1965 (11) TMI 147 - HC - Income Tax

Summary

Issues Involved:
1. Whether the department was justified in disallowing the claim of bad debt of Rs. 89,140.
2. Whether the assessee carried on money-lending business.
3. Whether the loans were advanced to the daughter in the ordinary course of money-lending business.
4. Whether the debt became irrecoverable in the relevant accounting year.

1. Whether the department was justified in disallowing the claim of bad debt of Rs. 89,140:

The Income-tax Officer disallowed the claim, stating that the assessee did not carry on money-lending business, had no licence, and gave surplus cash to friends and relatives as loans. The officer also noted that the loss was a capital one, not allowable as a bad debt, and that the debt was written off due to the assessee's love and affection for his daughter. The Appellate Assistant Commissioner, however, found that the assessee was carrying on money-lending business and that the loans to the daughter were genuine and for business needs. The Tribunal reversed this, relying on an alleged admission by the assessee's counsel, which was later denied and clarified as a misunderstanding.

2. Whether the assessee carried on money-lending business:

The Appellate Assistant Commissioner referred to a previous Tribunal order for the assessment year 1954-55, which established that the assessee was carrying on money-lending business. The Tribunal did not find otherwise but focused on whether the loans to the daughter were part of this business. The High Court noted that the statement of the case and the evidence on record supported the finding that the assessee had a money-lending business.

3. Whether the loans were advanced to the daughter in the ordinary course of money-lending business:

The Appellate Assistant Commissioner found that the loans were advanced to the daughter for her business needs, supported by evidence such as the daughter's statements, licences, and business documents. The High Court agreed, noting that the evidence showed the daughter was borrowing money from her father for business purposes and paying interest, which was recorded in her accounts. The Tribunal's misunderstanding of the counsel's statement did not negate this evidence.

4. Whether the debt became irrecoverable in the relevant accounting year:

The High Court referred to established law that a debt must be shown to have become irrecoverable in the accounting year for it to be written off. The Appellate Assistant Commissioner found that the assessee made necessary enquiries and took legal advice before concluding the debt was irrecoverable. This included a note on the financial position of the daughter's business and a legal opinion that recovery was impractical. The High Court upheld this finding, noting that the evidence supported the conclusion that the debt became bad in the accounting year.

Conclusion:

The High Court held that the assessee was entitled to the allowance of Rs. 89,140 under section 10(2)(xi) of the Income-tax Act as a bad debt, and the department was not justified in disallowing it. The question was answered in favour of the assessee, and the department was ordered to pay the costs of Rs. 250.