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TMI Blog1981 (9) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... styled as M/s General Electronics,Faridabadwith four other partners who were Shree Mahabir Industries Private Ltd., Smt. Durga Devi Periwal, Smt. Suraj Devi Periwal and Shri R.C. Kukillaya. The partnership deed under which this firm was constituted was drawn up on16th July, 1973. The firm closed its accounts on31st Dec., 1973. With effect from 1st Jan., 1974 this firm dissolved and a deed of dissolution was drawn up on17th Jan., 1974. The assessee company took over the entire business of the assessee firm as a running concern w.e.f.1st Jan., 1974on payment of the price amounting to Rs. 5,57,800. Amongst the assets of the business which were taken over by the assessee company were certain trade debts totalling Rs. 22,892. Out of these debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss which became bad from time to time had to be allowed as bade debt notwithstanding the provision of s. 36(2)(a)(i). In support of this proposition reliance was placed on the decision of the Bombay High Court in the case of Expanded Metal Depot. Pvt. Ltd. vs. CIT (1971) 80 ITR 483 (Bom) and the decision of the Andhra Pradesh High Court in CIT vs. T. Veerbhadra Rao, K. Koteswara,Madras(1976) 102 ITR 604 (AP). The ld. Commr. considered these decisions and also the admissions made and came to the conclusion that the Andhra Pradesh decision was directly applicable and following the case he allowed the assessee's claim. 5. Revenue has come up in appeal. It is vehemently urged by the ld. Departmental representative that the assessee company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel relied upon Bombay High Court decision in (1971) 80 ITR 483 (Bom) and Madras High Court decision in C.J. Sheth vs. CIT (1962) 46 ITR 1052 (Mad). It was further stated that it was not material whether the business was acquired by purchases or whether it came to the hands of a different entity by operation of law. In either case, it was succession of the business provided the business was taken over as a running concern without any interruption. The fact that in the present case the assessee company had paid price for the business, it was submitted, was not material at all. The ld. counsel further submitted on the authority of Andhra Pradesh High Court decision in (1976) 102 ITR 604 (AP) that the conditions of s. 36(2)(A)(i) and (b) wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession had not taken place or that whatever the assessee company had acquired by was capital assets. We reject these arguments of the ld. Deptl. Rep. We entirely agree with the learned counsel that so long as the identity of the business is not disturbed and it is acquired as a running concern, succession takes place even if price has been paid for the same by the predecessor and the purchaser merely steps into the shoes of the seller. The character of the assets and liabilities of the business remains unchanged. In other words the various debts which the assessee company had acquired as one of the assets of the business continued to be trading assets of the business in the hands of the assessee company in the same manner as they were tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not claim deduction of the bad debt. Their Lordship considered these submissions after making an analytical study of the provisions of s. 36(2)(I). Referring to cls. (a) (b) of the said provision, their Lordships observed as under: "If we read, the article "the" in cl (a) would mean the assessee in whose account the bad debt has been taken into account in computing the income of the previous year or the assessee who had lent the bad debt money in the ordinary course of business of banking or money-lending. And for cl (b) it would mean the assessee in whose account such a bad debt has been written off as irrecoverable. More than this, the use of the article would not mean anything more nor is it intended to be read in any other meaning. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the conditions (a) and (b) may be satisfied by the successor. That would be the position if the income arising form the debt is taxed in the hands of the successor and the writing off is also done in the books of the successor. It would certainly not be proper to construe this provision in a manner that the claim for bad debt is allowed in one type of situation and not in other type of situation although in both situations the business is taken over a as running concern. We respectfully follow the view taken by the Hon'ble Andhra Pradesh High Court and hold that the assessee company merely stepped into the shoes of the firm in so far as the business is concerned, the various assets of the business continued to have the same character in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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