sum of Rs. 20,593, being the credit balance in the current account of the assessee in the books of Kaviram and Co., could be claimed as a bad debt. The assessee was a partner in the firm with a 1/5th share in the profits and had a capital contribution of Rs. 5,000. The remaining amount in the current account represented accumulated profits credited over the years. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim, which was confirmed by the Appellate Tribunal. The Tribunal held that there was no relationship of creditor and debtor, and the amount shown in the current account was only an accumulated share of profits. It was not advanced by the assessee to the firm in the course of her money-lending business, and there was no subsequent contract converting the balance into an advance. Therefore, the Tribunal concluded that the assessee was not entitled to claim the amount as a bad debt. 2. Claim as Business Loss: The assessee alternatively claimed the amount as a business loss. The Tribunal rejected this claim, stating that the loss did not arise during the course of the money-lending business. The Tribunal's decision was based on the absence of any evidence showing that the accumulated profits were treated as an advance or loan in the course of the money-lending business. The Tribunal emphasized the distinction between an amount in the current account and a loan or debt, noting that the legal relationship between the parties would change if the share of profit credited to the current account was treated as a debt. Arguments by Assessee: The learned counsel for the assessee argued that the interest on the loan was assessed as part of the money-lending business and that the assessee had established it as a bad debt. He cited various judgments, including those of the Patna High Court and the Supreme Court, to support his contention that the Department could not change its stance on the nature of the debt. He also argued that the provisions of section 36 of the Income-tax Act were met, making the debt deductible when it became irrecoverable. Arguments by Revenue: The learned counsel for the Revenue countered that the Tribunal had correctly construed the provisions of section 36 of the Act. He argued that merely because the share of profit was assessed, it did not mean that the debt was taken into account. He emphasized that the amount credited in the books was accumulated profit, not a loan or deposit, and there was no subsequent agreement to convert it into a loan. He cited relevant judgments to support his argument that the assessee was not entitled to claim the amount as a bad debt or business loss. Court's Conclusion: The court upheld the Tribunal's findings, stating that there was no contract, either express or implied, to convert the share of profits into a debt. The court distinguished between an amount in the current account and a loan or debt, noting that the legal relationship between the parties would change if the share of profit was treated as a debt. The court found no evidence to support the assessee's claim that the accumulated profit was treated as an advance or loan in the course of the money-lending business. The court also noted that the decision of the Supreme Court in S. Srinivasan v. CIT and other relevant judgments supported the view that the accumulated profit remained as such and was not converted into a loan or advance. Final Judgment: The court answered the question of law in the affirmative and against the assessee, confirming that the sum of Rs. 20,593 could not be treated as advances made in the course of the money-lending business and was not admissible as a bad debt. The court also rejected the claim of the amount as a business loss. The Revenue was entitled to costs of Rs. 750.
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