9911796707
TMI Blog1944 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to have arisen out of the assessment on the Multan Electric Supply Co., Ltd., Multan, for the year 1940-41. The material facts are that the assessee in this case, the Multan Electric Supply Company, is a limited company promoted by the late Rai Bahadur Prabh Dayal who was the first chairman of the company in 1922. This gentleman was the karta of a joint Hindu family known as Messrs. Sukhdev Bux Mul Chand which carried on banking business; and this trading family was appointed as one of the bankers of the assessee company. Rai Bahadur Prabh Dayal died on the 15th May 1934. Prior to his death the joint Hindu family held 2,292 shares in the assessee company and had paid a sum of ₹ 81,607-8 in call money. Shortly before the death ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards the settlement of the debt. The assessee company gave effect to this award and reversed the entries in their books showing thereafter this sum of ₹ 50,107-8 as an amount standing to the credit of the family. In connection with the assessment for the year 1940-41 a sum of ₹ 81,841 was claimed as deductible on account of being a bad debt from the family. This claim was rejected by the Income-tax Officer but allowed by the Appellate Assistant Commissioner on appeal. In connection with this appeal counsel for the assessee had argued that an additional ground of appeal should be considered, viz., that the appellant company was entitled to claim a further sum of ₹ 50,107-8 which had been erroneously credited to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther this sum was a capital receipt or a bad debt, persisted in the application made by the Commissioner of Income-tax for a reference to this Court in which the question of law said to arise was formulated in the manner stated in the beginning of this judgment. It appears to us that, with all respect to the learned members of the referring Income-tax Tribunal, the real point in issue has been obscured by the form of the question. We are not here concerned with the question whether ₹ 50,107-8 is a bad debt legitimately deductible under Section 10(2)(xi) of the Income- tax Act but whether this sum is a capital receipt or a revenue receipt. It must be remembered that this sum represents the value of certain shares issued to the Rai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted qua the Income-tax department to change what was an asset into a revenue receipt. For this purpose Mr. Bajaj refers us to the English case of Morley v. Tattersall [1939] 7 I.T.R. 316, where it was laid down that the quality and nature of the receipt is fixed once and for all and cannot be changed by the subsequent conduct of the assessee. The Income-tax Tribunal in its appellate judgment of the 24th October 1942 followed this decision implying thereby that the sum of ₹ 50,108 was in fact a receipt, but nevertheless went on, for reasons which are not easily intelligible, to include it in the entire claim as a bad debt deductible under Section 10(2)(xi) of the Indian Income-tax Act. If the intention was to hold this sum a rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards payment of the interest is concerned, it was obviously revenue and assessable, as such, to tax. Our answer, therefore, is that out of the sum of ₹ 50,108 now in question, the sum of ₹ 47,051 should be regarded as a capital receipt having been in fact appropriated towards the principal of the debtor's loan and therefore a legitimate deduction, while the balance of ₹ 3,057 having been necessarily appropriated towards the interest, must be regarded as the income of the company and assessable as such. We answer the question referred to us accordingly. In view of the confusion which has obscured the real point in issue for which in our view both sides are equally responsible, we make no order as to costs. Referen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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