Satish Chandra, C.J. - (1.) THE assessee is a registered firm. It carries on business in petroleum products, automobile repairs and fabrication, etc. THE assessment year in question is 1961-62, for which the relevant accounting period was calendar year 1960.
(2.) TWO questions have been referred for our opinion. One is whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the sum of Rs. 57,122 was a bad debt allowable under Section 36(1)(vii) of the Income-tax Act, 1961. The relevant and material facts in respect of this question are that the assessee had been doing fabrication work for a concern called, Free India Dry Accumulators Ltd. ("Fida" for short) since 1951. By the beginning of 1958 a sum of Rs. 7,721 had become due to the assessee from Fida. Fida had two subsidiary concerns, called M/s. Shanker Sugar Mills, Captainganj, and Shahkar Distillery. These were also under the same management as that of Fida. The assessee-company did some fabrication work for these two concerns also. On 1st January, 1958, Rs. 14,711 were due from M/s. Shankar Distillery and Rs. 45,000 from M/s. Shankar Sugar Mills. With the consent of the assessee, these sums which were due from the two subsidiaries were transferred to the account of Fida. In 1959, Fida was bought over by one, Sri Krishna Chowkhany. The solicitors of the new management contacted the various creditors of Fida, and ultimately it was agreed that the entire debts would be cleared on payment of 10 per cent. thereof. The assessee-company, whose total debts amounted to Rs. 66,964 as against Fida, received 10 per cent. thereof and wrote off the balance, namely, Rs. 60,268, during the calendar year 1960.
(3.) THE assessee claimed the entire amount of Rs. 60,268 as an allowable deduction. The ITO disallowed the claim in its entirety.;