1967 (8) TMI 1 - HC - Income Tax

Bad debt - money-lending business - loss arose from the investment and not in connection with the business being carried on by the assessee-company - It was thus a capital loss and not a loss incidental to the business - not permissible deduction as bad debt

Summary

Issues:
- Whether the claim of Rs. 15,700 written off as a bad debt is a permissible deduction.

Analysis:
The case involved a dispute regarding the deduction of Rs. 15,700 as a bad debt by an assessee-company. The company had entered into an arrangement with an individual for a brick manufacturing business, which could not materialize due to external factors. The company advanced Rs. 21,000 for the venture, but only recovered a partial amount through a legal suit, leaving Rs. 15,700 as unrecovered debt. The company claimed this amount as a bad debt in the relevant assessment year.

The Income-tax Officer initially disallowed the deduction, stating it was a loss of capital. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal noted the company's argument that the amount was part of its financing business but considered the civil court's finding of a partnership between the parties, leading to the disallowance of the bad debt claim.

The company's counsel contended that the amount was invested as capital in a new business venture, not as part of the ongoing business operations. Therefore, it was a capital loss, not an operational loss eligible for deduction under section 10(2). The argument that the loss could be allowed under section 10(1) was also dismissed since the loss was deemed of a capital nature, not incidental to the company's business activities.

Ultimately, the court answered the question of allowing the bad debt claim in the negative, ruling against the assessee-company. The judgment emphasized that the loss arose from a capital investment in a new business, making it ineligible for deduction as a bad debt or under section 10(1). No costs were awarded in the case.