1990 (10) TMI 1 - SC - Income Tax

Bad Debt - Deemed Profit - contention of the assessee was that he was not assessable under section 41(4) of the 1961 Act because these amounts had been written off as bad debts in the year 1959-60 and his claim for deduction, though initially disallowed by the Income-tax Officer, was subsequently allowed - contentions of the assessee fail and the appeals are, accordingly, dismissed

Summary

Issues:
1. Interpretation of provisions under section 41(4) of the Income-tax Act, 1961 regarding taxability of recovered amounts previously written off as bad debts under section 10(2)(xi) of the Income-tax Act, 1922.
2. Application of section 24 of the General Clauses Act, 1897 in determining the continuity and consistency of orders made under repealed and re-enacted provisions.

Detailed Analysis:
1. The case involved appeals arising from the High Court's judgment on whether amounts previously written off as bad debts under section 10(2)(xi) of the Income-tax Act, 1922, but recovered after the enactment of the Income-tax Act, 1961, were taxable under section 41(4) of the latter Act. The assessee argued that the provisions of the two Acts were not in pari materia, contending that deductions allowed under the old Act should not be taxed under the new Act. However, the High Court held that there was no inconsistency between the provisions of the two Acts, and tax was applicable under the re-enacted provisions of the new Act.
2. The court examined the application of section 24 of the General Clauses Act, 1897, which states that orders made under repealed provisions are deemed to continue under re-enacted provisions if they are not inconsistent. The court found that the repealed section 10(2)(xi) of the old Act was equivalent to sections 36(1)(vii), 36(2), and 41(4) of the new Act. Therefore, orders made under the old Act were considered to be under the re-enacted provisions of the new Act, making the recovered amounts taxable under section 41(4) of the Income-tax Act, 1961.
3. The court emphasized that the provisions of section 41(4) of the new Act specifically required that deductions should have been allowed under section 36(1)(vii) of the same Act to attract taxation on recovered amounts. As the assessee's contentions failed to establish inconsistency between the old and new Acts, the appeals were dismissed, upholding the taxability of the recovered amounts previously written off as bad debts under the old Act.

In conclusion, the Supreme Court upheld the High Court's decision, ruling that amounts recovered after the enactment of the Income-tax Act, 1961, which were previously written off as bad debts under the Income-tax Act, 1922, were taxable under section 41(4) of the new Act. The court applied the provisions of the General Clauses Act, 1897, to establish the continuity and consistency of orders made under the repealed and re-enacted provisions, ensuring the taxability of the recovered amounts under the re-enacted provisions of the new Act.