9911796707
|
Home
Issues:
Interpretation of section 36(2)(i) of the Income-tax Act, 1961 regarding the deduction of bad debts. Validity of disallowance of bad debt claims by the Income Tax Officer, confirmed by the Appellate Authority and Tribunal. Justification of disallowance of alternative claims of loss under section 28(1) of the Income-tax Act, 1961. Analysis: The case involved M/s. T. N. Shah, a partnership firm that transformed into a private limited company, taking over the business with all assets and liabilities. The company claimed deductions for bad debts for the assessment years 1968-69, 1969-70, and 1970-71, related to coal exports to Pakistan, previously accounted for in the partnership firm's income. The Income Tax Officer disallowed the claims entirely, a decision upheld by the Appellate Authority and Tribunal. The Tribunal referred questions of law to the High Court, questioning the disallowance under section 36(2)(i) of the Income-tax Act, 1961, and the alternative claims under section 28(1) for the mentioned assessment years. The Tribunal emphasized the distinction between the 1922 Act and the 1961 Act, noting that section 36(2)(i) requires the debt to be accounted for in the assessee's income of the previous year. It held that only the original creditor, not a successor, could claim relief for bad debts. The alternative claim under section 28 was rejected as it arose from the predecessor partnership firm's business, not the assessee-company's. The High Court referenced past judgments and highlighted that the word "assessee" in section 36(2) includes a successor or assignee of the debt. It emphasized that the focus is on the debt being accounted for in the income of the same business, not the original creditor's identity. The Court found no statutory prohibition for allowing bad debt deductions due to a change in the assessee's identity while the business remains the same. The Court further explained that sections 28 and 36 aim to compute assessable business income, not for personal relief. Citing a decision by the Andhra Pradesh High Court, it clarified that deductions under section 36 relate to business transactions, not personal qualifications of the assessee. Ultimately, the High Court ruled in favor of the assessee, stating that the bad debts in question were allowable under section 36(2)(i) as they were written off in the company's accounts. The first question was answered in the negative, in favor of the assessee, and the second question was left unanswered. The assessee was awarded costs amounting to Rs. 200.
|
