9911796707
TMI Blog1953 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... came to the conclusion that as early as 1934-35 assessment year, the applicant company knew that the loans advanced to the two debtor companies would not be realised in full. The applicant company had therefore started the practice that the interest amounts on the loans due from the debtor-companies were credited to an interest reserve account and were not taken to the credit of profit and loss account. These credits to the interest reserve account were made up as follows : Assessment Years. 1934-35 ₹ 53,221 1935-36 ₹ 45,221 1937-38 ₹ 90,137 ₹ 1,88,579 1938-39 ₹ 44,663 1938-39 ₹ 53,281 1939-40 ₹ 48,978 1939-40 ₹ 54,446 ₹ 2,01,368 The interest reserve account was treated as a suspense account and in the balance sheets prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same. 5. The present excess profits tax assessment covers the chargeable accounting period from 1st April, 1940, to 31st March, 1941. In the income-tax assessment for 1941-42 for which this period is the previous year , the applicant admitted that the amount of bad debt chargeable against this year's profit was ₹ 10,00,000 less ₹ 1,88,579 standing to the credit of the interest reserve account for the years 1934-35 to 1937-38 for which no income-tax had been paid during those years. The Tribunal further found that even in this excess profits tax assessment, the applicant took up the same position at the time of the assessment by the Excess Profits Tax Officer. In the computation statement submitted by the applicant to the Excess Profits Tax Officer, the bad debt chargeable was shown as ₹ 8,11,421 and not ₹ 10,00,000. It was before the Appellate Assistant Commissioner for the first time that the claim for ₹ 10,00,000 was made in place of ₹ 8,11,421. 6. The applicant company keeps its books on mercantile basis. Its contention before the Tribunal was that the sums of ₹ 1,88,579 and ₹ 2,01,368 were incomes of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Meyer and B. L. Pal, for the Commissioner JUDGMENT CHAKRAVARTTI, C. J.- This is a reference under Section 21 of the Excess Profits Tax Act, read with Section 66(1) of the Income-tax Act, of a short question of law under Section 10(2)(xi) of the latter Act. The reference has been made by the Calcutta Bench of the Income-tax Appellate Tribunal. In order to appreciate the true import of the question referred, it is necessary to state first the facts out of which it has arisen. The assessee, Messrs. Begg Dunlop and Co. Ltd., are, or rather were, the managing agents of two other companies, namely, Craig Jute Mills Limited and Waverly Jute Mills Limited. It appears that, as such managing agents, they had made advances to each of the managed companies, having lent a sum of ₹ 10,00,000 to the Waverly Jute Mills Limited and a little less than ₹ 10,00,000 to the Craig Jute Mills Limited. The companies apparently did not flourish and as early as the assessment year 1934-35, the assessee company began a practice which has formed the subject of much debate at our Bar. The practice was that interest amounts, due on the loans advanced to the two managed companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,88,579 had not been so assessed. It appears further that in the income-tax assessment for 1941-42 which is the previous year relative to the chargeable accounting period, the assessee company admitted that the amount of bad debts chargeable against its profits for that year was ₹ 10,00,000 less ₹ 1,88,579 which, as I have said, had not suffered assessment previously. The Tribunal has pointed out that even in the excess profits tax assessment, the assessee took up the same position before the Excess Profits Tax Officer and in the return, or rather the computation statement submitted by it, the bad debt chargeable was shown as ₹ 8,11,421 and not ₹ 10,00,000 as subsequently claimed. This amount of ₹ 8,11,421 was arrived at by deducting the sum of ₹ 1,88,579 from the total had debt of ₹ 10,00,000. The Excess Profits Tax Officer, as I have already stated, allowed only a sum of ₹ 6,10,052 and that decision was upheld by the Appellate Assistant Commissioner and subsequently by the Income-tax Appellate Tribunal. The assessee thereafter asked for a reference to this Court of a question of law arising out of the Tribunal's order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years. The contention of Mr. Mitra, as we understood it, was that in those previous years nothing had actually been written off and, therefore, there was no warrant in Section 10(2) (xi) for what the Excess Profits Tax Officer had done. Mr. Mitra conceded that if a certain amount was actually written off in a particular accounting year, the Income-tax or the Excess Profits Tax Officer would not be bound to allow the whole of that amount, because the section gave him an option to allow only such amount as he might deem to be irrecoverable, but the section, nevertheless, required that in order that the Income-tax Officer might treat any amount as having become a bad debt in a particular year, that amount or some larger amount must actually be written off in the accounts. The conclusion to which that argument, as we understood it, was intended to lead was that inasmuch as there was no amount at all actually written off in the previous years or, to put it in another way and in Mr. Mitra's own language, the actual amount written off was zero, the Income-tax Officer was only entitled to allow an amount less than zero and, therefore, not entitled to allow anything in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he section that a debt which the Income-tax Officer may treat as irrecoverable must be written off at all. All that the section seems to mean, in my view, is that if a debt has actually been written off by the assessee in his books as irrecoverable in a particular year, then the Income-tax Officer, in making an allowance in respect of bad debts for that year, must not allow anything in excess of the amount which the assessee has himself written off. Mr. Mitra reminded us of the well known expression of opinion by the Privy Council that in construing a taxing statute, the actual terms must be literally construed and that nothing like a substantial compliance would do duty (sic) for a literal observance which the statute required. That principle need not be disputed, but the clear language of Section 10(2)(xi) does not, to my mind, admit of the construction which Mr. Mitra proposed for it. If it be not an essential requirement of the section that any amount, in order to be allowable as a bad debt, must be actually written off as irrecoverable in the books of the assessee or must be included in such amount, the rest of the argument of Mr. Mitra, on the basis of the construction he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest reserve account. When the Tribunal says in the statement of the case that as early as 1934-35 assessment year the appellant company knew that the loans advanced to the two debtor companies would not be realised in full, and when it proceeds to point out the manner in which the interest amounts were treated by the assessee company itself in its own accounts and lastly when it points out the position taken up by the assessee company in the income-tax and excess profits tax assessments, it is quite clearly reciting the evidence on which it bases its conclusion that the amount of ₹ 3,89,948 became irrecoverable during the earlier years. Pointed reference is made to the circumstance that not only were the amounts credited to the interest reserve account which was treated as a suspense account and which was admittedly intended to meet cases of irrecoverable debts, but the amounts were also deducted out of the total debts due to the assessee company from the debtors for balance sheet purposes and thus the constituents of the company were told that these debts no longer formed part of the assets of the company. The departmental authorities obviously saw no reason to disa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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