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TMI Blog2011 (6) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(2) of the Act. (ii) Whether, on the facts and circumstances of the case, the Tribunal misdirected itself in holding that the conditions of section 36(2) of the Act were not fulfilled in a case where the advance/debt itself was not shown as income in the profit and loss account." 3. The assessee is a non-banking financial company. It derives its income from interest on money lent to various parties as a part of its money-lending business. On April 16, 1999, it lent Rs. 60 lakhs to M/s. Bhav Portfolio. After deducting opening credit balance of Rs. 3.10 lakhs, a sum of Rs. 56.90 lakhs became due to be recovered. However, this amount could not be recovered even after several requests, reminders and legal notice. Ultimately, Rs. 28.45 lakhs (50 per cent. of amount due) was written off in assessment year 2000-01. The balance amount was also written off in the year 2004-05 and the same stands allowed in the assessment made under section 143(1) of the Income-tax Act (for short "the Act"). Similarly, Rs.6,50,000 (being 50 per cent. of the amount due) was written off in the case of M/s. Gallery in the relevant assessment year. 4. The Assessing Officer disallowed the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has tried to interpret the section in two parts. He submitted that the requirement of the first part of the section would not be applicable to the second part of the section which relates to money lent in the ordinary course of business of banking or money-lending carried on by the assessee. The second part of the section, as pointed out, has been highlighted by us in clause (i) of sub-section (2) which has been reproduced above. 8. For the time being, without going into this interpretation of two parts of clause (i) of sub-section (2), it may be stated that the provision of section 36(1)(vii) read with section 36(2)(i) of the Act would come into play only if; firstly, the amount of loan or part thereof which is claimed as deduction should be established to have become bad debt and, secondly, the amount should have been shown to have become irrecoverable and written off from the accounts of the assessee or from the account in which the claim is made. 9. The Division Bench of our High Court in the case of CIT v. Morgan Securities and Credits P. Ltd. [2007] 292 ITR 339 (Delhi), while interpreting section 36(1)(vii) and 36(2)(i), observed as under (page 343) : "A conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. There is no dispute with regard to the above-mentioned proposition of law as interpreted by the decision of our High Court in the case of Morgan Securities [2007] 292 ITR 339 (Delhi). However, the present case relates to the assessee which is undisputedly a non-banking financial company and is in the business of money-lending and has been making advances to different concerns, two of them being those to whom advances were made and which are claimed as bad debts as noted above. In the manner the learned counsel for the appellant has interpreted clause (i) of sub-section (2), he states that the second part of this clause starting from "or represents money lent . . . by the assessee" as highlighted by us deals with the different types of activities, not at all related to those with the first part of business activities. In other words, his submission was that in the case of advances/loans made by any concern doing the business of banking or money-lending, it was not obligatory that such advances/loans or part thereof should be shown to have become irrecoverable and, consequently, written off in the accounts of the assessee in the previous year. This manner of interpretation was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off as bad debts." 11. In the present case, there is no dispute that the amounts of debts in question were advanced by the assessee in the ordinary course of money lending. The question for consideration would be as to whether the condition prescribed in the first limb for taking the debt into account while computing the income can be read in the second limb also and whether that can be done despite the construction of the second limb in the manner which is separated from the first limb by use of "comma" preceding the word "or" which clearly divides the provision into two parts, viz., (i) first part, dealing with non-money lending business ; and (ii) second part, dealing with money-lending business alone and the division is intended to ensure the fulfilment of conditions for allowance of bad debts peculiar to each limb concerned. 12. The controversy that has arisen from the order of the Tribunal is whether the amount of debt itself should be shown as income before the debt qualifies for claim as a bad debt. It is seen that the controversy before the Madras High Court in the case of P. C. Dharmalinga Mudaliar [1985] 152 ITR 588 (Mad) was whether money advanced to a transport c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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