COMMISSIONER OF INCOME TAX AND EXCESS PROFITS TAX MADRAS Vs. R S A SANKARA AYYAR
SUPREME COURT OF INDIA (FROM: MADRAS)
COMMISSIONER OF INCOME TAX AND EXCESS PROFITS TAX,MADRAS
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(1.)This is an appeal from the judgment and order of the High Court of Judicature at Madras dated 26-8-1948, delivered on a reference made to it by the Income-tax Appellate Tribunal under S. 66(1), Income-tax Act,1922 (Act 21 of 1922).
(2.)The respondent was the manager of a Hindu undivided family. Prior to 1931, he was carrying on a money-lending business in partnership with one Kasi Ayyar. The business of this partnership was discontinued except for the purpose of realisation of outstandings due to it. One of the outstanding was a debt due from the firm of Kadir Pillai Harakayar on a mortgage. A final decree was obtained against the said firm in the year 1940. In execution of that decree, certain lands of the debtor were sold.
On 11-9-1942, a sum of Rs. 16,395-14-10 was due under the decree when the two partners decided to close the accounts of the partnership and in pursuance of that decision the outstandings were divided between them. On 12-9-1942, the respondent entered a sum of Rs 8,197, representing half of the said sum due from the debtor under the decree, in the books of his own separate money lending business which he was carrying on as manager of the family. A separate account was opened in these books in the name of the debtor. There were certain money receipts towards the discharge of the debt during the accounting period.
The total amount realised subsequent to 12-9-l942, came to Rs. 4,664 and the respondent credited half of this amount, i.e., Rs. 2,332 in his account as his share. On 5-10-1943, the respondent wrote off the sum of Rs. 5,880. which was still due to him from the debtor out of the amount of Rs. 8,197, as irrecoverable.
(3.)In the assessment year 1944-45, (accounting year 1943-44), the respondent claimed an allowance of the aforesaid sum of Rs. 5,880 as a bad debt under S.. 10(2) (xi) of the Act. The claim was disallowed by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner allowed the claim and held that the bad debt had been taken over by the respondent as a part of the money-lending business and that the loss was sustained in the separate business carried on by him. On appeal, the Income-tax Appellate Tribunal confirmed this decision. On an application made to it, the Tribunal referred the following two question for the decision of the High Court:
(1) Whether there is any material for the Tribunal's finding that the bad debt of Rs. 5,880 claimed by the assessee arose in respect of a loan made in the ordinary course of his money-lending business, within the meaning of s. 10(2) (xi), Income-tax Act
(2) Whether, on the facts and in the circumstances of the case, the assessee's claim to write off the sum of Rs. 5,880 towards his share of the irrecoverable portion of the decree debt in the assessment year is admissible under S. 10(2) (xi), Income-tax Act
The reference was answered in the affirmative by the High Court. It, however, granted a certificate to file an appeal to this Court.
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