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TMI Blog1959 (9) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts had in fact become irrecoverable in the account year relevant to the assessment year 1948-49 and allowed both the items as deductions in concoction with the assessment for the year 1948-49. The Commissioner of Income-tax asked the Tribunal to state the case and refer certain questions of law to us under sub-section (1) of section 66 but the Tribunal dismissed this application on the short ground that no question of law arose for decision. The Commissioner has no presented an application under sub-section (2) of section 66, in which he prays that the Tribunal may be required to state the case and to refer to it the following questions of law, namely: (1) Whether the Trinbunal's decision that the loss of advances made by the assessee to film suppliers amounted to bad debts within the meaning of section 10(2)(xi) of the Indian Income-tax Act, 1922, is correct notwithstanding that the advances would never have come to swell the taxable profits of the assessee? (2) Whether there is any material for the Tribunal's assumption that there must have been an oral variation (terms not indicated) of the agreement dated September 27, 1945, between the assessee and Mes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment for 1948-49. The facts of the second case in which the deduction of a sum of ₹ 2,25,000 is being claimed are somewhat similar. On the March, 1946, the assessee entered into an agreement with one Shiraz Ali Hakim by which the latter granted exhibition, distribution and exploitation rights to the assessee for a sum of ₹ 2,25,000 for a picture known as Mughal-e-Azim . Unfortunately the picture was never completed and the producer fled to Pakistan and was adjusticated an insolvent on 11th November, 1948. The assessee claimed a sum of ₹ 2,25,000 as a bad debt. The Income-tax Officer disallowed these claims primarily on the ground that they were capital losses. The Appellate Assistant Commissioner was unable to endorse the view and held that one-third of the claim for deductions was allowable in the assessment for 1948-49 and 1/3rd in the assessment for 1949-50. The Appellate Tribunal allowed the appeal of the assessee with the remark that the assessee's claim falls within the terms of section 10(2)(xi) and that the sums of ₹ 1,00,714 and ₹ 2,25,000 should be allowed as proper deductions for the assessment year 1948-49. The Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on appeal allowed the company's claim to deduct the amount in question in computing its profits for assessment in income-tax. Holding that the loss was a bad debt that had arisen in the course of the company's trading, Rowlatt, J., held that there was no evidence to support the Commissioner's findings; that the loss was not a trading loss; and that it was an admissible deduction from the company's profits for the income-tax purposes. In the course of his order the learned Judge observed as follows: When the rule speaks of a bad debt it means a debt which is a debt that would have come into the balance sheet as a trading debt in the trade that is in question and that it is bad. It does not really mean any bad debt which, when it was a good debt, would not have come in to swell the profits. The decision appears to me to be wholly inapplicable to the facts of the present case, for the bad debt of 14,000 which was alleged by the company to have arisen in the course of the company's business was found by Rowlatt, J., not to be a trading loss. It was sustained by the company as the managing director had made many payments relating to his own private affair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the principal by way of an advance for the rights to exploit the picture in question. The amounts received from the distribution and exploitation of the picture were to be retained by the agent until the sum of ₹ 3,00,000 was fully realised and recovered. Any amounts which were recovered thereafter from the distribution and/or exploitation of the said picture were to be distributed in certain proportions between the producer and the agent. A debt is that which one owes to another; any money, goods or services that one is bound to any another; a pecuniary due; a liquidated demand; a sum of money due by certain and express agreement. Includes any claim or demand upon which a judgment for a sum of money or directing the payment of money can be recovered in an action. Debt denotes not on the obligation of the debtor to pay but also the right of creditors to receive and enforce payment. To constitute a valid debt the money must have been advanced with reasonable belief at the time that it would be paid. Evidence of an obligation to repay is the first important factor to be singled out of the surrounding facts and circumstances. For purposes of taxation, a debt is a legally en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expression debt or bad debt particularly when this question was not raised before the Appellate Tribunal. The question whether the advances made by the assessee amount to debts does not appear to have been raised either before the Income-tax Officer or before the Appellate Assistant Commissioner. The question which was agitated before the Income-tax Officer was whether the advances were trade debts or not. He held that the advances made by the assessee were in the nature of financial arrangements. He held further that as the producers were free to seek distribution and exploitation rights of the picture for the same territories for which the assessee had contracted and as they were at liberty to sell to any person and at any price at their discretion as the assessee was to get a commissioner of 7? per cent. on the said advance the commissioner in such a case was nothing different from what we call in common parlance as interest or investment . The Appellate Assistant Commissioner held that the entire amount advanced by the assessee to the producers was either to be recouped by him from their share of realisations or in case such share was deficient balance was returnable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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