1978 (9) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 1,68,292 standing to the debit of M/s. Tukvar Company Ltd. was a debt arising in the course of the assessee's business and had become bad during the previous year, making it an allowable deduction.
2. Whether the amount of Rs. 8,737 paid as fees to M/s. Orr Dignam & Company in connection with matters relating to M/s. Tukvar & Company Ltd. was an allowable deduction in computing the assessee's business profits.

Summary:

Issue 1(a):
The assessee, Messrs. Williamson Magor & Co. Ltd., claimed a deduction of Rs. 1,68,292 as a bad debt in its income-tax assessment for the year 1964-65. The ITO disallowed the claim, stating that the assessee was under no obligation to arrange funds for Tukvar & Co. Ltd. and did not carry on the business of lending money. The AAC upheld this decision, noting that the debt had not become irrecoverable and was written off voluntarily. The Tribunal, however, found that the guarantee was furnished on business consideration and was incidental to the assessee's business. It concluded that the debt had become bad during the previous year due to the compromise between the parties. The Tribunal's decision was challenged by the CIT, West Bengal-I, leading to the reference of the question to the High Court.

The High Court, after considering the arguments and precedents, held that the Tribunal's finding that the debt became bad during the previous year was a question of fact supported by evidence. The Court affirmed that the debt was allowable as a bad debt, answering the question in the affirmative and in favor of the assessee.

Issue 1(b):
The Tribunal also allowed the deduction of Rs. 8,737 paid as fees to M/s. Orr Dignam & Company, considering it ancillary to the main issue. The High Court agreed with the Tribunal's finding, affirming that the amount was an allowable deduction in computing the assessee's business profits.

Conclusion:
The High Court upheld the Tribunal's findings on both issues, concluding that the debt of Rs. 1,68,292 was a bad debt arising in the course of the assessee's business and that the fees of Rs. 8,737 were allowable deductions. The questions were answered in the affirmative and in favor of the assessee.