Satish Chandra, C.J. - (1.) M/s. T. N. Shah, a partnership firm, consisting of thirteen partners carried on the business of exporting coal to Pakistan. On 3rd of November, 1966, the thirteen partners of this firm incorporated themselves as a private limited company known as Messrs. T. N. Shah (Private) Ltd., Agra. By an agreement dated 14th November, 1966, the private limited company took over the business of the erstwhile partnership firm as a going concern with all assets and liabilities. The thirteen erstwhile partners became shareholders of this newly floated private limited company.
(2.) FOR the assessment years 1968-69, 1969-70 and 1970-71, the company claimed deduction of Rs. 2,15,741, Rs. 6,539 and Rs. 1,02,058 on account of bad debts. There is no dispute that the transactions in which these amounts became bad debt related to export of coal to Pakistan and they were all taken into account in computing the income of the partnership firm in previous years. The ITO disallowed the claims in toto. This disallowance was confirmed by the AAC as well as by the Tribunal. At the instance of the assessee, the Tribunal has referred the following questions of law for our opinion : " (1) Whether, on a true interpretation of Section 36(2)(i) of the Income-tax Act, 1961, and on the facts and in the circumstances of the case, the Tribunal was right in disallowing the assessee's claims of bad debts amounting to Rs. 2,15,741. Rs. 6,539 and Rs. 1,02,058 plus Rs. 38,154 for the assessment years 1968-69, 1969-70 and 1970-71, respectively ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the assessee's alternative claims of loss under Section 28(1) of the Income-tax Act, 1961, for the said assessment years ? "
(3.) THE Tribunal emphasised that the Act of 1961 has made a complete departure from that of 1922. Section 10(2)(xi) of the 1922 Act was no more relevant, because a condition was expressly engrafted in Section 36(2)(i) of the 1961 Act, namely, that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of that previous year. It held that no doubt it was admitted that these amounts had been taken into account while computing the income of M/s. T. N. Shah, the partnership firm, in an earlier previous year, but then that was an assessee distinct from the present private limited company. THE firm was, no doubt, the predecessor in business of the present assessee-company. Section 36(2)(i), however, allows only the original creditor to claim relief on account of bad debt. A successor creditor is not entitled to do so. The assessee's alternative claim under Section 28 was repelled on the ground that it did not arise out of the business of the assessee-company but out of the business of the predecessor partnership firm.;