1977 (7) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 29,16,000 claimed as bad debt by the assessee was admissible as a revenue loss or bad debt under the Indian Income Tax Act, 1922.

Detailed Analysis:

Issue 1: Admissibility of Rs. 29,16,000 as Revenue Loss or Bad Debt

Background and Facts:
The assessee, represented by Pandit Lakshmi Kant Jha, executor, was the holder of the Darbhanga Raj estate. For the assessment year 1958-59, the assessee claimed Rs. 29,16,000 as a bad debt from his money-lending business, which was disallowed by the Income Tax Officer (ITO), the Appellate Assistant Commissioner (AAC), and the Income-tax Appellate Tribunal.

Key Findings by the Tribunal:
1. The debt was originally a money-lending debt.
2. The character of the debt and the debtor changed, making it an agricultural asset.
3. The income from the property was agricultural income.
4. The asset was thus an agricultural asset.
5. The loss was a loss of an agricultural asset and outside the scope of the Income-tax Act.

Arguments by the Assessee:
The assessee's counsel, Dr. Debi Pal, argued that the Tribunal erred in holding the income from the zarpeshgi thika lease as agricultural income. He contended that the property was given as security against the loan advanced by the assessee and was income from money-lending business. He referred to several letters and documents to support this claim.

Supreme Court's Previous Decision:
The Supreme Court had earlier ruled in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar [1959] 37 ITR 388 that the income from the leasehold property was agricultural income and the payment to the lessor was premium, not a loan. The Supreme Court found that the income derived from the leasehold property was not income from money-lending business but agricultural income.

Tribunal's Conclusion:
The Tribunal concluded that the property in question was agricultural property and the income derived was agricultural income. This conclusion was based on the Supreme Court's decision and the Tribunal's own findings that the property was acquired on a leasehold basis and not as a security for a loan.

Assessee's Alternative Argument:
Dr. Pal alternatively argued that even if the property was agricultural, its loss should be admissible as a bad debt. He contended that the Tribunal's assumption that agricultural property loss is not admissible under the Income-tax Act was erroneous.

Tribunal's Rebuttal:
The Tribunal noted that agricultural income is excluded from the scope of the Income-tax Act, and agricultural property could not be considered a capital asset under the Act. The Tribunal found that the property was leasehold and not security for a loan, supported by the Supreme Court's decision.

Final Decision:
The Tribunal's finding that the thika properties were not security for a loan led to the rejection of the claim for exemption of Rs. 29,16,000 as revenue loss or admissible bad debt. The question was answered in the affirmative, in favor of the department and against the assessee.

Conclusion:
The Tribunal was justified in law in not allowing the sum of Rs. 29,16,000 as revenue loss or admissible bad debts. The judgment affirmed that the loss was related to an agricultural asset, thus outside the scope of the Income-tax Act.