- (1.) This appeal is preferred against the judgment of the Allahabad High court answering the question referred to it, in the negative, i. e. , in favour of the Revenue and against the assessee. The question referred to the High court under Section 256 (1 of the Income Tax Act reads: "Whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the sum of Rs. 60,000. 00 paid to Shri mohan Lal Vyas represented the trading loss of the assessment year 1964- 65 -
(2.) The appellant's accounting year relevant to assessment year 1964-65 was the year ending 30/4/1963.
(3.) The appellant is a partnership firm engaged in the business of manufacture and sale of miniature bulbs. In the assessment proceedings relating to the year 1964-65, it claimed a deduction of a sum of Rs. 60,000. 00 as a bad debt. According to the appellant, it proposed to expand its business to undertake the manufacture of fluorescent tubes. For that purpose, it sought the assistance of one Mohan Lal Vyas and paid to him, between July 1961 and April 1962, a sum of Rs. 60,000. 00. In return, the said person agreed to procure the manufacturing licence under the provisions of the Industries Development and Regulation Actand a licence or permit for the release of foreign exchange necessary for the import of machinery, plant and equipment for the manufacture of fluorescent tubes. Mohan Lal Vyas procured the manufacturing licence on 5/12/1961 but he could not procure a licence or permit for the release of requisite foreign exchange for import of machinery, plant and equipment. Since the appellant could not import the machinery, the government revoked the manufacturing licence as well. The appellant's case was that inasmuch as there was a stipulation between it and Mohan Lal Vyas whereunder the latter undertook to refund the said sum of Rs. 60,000. 00 in the event of his failure to obtain the said licences and permits, the appellant filed a suit for recovery of the said sum being original suit No. 106 of 1964 on the file of the Civil Judge, Kanpur. The suit was decreed ex parte. The appellant, however, took no steps whatsoever to execute the said decree with the result that no amount was recovered thereunder. The appellant says, it treated it as bad debt and debited the said amount to the profit and loss account, on 30/4/1963. It is on the above facts that the said deduction on account of bad debt was claimed.;