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Issues Involved:
1. Whether the sum of Rs. 55,950-13-10 is allowable as a deduction from profits under section 10(2)(xi) or section 10(2)(xv) of the Indian Income-tax Act. 2. Whether the debt due by Tehrani to the assessee had become a bad and doubtful debt. Issue-wise Detailed Analysis: 1. Deduction under Section 10(2)(xi) or Section 10(2)(xv): The primary issue was whether the sum of Rs. 55,950-13-10, written off by the assessee, could be allowed as a deduction under section 10(2)(xi) or section 10(2)(xv) of the Indian Income-tax Act. The assessee's counsel did not argue for the deduction under section 10(2)(xv), thus focusing the discussion on section 10(2)(xi). The relevant provision allows for the deduction of bad and doubtful debts that are irrecoverable and have been written off in the books of the assessee. The court noted that the expression "bad and doubtful debt" refers to a debt that cannot reasonably be expected to be realized. The court emphasized that the assessee must be honestly convinced of the debtor's precarious financial position to claim the debt as bad. 2. Determination of Bad and Doubtful Debt: The court examined whether the debt due by Tehrani had indeed become a bad and doubtful debt by 12th April 1957. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal had all rejected the assessee's claim, citing various reasons. The Tribunal observed that the debtor was still active in business and possessed assets, including immovable properties and shares. Additionally, the assessee had made a further advance of Rs. 25,000 to Tehrani after writing off the debt, indicating that the debtor was not considered financially broken by the assessee. The court discussed the principles for determining a bad debt, noting that the insolvency of the debtor or the bar of time alone does not conclusively prove a debt to be bad. The court also considered the assessee's argument based on the decision in Kamakshi Chettiar v. Commissioner of Income-tax, where a debt was written off following a fresh agreement between the parties. However, the court distinguished this case, noting that the waiver of a portion of the debt in Kamakshi Chettiar was due to statutory provisions, not merely an agreement between creditor and debtor. The court rejected the argument that the subsequent lending of Rs. 25,000 to Tehrani should not be considered, citing the principle that the assessee's honest judgment at the time of writing off the debt is crucial. However, the court held that the subsequent conduct of treating the debtor as solvent was relevant in assessing the assessee's state of mind. Ultimately, the court concluded that the department and the Tribunal were correct in holding that the assessee was not entitled to write off the debt as a bad debt. The petitions were dismissed with costs in T.C.P. No. 26 of 1962, with a counsel's fee of Rs. 150.
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