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TMI Blog1969 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under the earlier agreement, was to be adjusted against the sum agreed latterly to be advanced. The picture for which the money was advanced was released on February 24, 1956. In the meantime, there was yet another agreement dated January 31, 1956, whereby the assessee agreed to provide further finances to the extent of Rs. 1,50,000. After repayment towards the loan as on March 31, 1957, there was still outstanding from Tehrani a sum of Rs. 65,950-13-10. On 1st April, 1957, there was an arrangement come to between the two, the terms of which are to be found in a letter of that date passed by the debtor. It appears from it that the debtor was not in a position to repay the outstanding. He, therefore, requested the assessee to reduce the indebtedness to Rs. 10,000 and waive the balance treating it as a rebate given to him. The letter also added that as a security for repayment of the sum of Rs. 10,000 he handed to the assessee 100 shares of the face value of Rs. 100 each in Newtone Studios Ltd., together with blank transfer forms duly signed by him. A time of 60 days was stipulated in the letter for repayment of the sum of Rs. 10,000. This would appear to have been accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 had definitely become bad and it should, therefore, be allowed. When it came before the Tribunal, by way of an appeal by the department, it was doubtful whether the terms contained in Tehrani's letter of April 1, 1957, amounted to an agreement at all. In its opinion it was but a request to scale down the debt and did not have the status of a contract. Its further reasoning was that, though the debtor undertook to pay the sum of Rs. 10,000 within a specific period, he did not actually do so, and, further, the assessee also did not put the sum of Rs. 10,000 in a separate account. But he went on crediting subsequent realisation to the same account. The Tribunal also observed that when the assessee paid the sum of Rs. 10,554.76, he returned the 100 shares held by him as security against the original debt of Rs. 10,000. In the opinion of the Tribunal, all this indicated that the letter, the collections, credit in favour of Tehrani, and the later transactions, were all part of the original transaction and it was unable to conclude that the sum of Rs. 55,950-13-10 became a bad debt. The Tribunal also relied in support of its conclusion on the other fact that while other financiers deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits chargeable to tax cannot be arrived at without setting off legitimate trading loss. This is inherent in the operation of section 10(1) : Chitnavis case. If, as we said, the instant case is not a bad debt but a trading loss in the sense that, in the course of the business of the assessee, he, having regard to all the circumstances, bona fide thought that the entire outstanding could not be recovered and it was, therefore, necessary to arrive at a settlement with the debtor reducing the debts to Rs. 10,000 and entering into an arrangement providing for security for repayment of this sum, and also stipulating a time therefor, the question then is whether the waiver and writing off of the debt, of which deduction is sought, can be allowed as a deduction in the year in question? We are unable to agree with the Tribunal that the terms contained in the letter of Tehrani dated April 1, 1957, did not amount to a contract. There is no question that it was a bona fide arrangement, and it is clear that, under that arrangement, binding as it was on both the assessee and the debtor, the assessee thereafter could not legally recover what he had already waived. His right, after the arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, it had placed all the facts before the revenue and it was its duty to assess their legal effect and allow deduction in the proper year treating the sum in question either as a bad debt or as a trading loss, but the revenue having not done that, in such a case, the strict rule that a trading loss is eligible for allowance only for the year in which it occurred, should not be insisted upon. It may be seen that the argument is really not founded on the provisions of the statute, but on the attitude or conduct of the revenue in making assessments for the previous year and disposing of the very facts before us in the previous years. In support of this principle, as learned counsel would term it, he had relied on Karamsey Govindji v. Commissioner of Income-tax, Indore Malwa United Mills Ltd. v. State of Madhya Pradesh and Associated Banking Corporation of India Ltd. v. Commissioner of Income-tax . Having given our best attention to these cases we are of opinion that they do not assist us to uphold the principle contended for. Karamsey Govindji v. Commissioner of Income-tax concerned itself with the deductibility of a bad debt, a sum of Rs. 70,000. It was not concerned with a tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from outsiders, entered them in its books of accounts, with, drew the sums and utilised them for their own purposes. The managing agents went into liquidation in a particular year. In computing the company's profits for the purpose of industrial tax under the Indore Industrial Tax Rules, 1927, for the assessment year 1941, the company claimed deduction of the sums which could not be recovered from the managing agents as bad debts and trading loss. The Supreme Court held that the money borrowed by the managing agents had become irrecoverable and it was allowable as a deduction as a trading loss in computing the profits of the managed company in the assessment year. It may be seen that, although the managing agents went into liquidation in 1933 and the assessment related to a subsequent year, nevertheless the trading loss claimed as a deduction was allowed. This is perhaps on the view that it is only in the year of assessment the assessee actually came to know of the misconduct on the part of the managing agents and the full facts resulting in a trading loss to the managed company. Associated Banking Corporation of India Ltd. v. Commissioner of Income-tax was a case of embezzleme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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