1976 (4) TMI 110 - AT - Income Tax

Summary

Issues:
- Allowance of revenue loss as incidental to money lending business or deduction as bad debt challenged by revenue.
- Whether transactions with a textile mill constitute money lending business or investments.
- Whether the loss incurred is allowable as a business loss or a bad debt.

Analysis:
1. The appeal challenges the allowance of an amount as a revenue loss or bad debt deduction by the Appellate Assistant Commissioner. The assessee, an individual connected to textile mills, advanced amounts to various mills, including one facing financial difficulties. The Appellate Assistant Commissioner accepted the loss as incidental to money lending business or a bad debt, which the revenue contested.

2. The revenue argued that the transactions were investments, not money lending, and not trade debt. Conversely, the assessee claimed the loss as part of money-lending business due to risks taken in advancing funds. The Appellate Assistant Commissioner found the loss allowable under section 28 as a money-lending loss or under section 36(1)(vii) as a bad debt.

3. The assessee had made advances to textile mills, including one managed by his father, earning interest on most advances. However, due to financial troubles at Pudukotta Textile Mills, the assessee assigned the asset at a loss. The tribunal found evidence indicating the assessee engaged in money-lending business, not mere investments, justifying the loss as a business loss.

4. Given the finding that the assessee was involved in money-lending business, the tribunal did not delve into whether the loss could be treated as a bad debt. The loss incurred in the regular course of money-lending business, where the debtor mill was taken over, was considered justifiable as a bad debt. However, detailed discussion on this aspect was deemed unnecessary.

5. Ultimately, the tribunal dismissed the departmental appeal, upholding the Appellate Assistant Commissioner's decision to allow the revenue loss as incidental to money lending business or a deduction as a bad debt.