1967 (3) TMI 21 - SC - Income Tax

Bad debts - Tribunal held that the amount was not advanced in the course of money-lending business and that the debt had become bad prior to the year of account - there was any material on which the Tribunal could arrive at the finding that the debts had become bad prior to the year of account in question - assessee s appeal dismissed

Summary

Issues:
1. Whether the Tribunal had sufficient material to find that two specific amounts were not bad debts arising during the assessee's money-lending business.
2. What was the true nature of the transactions, and could the debts still be claimed as bad debts in calculating the assessee's taxable income.
3. Whether there was adequate material for the Tribunal to conclude that the debts had become bad prior to the relevant accounting year.

Analysis:
The case involved three questions referred under section 66(2) of the Income-tax Act, 1922. The first question was whether there was material to support the finding that two specific amounts were not bad debts arising during the assessee's money-lending business. The Tribunal had detailed the relevant facts, including the history of transactions between the assessee and the debtors. The High Court and the Tribunal had both ruled against the assessee, stating that the debts had become bad prior to the relevant accounting year. The High Court emphasized the importance of establishing that a debt was good at the beginning of the accounting year and had turned bad during that year. The court noted the lack of interest charged and legal steps taken to recover the debts. The High Court's observations highlighted the need for concrete evidence to support the claim of bad debts.

The second question revolved around the true nature of the transactions and whether the debts could still be considered bad debts for tax purposes. The Tribunal had determined that the debts were not advanced in the course of money-lending business and had become bad prior to the relevant year. The High Court upheld this finding, emphasizing the lack of interest charged on the accounts and the absence of legal action to recover the debts. The court's analysis focused on the timeline of events and the actions taken, or lack thereof, by the assessee regarding the debts.

The third question addressed whether there was sufficient material for the Tribunal to conclude that the debts had become bad prior to the relevant accounting year. The High Court rejected the claim of the assessee, stating that there was evidence to support the Tribunal's findings. The court highlighted specific details, such as the relationship between the debtors and the assessee, the lack of interest charged on accounts, and the failure to take legal steps for recovery. The court's decision was based on the available material and the timeline of events related to the debts. Ultimately, the appeal was dismissed, with the court finding that there was substantial material for the Tribunal to conclude that the debts had become bad prior to the relevant accounting year.