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TMI Blog1947 (1) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under Section 10(2)(xi), of the Act ? 3. Whether interest on arrears of rent relating to agricultural lands is agricultural income within the meaning of Section 2(1) of the Act and, as such, exempt from tax under Section 4(3)(viii) ? It is convenient to set out the facts regarding each question separately. Question No. 1. - The assessment proceedings relate to the year of assessment 1941-42, the accounting period of the assessee being the Fasli year 1347, that is to say 29th September, 1939, to 16th September, 1940. The assessees father purchased the Belliaghatta Jute Mills at Calcutta for a sum of ₹ 6,00,000 in October or November, 1912. The mill was placed in charge of James Luke and Sons who were to look after it as managing agents on a remuneration of ₹ 500 a month and a commission at the rate of five per cent. On the net profits of the mill. In order to supply the managing agents with funds to carry on the business of the jute mill substantial sums were advanced by the assessees father in 1912, 1913 and 1915. In the last year the amount actually placed in the hands of the managing agents amounted to ₹ 2,50,000. James Luke and Sons executed han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., was practically solely owned by one Mr. Luke who had no finance and therefore the dues cannot be realised. It is not clear what enquiries were made and why a limited company which is working should not be proceeded against for the dues. Further Mr. Luke, the alleged owner of Watt Brothers Ltd., is none else than Messrs. James Luke and Sons, the managing agents of the assessee. It is not clear how the dues become irrecoverable from the assessees own managing agents. The auditors, Messrs. Lovelock and Lewes have not pointed out the amount as a bad debt, and it is hard to believe that they have purposely omitted to do so to shield Messrs. James Luke and Sons. The bad debt is not proved. On the 25th of the August, 1934, the assessee instituted Suit No. 1507 of that year on the original side of the Calcutta High Court against James Luke and Sons in which he claimed a decree for ₹ 43,883 as having been wrongfully spent by the managing agents and also ₹ 1,58,522 as having been lent by them to Watt Brothers Limited instead of buying jute in the market for cash -this figure is arrived at by adding some costs to the figure 1,54,433 referred to already (this I find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax authorities in several years ? Exhibit T-L (page 31) is an extract from list of loans for 1339 Fasli filed along with the return made under Section 22 of the Income Tax Act by the assessee for 1933 assessment. It gives a tabular list of a number of debtors for the periods 1st of April, 1931, to 30th of September, 1932. In the third column the balance of the sum advanced at the end of 1338 Fasli is shown. In the fifth column is given the figure for any part of the principal sum realised in 1339 Fasli, and in the sixth column the interest on the loan realised in 1339 Fasli is shown and at the close of 1339 Fasli the balance of the principal is shown. The fifth debtor is James Luke and Sons. At the end of 1338 Fasli ₹ 2,50,000 is shown as advanced to them, but in the fifth column the whole of this ₹ 2,50,000 is shown as having been realised, and in the sixth column the interest realised is shown as ₹ 7,500 in 1339 Fasli, and, as was to be expected, the seventh column shows that the balance at the close of 1339 Fasli was nil. This shows conclusively to my mind that the assessee accepted the position that ₹ 2,50,000 which had been advanced by him to James ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any relief to the assessee. The matter can be looked at only from two points of view. Either the Income Tax Department were right in holding that the debt had not become bad in 1934 or they were, wrong in so holding. If the Income Tax Department were right in holding that the debt had not become bad in 1934 the assessee can have no grievance if he agreed with the Income Tax Department and treated the debt as if it were a good debt in that year. The jute mill business having been closed down in 1932 the assessee claim to set off the loss in that business in his account for the year 1940, as it then became a capital loss. In the course of the argument I put to learned counsel the question that if the debt of the jute mill business was actually a good debt not only in the view of the Income Tax Department, but also having regard to all the financial position of the debtor, how could the assessee claim this is as a bad debt of the jute mill business some years later after the jute mill business had been closed ? The answer must be against the assessee in the such a contingency. This is exactly what has happened in the present case. The assessee accepted the decision of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Maharaja taking over all the assets of the business including the debts due from the customers to Kunwar Ganesh Singh who was the agent of the business. In the present case the facts, are otherwise viz., the assessee has been repaid the sum of ₹ 2,50,000 which he advanced to James Luke and Sons in the manner indicated above. I have, therefore, come to the conclusion that the answer to Question No. 1 (b) must also be in the negative. Question No. 2. - Shyam Lal Das was an employee under the assessee and acted as patwari in his zamindari. On taking the account it was discovered that Shyam Lal Das had misappropriated some money out of the zamindari income. As a result of settlement of accounts, Shyam Lal Das executed a promissory note in respect of the fund which he had embezzled in September, 1934. The assessee instituted a suit to recover the sums due on the handnote and on the 31st October, 1938, he obtained a decree but nothing could be realised from the patwari. The assessee claims that this amount should be treated as irrecoverable loan and allowed to him as a loss in his money-lending business. It is found as a fact by the Income Tax authorities that this deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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