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TMI Blog1980 (5) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... ion held by a mediator, the bid amount being Rs. 1,50,000. It is said that the net asset of the business was worth Rs. 8 lakhs. The above mentioned six persons constituted the assessee-firm for carrying on the above-mentioned business under a deed dt. 1st April, 1973. In view of the fact that the net asset of the business was worth Rs. 8 lakhs and it had been purchased for Rs. 1,15,000 Rs. 6,50,000 was credited as "general reserve" in the books of the assessee-firm. 3. During the previous year ending 31st March, 1975, being the second year of the assessee-firm it wrote of Rs. 6,743 in the profit and loss account and Rs.58,283 in the "general reserve" as bad-debts. 4. The assessee firm filed the return claiming net loss of Rs. 27,970. In doing so, it had claimed deduction of the aforesaid sum of Rs. 6,743 and Rs. 58,282 under s. 36(2)(i)(b) of the IT Act, 1961. The ITO rejected the claim on the ground that the bad-debts written off related to the predecessor firm and not to the assessee-firm. Thus, by his order dt. 29th March, 1977, he determined the income of the assessee as Rs. 36,620. 5. Aggrieved by such assessment the assessee preferred IT Appeal No. 149-K/77/78 reiter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of s. 41(1) of the IT Act, 1961 would equally apply in determining whether the assessee would be entitled to the deduction of a bad-debt under s. 36(2)(i)(B) of the said Act. He pointed out that the above-mentioned decision of the Supreme Court has not been noticed in the decisions relied upon by the assessee's authorised representative. He next contended that, in any event, in view of the fact that the assessee had paid only Rs. 1,50,000 for acquiring the Calicut business, the assets of which were admittedly of the value of Rs. 8 lakhs, it was clear that the assessee had taken into consideration such of those outstandings as were thought to be irrecoverable and bad and hence the assessee could not claim deduction in respect thereof relying upon s. 36(2)(i)(b) of the IT Act, 1961. 8. Sec. 36(2)(i)(b), in so far as, it is relevant for the purpose of this appeal, is as follows: "36(2). In making any deduction for a bad-debt or part thereof, the following provisions shall apply; (I) no such deduction shall be allowed unless debt or part thereof— (a) has been taken into account in computing the income Of the assessee of that previous year or of an earlier previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply Co. reported in (1966) 61 ITR 672 (Bom). There, four persons were carrying on business under the name and style of M/s. Bombay Hing Supply Co. Disputes arose in 1952 between three partners, on the one hand, and the fourth partner, on the other. Ultimately, there was a compromise where under a receiver was appointed by the Court for the sale of the business. The business together with its assets, outstandings, etc. where put up to auction as a going concern by the receiver and was purchased by one of the partners on behalf of himself and the other two. Subsequently, a sale deed was executed in favour of those three partners, who had themselves constituted into a partnership firm for carrying on the same business. Still later, the new firm wrote off two amounts due from the customers of the old firm as bad and irrecoverable in its accounts in S. Ys. 2009 and 2011 and claimed deduction thereof in corresponding asst. yrs., viz. 1954-55 and 1956-57 under s. 10(2)(xi) of the IT Act, 1922, (which corresponds to s. 36(2)(i) of the IT Act, 1961). The Department Contended that the loss, if any, was a capital loss in he hands of the assessee. That contention was negatived. The further co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter section had not made any difference. 10. In Addl. CIT, Madras-I vs. S. RM. PL. Subramaniam Chettiar, reported in (1979) ITR 925 (Mad) the assessee and one S.M. Palaniappan were carrying on business in partnership of hides and skins, under the name and style of M/s. Union Leather Company. One Hussunudhin, a merchant of Delhi had a running account with the firm and Rs. 17,134 were due from him to that firm as on 31st Dec., 1962. During that year, on a petition filed by him for that purpose, Hussunudhin, was adjusted insolvent. On the ground that there was no prospect of recovering any amount from him, the firm wrote off the said sum of Rs. 17,134 as a bad-debt in that year and claimed the same as a deduction in its assessment for the asst. yr. 1963-64. The ITO rejected the claim on the ground that the debt could not be considered as a bad-debt till final declaration of dividend from the estate of the insolvent was made by the official assignee. The above firm was dissolved on 30th Sept., 1964 and the entire business along with its assets and liabilities were taken over by the assessee, who carried on the business as sole proprietor. On 10th Nov., 1965, the official assignee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been collected from her husband by way of sales-tax. The question was whether the said sum was assessable in her hands under s. 41(1) of the IT Act, 1961. The Court answered the question in negative observing that the IT Act, 1961, did not contain any provision making a successor in business or the legal representative of an assessee to whom an allowance had already been granted, liable to tax under s. 41(1) in respect of the amount remitted and received by the successor of such legal representative. The Court also observed that the word "assessee" occurring in s. 41(1) should refer only to that assessee to whom an allowance had been already granted. The contention of the departmental representative is that in view of the similarity of language of s. 41(1) and s. 36(2)(i) the same principle would apply in the latter case also. I am unable to accept the above contention. A perusal of the decision of the Bombay High Court and the Andhra Pradesh High Court in 61 ITR 672 and 102 ITR 604 respectively shows that the conclusions that the bad-debt was allowable was arrived at only on the basis that the said debt related to the business which had been carried on by the predecessor and which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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