1995 (11) TMI 461 - HC - Income Tax

Summary

Issues:
1. Treatment of bad debt due from H.V. Law & Co. Ltd.
2. Treatment of unrealisable rent as a bad debt against business income.
3. Treatment of law charges as business expenditure.

Analysis:

Issue 1: Treatment of Bad Debt from H.V. Law & Co. Ltd.
The assessee claimed a bad debt of Rs. 85,510 in relation to H.V. Law & Co. Ltd. The Tribunal was tasked with determining if this amount should be allowed as a deduction. The assessee acted as a guarantor for a legal case involving H.V. Law & Co. Ltd. and the State of West Bengal. A settlement was reached where the assessee agreed to pay a lump sum amount and yearly installments. The Commissioner (Appeals) allowed the bad debt claim, stating it was forgone for valid business reasons. The Tribunal upheld this decision, rejecting the revenue's argument that the settlement was not prudent business practice.

Issue 2: Treatment of Unrealisable Rent as a Bad Debt
The second issue involved a claim of Rs. 8,552 as bad debt due to unrealisable rent from a tenant. The property was sold, rendering the rent uncollectible. The Commissioner (Appeals) found that the conditions under rule 4 of the Income-tax Rules were met, allowing the deduction. The Tribunal upheld this decision, dismissing the revenue's argument that the rent should not be considered a bad debt due to the property sale.

Issue 3: Treatment of Law Charges as Business Expenditure
The final issue pertained to law charges of Rs. 20,670 claimed against business income. The ITO initially disallowed this claim, citing the charges were related to property income. However, the Commissioner (Appeals ruled in favor of the assessee, stating the charges were related to property held as stock-in-trade. The Tribunal upheld this decision, rejecting the revenue's contention.

In conclusion, all three issues were decided in favor of the assessee. The Tribunal affirmed the Commissioner (Appeals) decisions, allowing the bad debt, unrealisable rent, and law charges as deductions against business income. The Tribunal found no merit in the revenue's arguments and ruled in favor of the assessee on all counts.