1982 (2) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of bad debt u/s 36(1)(vii) of the I.T. Act.
2. Deduction of capital loss on revaluation of shares.
3. Assessability of Rs. 1,97,479 as capital gains.

Summary:

1. Deduction of Bad Debt u/s 36(1)(vii):
The assessee, a company in voluntary liquidation, claimed a deduction for a bad debt of Rs. 99,546.07 for the assessment years 1966-67, 1967-68, and 1968-69. The debt was owed by M/s. Badani Brothers Limited, against whom the assessee had obtained a decree in 1953. Despite the debtor company's liquidation and attachment of its properties, the ITO rejected the claim, stating there was no evidence that the debt had become bad in the relevant years. The Tribunal upheld this decision, noting the lack of evidence that the debtor's properties had been fully exhausted in satisfying other creditors' claims. The court affirmed the Tribunal's decision, emphasizing that the debt must be proven to have become bad in the relevant year of account to qualify for deduction u/s 36(2)(iii).

2. Deduction of Capital Loss on Revaluation of Shares:
The assessee claimed a capital loss of Rs. 12,50,000 for the assessment year 1966-67 due to the revaluation of its 25,000 shares in South India Corporation (Madras) Private Limited, which went into liquidation. The ITO disallowed the claim, and the Tribunal upheld this decision, noting that the shares were treated as an investment, not stock-in-trade. The court agreed, stating that capital loss is not allowable under income-tax law for computing taxable income. The court also found no support for the claim under sections 2(47) and 46 of the I.T. Act, as the provisions did not apply to the facts of the case.

3. Assessability of Rs. 1,97,479 as Capital Gains:
The Department made a protective assessment of Rs. 1,97,479 as capital gains for the assessment year 1967-68, following the assessee's receipt of Rs. 14,47,479 from the liquidator of South India Corporation. The Tribunal and the AAC canceled this assessment. The court upheld this decision, stating that section 46(2) of the I.T. Act did not apply, as the amount did not represent the market value of assets received in specie. The court concluded that the Tribunal rightly confirmed the cancellation of the protective assessment.

Conclusion:
The court answered all questions of law in favor of the Department and against the assessee, affirming the Tribunal's decisions on all issues. Each party was ordered to bear its own costs.