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TMI Blog1966 (6) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... As on June 13, 1945, the amount due was ₹ 7,752-10-0. On that date the assessee got a promissory note for ₹ 6,528 leaving a balance of ₹ 1,224-10-0 which was transferred to the former account on April 12, 1954. Thus, a total sum of ₹ 5,211-6-0 stood outstanding from Subramanian Chettiar. In 1952 the assessee filed a suit against him, got a decree and on execution on September 24, 1952, realised on October 9, 1953, ₹ 4,074-14-11. The outstanding balance of ₹ 5,211-6-0 was arrived at after giving credit to the realisation on execution of the decree. One AL. KR. Alagappa Chettiar was another debtor of the assessee and had borrowed from the latter a sum of ₹ 1,000 on a promissory note dated August 3, 1946. The assessee made one or two further advances of small sums. But the debtor repaid only ₹ 10 on August 10, 1952. The total amount due as on that date was ₹ 1,080. In 1953 Alagappa Chettiar was adjudicated an insolvent and no dividend was declared in insolvency up to the assessment year. The assessee claimed deduction of the two debts as bad debts in the accounting year. The Income-tax Officer disallowed the claim. His reason fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial to justify the finding, the claim of the assessee that they became bad debts in the accounting year should have been accepted. For the revenue it is stated that the question when a debt became a bad debt being one of fact, the Tribunal's finding cannot be taken exception to in a reference under section 66(2) of the Act and that in any case the finding is supported by evidence. Under section 10, tax is payable by an assessee on the profits or gains of the business carried on by him and such profits or gains must be computed after making the allowances specified therein. One of such allowances is that mentioned in section 10(2)(xi), to wit, the sum in respect of bad and doubtful debts due to the assessee in respect of his business, and where the assessee carried on a banking or money-lending business, any sum in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee is entitled to allowance. Whether bad or doubtful debts are synonymous with a sum irrecoverable, we are not called upon to decide. But what is a bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether a debt is a bad debt, and, if so, at what point of time it became a bad debt, are questions which in their Lordships' view are questions of fact, to be decided in the event of dispute by the appropriate Tribunal and not by the ipse dixit of anyone else. The mere fact that a debt was incurred at a date beyond the period of limitation will not of itself make the debt a bad debt; still less will it fix the date at which it became a bad debt. A statute-barred debt is not necessarily bad; neither is a debt which is not statute-barred necessarily good. The age of the debt is no doubt a relevant matter to take into consideration. In every case it is a question of fact to be determined after consideration of all relevant circumstances. This view of the Privy Council was quoted with approval by the Supreme Court in Bank of Bihar Ltd. v. Commissioner of Income-tax [1962] 45 I.T.R. 427 (S.C.). In Harnand Rai v. Commissioner of Income-tax [1936] 4 I.T.R. 366 the Lahore High Court thought that, though the debtor absconded in 1928, the assessees had still three years to make up their mind whether to sue him or not and the debt could be said to have been bad only on July 10, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee could justifiably wait until the completion of the winding up by the receiver before he could treat a debt as a bad or a doubtful debt. We do not see why, if the official assignee had no assets of the insolvent in his hands, a creditor should wait until three years after he had knowledge of that position and then treat the debt due to him as a bad debt. As we already mentioned, a debt becomes bad not because the assessee was minded to treat it so at a particular time but because at and from a particular point of time it was no longer possible to recover, as the debtor had no means or assets to repay and the circumstances made it plain that recovery would not be possible. We do not think that Muthukaruppan Chettiar v. Commissioner of Income-tax [1939] 7 I.T.R. 76 assists the assessee either, because there the learned judges of this court were clearly of the view that the assessee was not in a position to know whether the debts were recoverable or not until after a particular date. It is quite true, and we accept the contention for the assessee, that the Income-tax Officer should have materials before him to hold that the debts claimed as a loss should have been written off before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly in the accounting year. From the manner in which the Tribunal has dealt with the matter, we should point out that there is no presumption one way or the other that the debt became a bad debt on a certain date or later and that a decision on the question will depend upon facts proved on evidence. It cannot be said that, merely because the assessee has not furnished evidence to show why he waited till the assessment year 1956-57 to write off and what reasonable hope of recovery he had after he had brought the property to sale on the first occasion, the debt became bad or doubtful prior to the accounting year. That the debt became bad prior to the accounting year will have to be found on proved facts relevant to the question. We have not been invited to any evidence or material on which the Income-tax Officer could say that the assessee had knowledge that the debtors had no properties from a particular point of time and they had no other means to repay the debts thereafter so that the debts could be treated as having become bad at that point of time. When the assessee claimed that the debts became bad in the accounting year, he was not called upon to show that it was not so and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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