- (1.) THE Income-tax Appellate Tribunal, Allahabad, has under Section 256(1) of the Income-tax Act, 1961, referred the following questions for the opinion of this court : "(1) Whether, on the facts and circumstances of the case, the sum of Rs. 1,34,667 is an allowable deduction under Section 36(1)(vii) and/or Section 37(1) of the Income-tax Act, 1961, in the present assessment year 1960-61 ? (2) Whether the decision of the Tribunal rejecting the claim for deduction of Rs. 1,34,667 is vitiated by consideration of irrelevant material and a failure to consider the relevant material and facts ? (3) Whether the decision of the Income-tax Appellate Tribunal is vitiated by taking reliance upon the Tribunal's decision in the assessment year 1961-62, which was given in connection with a different matter under entirely different facts and circumstances ?"
(2.) THE aforesaid questions are stated to arise out of the Tribunal's order dated April 22, 1978, in I. T. A. No. 2001 (All) of 1971-72 for the assessment year 1960-61. We have heard Sri R.S. Agarwal, learned counsel for the assessee, at whose instance this reference has been made and Sri A.N. Mahajan, learned standing counsel for the Commissioner. The assessee-company was engaged in the business of manufacture and sale of sugar. There was another company by the name of Padrauna Raj Krishna Sugar Works Ltd. which owned a sugar mill. There were some arrears of public dues against that company for the realisation of which its sugar mill was sold in an auction which was held on November 8, 1955. The present assessee was the highest bidder for a sum of Rs. 26,00,000. The bid money was deposited by it on November 9, 1955. The owners of the said sugar mill challenged the auction sale in some legal proceedings and the Government of India appointed an authorised controller to ensure that the mill was run and the labourers and farmers were not put to inconvenience. One Sri T.D. Mundhra was appointed an authorised controller who operated the mill up to July 4, 1956, on which date the mill was handed over to the purchaser, i.e., the present assessee. For the running of the said mill, the authorised controller needed money and the present assessee advanced various amounts totalling Rs. 51,11,876 and was receiving back the amounts received by the authorised controller by way of sale proceeds of sugar, etc. Ultimately, there was a short-fall of Rs. 1,34,665 as on October 31, 1959, which the assessee claimed as a bad debt for the assessment year 1960-61, the accounting year for which had ended on October 31, 1959. This claim was disallowed by the Assessing Officer on the ground that the resolution of the board of directors of the assessee-company was passed on April 14, 1960, i.e., after closing of the accounting year, and, therefore, this alleged bad debt could not be allowed and that the same was not proved to have become bad in this year.
(3.) THE assessee appealed to the Appellate Assistant Commissioner who came to the conclusion that the appellant company had advanced Rs. 20,00,000 to the authorised controller on a promissory note and regular transactions took place between the assessee and the authorised controller and the advance of Rs. 20,00,000 was in connection with the appellant's business so that the said mill should run properly and the investment of Rs. 26,00,000 made for the purchase of the assets of the mill was in jeopardy. THE Appellate Assistant Commissioner was of the opinion that the short fall is a capital loss. The assessee then carried the matter to the Tribunal who found that the authorised controller was managing the sugar mill on behalf of its true owner, namely, the assessee-company, and, therefore, there was no relationship of creditor and debtor between the assessee-company and the authorised controller. The amount in question could not be treated as a debt.;