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TMI Blog1978 (6) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal that the assessee would be entitled to deduct the sum of Rs. 16,363 as bad debt could be regarded as reasonable on the materials available on record? " The respondent-assessee along with one S. M. Palaniappan carried on a partnership business under the name and style of M/s. Union Leather Company in hides and skins. One Hussunudhin, a Delhi merchant, was one of the constituents of the partnership firm. He had a running account with the firm and a sum of Rs. 17,134 was due from him to the firm as on December 31,1962. During the year ending December 31, 1962, the said Hussunudhin filed an insolvency petition and got himself adjudicated insolvent. On the ground that there was no prospect of recovering any amount from the said Hussun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, the AAC also upheld the disallowance. On a further appeal to the Tribunal, the Tribunal allowed the claim by its order dated October 12, 1972. At the instance of the revenue, the above questions have been referred to this court as arising out of the order of the Tribunal. The fact that there was a debt due to the firm from the said Hussunudhin cannot be disputed. Even before the firm was dissolved, the firm claimed the said sum of Rs. 17,134 as a bad debt, but that claim has been disallowed by the ITO on the ground that the firm has to await the final declaration of dividend from the estate of Hussunudhin who had been adjudicated insolvent. As a result of the disallowance of the said claim, the amount due from the said Hussunudhin con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken over by him. We see no force in this contention as the debt has already been written off even before the dissolution of the firm, and on the date of the dissolution, the books of the firm did not show it as a separate asset. It is for this reason the assessee has not shown it in his wealth-tax assessment. It is next contended that the communication stating that no further dividend would be paid was received only on October 12, 1966, Which fell outside the accounting year relevant for the assessment year 1966-67, and, therefore, the claim for bad debt cannot be made during the assessment year 1966-67. The dividend in respect of the debt was received from the official assignee by the assessee on November 10, 1965, and this falls within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of an earlier previous year, but the ITO had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year. It is not in dispute that in this case the debt was written off as a bad debt in the assessment year 1963-64, and the ITO disallowed the claim on the ground that debt should not be considered as bad until the final declaration of the dividends by the official assignee takes place. Thereafter the firm was dissolved and the assessee took over the entire business including the assets and liabilities. The assessee claimed deduction in respect of the debt which has already been written off by the firm, in the year 1966-67, as the last and final dividend was paid by the official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the predecessor-firm. The question arose whether the successor-firm could write off the debt due to the predecessor-firm and claim deduction therefor. The court held that the successor-firm could do so under s. 36(2)(i)(b). It is well settled that where a partnership is dissolved and one partner took over and continued the business of the partnership, it is a case of succession of the business and that in such a case there is continuity in regard to the assets and liabilities of the firm and, therefore, the successor-assessee is entitled to write off the debts which have become irrecoverable even though such debts originally belonged to the firm (vide C. J. Sheth v. CIT [1962] 46 ITR 1052 (Mad)). The same principle has also been applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt after he took over the business as the conditions set out in that provision are satisfied. Admittedly, there has been a writing off of the debt as a bad debt by the transferor but that claim was not accepted by the ITO on the ground that it has not been established to have become a bad debt in the assessment year in which the claim was made. Since the debt has already been written off as irrecoverable in the accounts of the earlier previous year, there is no necessity for a further or fresh writing-off of the debt by the assessee after he took over the business in view of the above provision. In our view, therefore, the Tribunal was right in allowing the deduction in a sum of Rs.16,363 as a bad debt in the year 1966-67. The above two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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