1987 (4) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Whether the claim of loss of Rs. 9,41,780 could be allowed as loss in money-lending business.
2. Whether the loss claimed could be allowed as the income from Zamindari had mostly been excluded from the ambit of taxation.
3. Whether the loss, if any, could be claimed as loss in the assessment year 1962-63.
4. Whether the debt of Rs. 41,000 became bad during the period relevant to the assessment year 1962-63.
5. Whether the amount of Rs. 72,000 received as compensation for the two Simla properties was liable to tax in the assessment year 1962-63.

Detailed Analysis:

Issue 1: Claim of Loss in Money-Lending Business
The Tribunal held that the claim of loss of Rs. 9,41,780 could not be allowed as a loss in money-lending business. The relevant facts include an advance of Rs. 17,00,000 made by the assessee under a zarpeshgi lease, which was later vested in the State of Bihar under the Bihar Land Reforms Act. The Claims Officer fixed the claim at Rs. 15,50,147, which was later reduced to Rs. 12,19,750 by the Board but restored to Rs. 15,50,147 by the High Court. The Compensation Officer fixed the compensation at Rs. 6,08,367, resulting in a loss of Rs. 9,41,780. The Income-tax Officer rejected the claim on the grounds that the income was agricultural and not from money-lending business, and the loss could not be claimed in the relevant assessment year. The Tribunal upheld this rejection, concluding that the payment to the lessor was a premium and not a loan, thus the income was agricultural and the loss could not be claimed under the Act.

Issue 2: Exclusion of Income from Zamindari
The Tribunal held that the loss claimed could not be allowed as the income from Zamindari had mostly been excluded from the ambit of taxation. The case referenced a similar situation in Pandit Lakshmi Kant Jha v. CIT, where the court held that the payment made was a premium for leasehold property and not a loan, and thus the income was agricultural. The Tribunal applied this precedent to the current case, concluding that the income was agricultural and the loss could not be claimed as a bad debt in a money-lending transaction.

Issue 3: Claim of Loss in Assessment Year 1962-63
Given that questions Nos. (1) and (2) were answered against the assessee, the Tribunal found it unnecessary to address whether the loss could be claimed in the assessment year 1962-63. The Tribunal concluded that since the loss did not accrue from a money-lending transaction, it could not be claimed as a bad debt under the Act, rendering the timing of the claim irrelevant.

Issue 4: Debt of Rs. 41,000 Becoming Bad
The Tribunal allowed the claim of Rs. 41,000 as a bad debt in the assessment year 1962-63. The debt became bad when the remedy for recovery became barred on June 23, 1961, which fell within the relevant accounting year. The Tribunal noted that the judgment-debtor's estate had vested in the State of Bihar, making the execution case infructuous. The Tribunal found that the debt became bad when the remedy for recovery became barred, citing the decision in CIT v. S. M. Chitnavis and Deoniti Prasad Singh v. CIT, which supported the view that a debt becomes bad when it becomes irrecoverable in the eye of the law.

Issue 5: Taxability of Rs. 72,000 Compensation
The Tribunal held that the amount of Rs. 72,000 received as compensation for the two Simla properties was not liable to tax in the assessment year 1962-63. The Tribunal found that since the sum was not taxable, the question of the year of taxability did not arise. The Tribunal did not refer to whether the sum was taxable or not, concluding that the question of the year of taxability was redundant if the income was not liable to tax.

Conclusion:
Questions Nos. (1) and (2) were answered in favor of the Revenue and against the assessee. Question No. (4) was answered in favor of the assessee and against the Revenue. Questions Nos. (3) and (5) were not answered by the court. The references were disposed of with costs, with hearing fees assessed at Rs. 250 payable by the assessee in Taxation Case No. 62 of 1977, and Rs. 250 payable by the Revenue in each of Taxation Cases Nos. 63 and 64 of 1977.