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Issues:
Interpretation of Section 10(2)(xi) of the Income-tax Act regarding the writing off of bad debts in the books of the assessee. Analysis: The Commissioner of Income-tax and Excess Profits Tax, Central, Bombay, filed applications requesting the Tribunal to state a case to the High Court of Bombay on a question of law arising from an order in I. T. A. No. 5645 of 1950-51 and E. P. T. A. No. 268 of 1951-52. The issue revolved around the rejection of a claim of bad debts by the Income-tax Officer and the Appellate Assistant Commissioner. They contended that the debts were not actually written off as they were maintained in a reserve account, not closed in the debtor's accounts. The Tribunal disagreed, emphasizing the requirement of the Income-tax Officer to determine the irrecoverable amount. The Tribunal directed that the debts had been written off, despite the department's objection that the debts were not actually "written off" as per Section 10(2)(xi) of the Income-tax Act. The crux of the matter lay in the interpretation of Section 10(2)(xi), which states that the bad debts should not exceed the amount actually written off as irrecoverable in the books of the assessee. The department contended that the debts were not written off as the personal debtor accounts were not closed. However, the Tribunal held that the writing off must be to the debit of the profit and loss account, not necessarily the debtor's account. The Tribunal explained that "writing off" involves raising a debit entry in the profit and loss account, irrespective of the credit given to a specific account. The judgment clarified that Section 10(2)(xi) allows relief for both bad debts and doubtful debts. It highlighted that the section does not mandate the writing off to be in the debtor's account but in the books of the assessee. The Tribunal's decision was upheld, emphasizing that debiting the amount to the profit and loss account constitutes a valid method of writing off a bad debt. The High Court concluded that the debts in question had been appropriately written off as required by the law, rejecting the department's argument. The High Court answered the question submitted in the affirmative, holding the Commissioner liable for costs. In conclusion, the judgment delved into the technical interpretation of "writing off" bad debts under Section 10(2)(xi) of the Income-tax Act. It clarified that the essential aspect is the debit entry in the profit and loss account, not the closure of debtor accounts. The decision reinforced that the method employed by the assessee, debiting the profit and loss account and making corresponding entries in relevant accounts, sufficed as writing off the bad debts within the legal framework.
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