1970 (11) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 1,06,834 could legally be allowed as a bad debt.
2. Whether the debt due to the Bihar Agents Private Ltd. from the Bihar Glass Factory was a debt made in the ordinary course of money-lending business.
3. Whether the entire sum of Rs. 2,46,510 due to the assessee from Bihar Agents Private Ltd. was in respect of loans advanced in the ordinary course of money-lending business.

Issue-wise Detailed Analysis:

1. Whether the amount of Rs. 1,06,834 could legally be allowed as a bad debt:
The assessee, an individual engaged in cloth business and money-lending, had dealings with M/s. Bihar Agents Private Ltd. and Bihar Glass Factory. The Income-tax Officer initially disallowed the bad debt claim, stating it was not a trade debt or a loan in the course of money-lending business. However, the Tribunal found that the assessee was indeed carrying on money-lending business and that the advances made to Bihar Agents Private Ltd. were part of this business. The Tribunal concluded that the book debt of Rs. 2,25,000 taken over by the assessee was part of his money-lending assets, and the bad debt arose in the course of money-lending business. Thus, the Tribunal allowed the assessee's claim to the extent of Rs. 1,06,834.

2. Whether the debt due to the Bihar Agents Private Ltd. from the Bihar Glass Factory was a debt made in the ordinary course of money-lending business:
The High Court directed the Tribunal to clarify whether the advances were made in the ordinary course of money-lending business. The Tribunal, in its supplementary statement, confirmed that the entire sum of Rs. 2,48,119 due to the assessee represented money-lending advances. The Tribunal's findings indicated that the loan was advanced in the ordinary course of money-lending business, as evidenced by the assessee's money-lending license and the interest received over several years, including from Bihar Agents Private Ltd.

3. Whether the entire sum of Rs. 2,46,510 due to the assessee from Bihar Agents Private Ltd. was in respect of loans advanced in the ordinary course of money-lending business:
The Tribunal's supplementary statement clarified that the entire sum of Rs. 2,48,119 due to the assessee was money-lending advances. The Tribunal found that no part of this amount was attributable to advances other than in the ordinary course of money-lending business. The High Court agreed with this conclusion, stating that the Tribunal's findings were clear and that the advances were made in the ordinary course of money-lending business.

Additional Points Raised by the Petitioner:
The petitioner argued that the supplementary statement did not comply with the High Court's directions, as it did not explicitly state whether the advances were in the ordinary course of money-lending business. However, the High Court found that the Tribunal's findings, when read in context, clearly indicated that the advances were made in the ordinary course of money-lending business.

The petitioner also contended that the assessee's failure to credit interest on the book debt indicated that the transaction was not in the ordinary course of money-lending business. The High Court rejected this argument, stating that the omission of interest credit did not affect the system of accounting or the nature of the transaction.

Conclusion:
The High Court concluded that the Tribunal's findings were correct and that the amount of Rs. 1,06,834 was rightly allowed as a bad debt under section 10(2)(xi) of the Income-tax Act. The question was answered in the affirmative, in favor of the assessee, and the petitioner was ordered to pay the costs of the reference.