1945 (3) TMI 15 - HC - Income Tax

Summary

Issues:
1. Determination of whether a specific amount claimed as a bad debt can be deducted from the profits of the relevant accounting period under Section 10(2)(xi) of the Income-tax Act.

Detailed Analysis:

Statement of Case:
The case involves an application by a company to the Tribunal to state a question of law arising from the Tribunal's order regarding a disputed sum claimed as a bad debt during assessment proceedings. The company acquired a petroleum business and claimed a debt as irrecoverable, which was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner. The matter was then taken to the Tribunal for determination.

History of the Claim:
The company acquired the business, including a claim for refund of duties, from the previous owner. The claim originated from customs duty disputes related to oil imports. Despite various attempts to seek relief, including a lawsuit, the claim was ultimately dismissed by the Calcutta High Court. Subsequently, the company wrote off the amount as a bad debt.

Tribunal's Findings:
The company argued that the disputed amount was part of the circulating capital acquired with the business and should be allowed as a deduction. However, the Tribunal found that the amount was an expense properly chargeable to the profits of the year 1934. The Tribunal concluded that the amount paid in accordance with the Customs demand was not a trade debt but an expense of the business.

Question of Law:
The Tribunal's order raised a question of law regarding whether the disputed sum could be considered a business debt deductible under the Income-tax Act. The High Court was asked to determine this question under Section 66(1) of the Act.

Judgment:
The Court held that the disputed amount did not qualify as a bad debt eligible for deduction. It was determined that there was no debt due to the company, only a claim against the authorities. The payment made was legally recoverable duty, not a debt. The Court rejected the argument that the amount became a bad debt in 1941 when the lawsuit was dismissed, emphasizing that the payment in 1934 was a legitimate expense. Therefore, the Court answered the question in the negative, ruling against the company.

Conclusion:
Ultimately, the Court dismissed the reference and ordered the company to pay the costs. The judgment clarified that the disputed amount was not a bad debt but a duty payment, disallowing its deduction from the profits.