SITARAM MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference at the instance of the assessee, viz., Shree Sitaram Mills Ltd., Bombay. In this reference we are concerned with the asst. year 1957 58, the previous year of which ended on 31st March, 1957. Although registered as a public limited company, it is an admitted position that the assessee is a S. 23A company for the relevant accounting year. The total assessable income for the asst. year 1957 58 was Rs. 6,61,811, and after deducting the taxes payable, a surplus of Rs. 3,08,553 was left over. The assessee company, however, did not declare any dividends. The concerned ITO, therefore, issued a show cause notice to the assessee as to why an order under s. 23A should not be passed against it. The explanation offered by the assessee company was that it used to advance moneys to Shree Mahalaxmi Woollen Mills Ltd. from time to time on which advance interest had been charged. The aggregate amount due to the assessee company from Shree Mahalaxmi Woollen Mills Ltd. amounted to Rs. 20 lakhs. The financial position of the debtor company, however, had deteriorated, and the assessee company was ultimately required to accept a sum of Rs. 75,000 in full and final settlement of the aggregate amount of the loans. Accordingly, the balance amount of Rs. 19,25,000 was written off as a bad debt. It may be mentioned that this amount had been claimed as a deduction against its business income for the asst. year 1957 58, but in the assessment proceedings it was finally disallowed by the Tribunal on the ground that it was not a permissible deduction under S. 10(2)(xi) of the Indian IT Act, 1922. It was the assessee's contention that notwithstanding the fact that it was finally disallowed by the Tribunal in the assessment proceedings, it was open to the assessee to raise the same contention before the ITO in response to the notice under S. 23A.

(2.) THE ITO rejected the contention of the assessee company and passed an order under S. 23A against it. In appeal, the Appellate Asstt. CIT also rejected the assessee's contention and upheld the 23A order passed by the ITO. Being aggrieved, the assessee company then filed a further appeal to the Tribunal. The Tribunal agreed with the assessee company that it was open to the assessee to canvass the very question again which had been concluded against the assessee in the assessment proceedings, but it was of the opinion that the losses incurred by the assessee company related to capital losses, and under S. 23A the ITO was not concerned with the capital position of the assessee. It is from this decision of the Tribunal that the assessee had come to the High Court, and the question canvassed before us in this reference is, whether the Tribunal was right in upholding the view of the ITO.