1989 (9) TMI 43 - HC - Income Tax

Summary

Issues:
Whether interest income written off as bad debt is an admissible deduction under 'Income from other sources' for a company in the assessment year 1970-71.

Analysis:
The case involved the assessment of a company for the year 1970-71, where the company wrote off interest income amounting to Rs. 2,85,495 as bad debt. The interest income was accrued but not received, leading to the company filing a suit against the debtor. The Income-tax Officer disallowed the deduction, stating that the interest income was assessed on an accrual basis and there was no provision for bad debt deduction under sections 66 to 59. The Appellate Assistant Commissioner upheld this decision. However, the Tribunal allowed the deduction, considering the interest income as business income in the year of accrual. The Tribunal also mentioned that the deduction would be allowable even if the income was categorized as 'income from other sources.'

The Department argued that the deduction could only be allowed under section 57(iii) of the Income-tax Act if the interest income was assessed as 'income from other sources.' The Tribunal's decision was challenged based on the premise that non-recovery of interest did not qualify as expenditure under section 57(iii). Upon reviewing the orders of the lower authorities and the Tribunal, it was noted that there was no explicit finding that the interest income was assessed as 'income from other sources.' The Tribunal allowed the deduction based on the premise that the amount was taxed as business income, and even if it was considered 'income from other sources,' the deduction would still be permissible. The lack of a specific finding by the Tribunal or the departmental authorities led to the conclusion that the deduction should be allowed if the interest income was not taxed under 'income from other sources.'

In the final judgment, it was concluded that the deduction claimed by the assessee must be allowed. The decision was made in favor of the assessee, indicating that the interest income written off as bad debt was an admissible deduction. No costs were awarded in the case.