Thommen, J. - (1.) These appeals under certificate arise from the common judgment of the High Court of Gujarat in the Commr. of Income-tax, Gujarat III v. Poonjabhai Vanmalidas, (1976) 105 ITR 388 (Guj). The assessee is the same in all the cases. The assessment years in question are 1964-65, 1965-66 and 1967-68. In the relevant previous years, the assessee received certain amounts and they were assessed under S. 41(4) of the Income-tax Act, 1961 (hereinafter referred to as the "1961 Act"). The contention of the assessee was that he was not assessable under Section41(4) of the 1961 Act because these amounts had been written off as bad debts in the year 1959-60 and his claim for deduction, though initially disallowed by the Income-tax Officer, was subsequently allowed by the Income-tax Appellate Tribunal in I.T.A. Nos. 673-676 (AHD) dated 12-7-1963. The business of the assessee had discontinued prior to the previous year in which any part of the amount was received, and consequently, it was contended, these amounts when received were not assessable to income-tax under S. 41(4) of the 1961 Act as that section was not in pari materia with Section 10(2)(xi) of the Income-tax Act, 1922 ('1922 Act') in terms of which the amounts had been written off as bad debts. This contention was rejected by the. Income-tax Officer and the amounts were brought to tax. The orders of assessment were confirmed by the Appellate Assistant Commissioner. On further appeal by the assessee, the Tribunal held, accepting the assessee's contention, that the amounts could not be taxed under S. 41(4) of the 1961 Act, for that section had no application to amounts written off in 1959-60 in terms of S. 10(2)(xi) of the 1922 Act when it was in force. On a reference, the High Court held that the amounts in question were includible in computing the taxable income of the assessee in respect of the relevant years under S. 41(4) of the 1961 Act. The questions referred were accordingly answered by the High Court against the assessee and in favour of the Revenue. Hence the present appeals.
(2.) Section 10(2)(xi) of the 1922 Act reads:-- "10. Business:-(1).................................... (2) Such profits or gains shall be computed after making the following allowances, namely:- ********** (xi) when the assessee's accounts in respect of any part of his business, profession or vocation are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of the part of his business, profession or vocation, and in the case of an assessee carrying on a banking or money-lending business, such sum in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee: Provided that if the amount ultimately recovered on any such debt or loan is greater than the difference between the whole debt or loan and the amount so allowed, the excess shall be deemed to be a profit of the year in which it is recovered and if less, the deficiency shall be deemed to be a business expense of that year; ............................................................... "
(3.) There is no dispute that the assessee's accounts were not kept on cash basis. There is also no dispute that the assessee's business had discontinued prior to the year of recovery of the amounts in question. If the amounts had been received prior to the repeal of the 1922 Act the entire transaction would have been covered by the provisions of S. 10(2)(xi) of that Act, and the business having been discontinued prior to the relevant years of receipt, these amounts would not have been taxable. See Commr. of Income-tax, Madras V. Express Newspapers Ltd., (1964) 53 ITR 250 . But the amounts in question here were recovered after the coming into force of the 1961 Act which repealed the 1922 Act. The question, therefore, is whether the amounts which had been written off in terms of S. 10(2)(xi) of the 1922 Act, but subsequently received after the repeal of that provision, could be brought to tax in terms of the relevant re-enacted provisions. Tax is sought to be levied under the 1961 Act in terms of S. 41(4) which reads: "41. Profits chargeable to tax- ********** (4) Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of Section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has-been allowed is in existence in that year or not. ********** " This sub-section refers to the deduction allowed in respect of a bad debt under the provisions of S. 36(1)(vii) of the 1961 Act which reads as follows: "36. Other deductions--(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 - ********** (vii) subject to the provisions of sub sec.(2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year: ********** Significantly sub-section (4) of Section 41 of the 1961 Act specifically states that tax is attracted whether or not the business or profession in respect of which the deductions had been allowed continued to be in existence in the year of receipt. This is a fundamental deviation from the earlier provision contained in Section 10(2)(x;) of the 1922 Act. Furthermore, sub-section (4) of Section 41 specifically says that the deductions should have been allowed in respect of a bad debt under the provisions of S. 36(1)(vii) in order to attract S. 41(4).;