ASSOCIATED BANKING CORPORATION OF INDIA LIMITED Vs. COMMISSIONER OF INCOME TAX BOMBAY

JUDGEMENT

(1.) One M. C. Javeri was appointed Secretary of the Associated Banking Corporation of India Ltd., and under a power of attorney dated August 14, 1943 he was entrusted with powers, amongst others, to supervise, manage and conduct the business, to lend and make at such rate or rates of interest as he thought fit with or without security to any person, and to receive and give good discharge for repayment of any moneys so lent or advanced and all interest thereon and to borrow moneyupon the security or any securities, assets of property of the Bank and upon such terms as he thought fit for the benefit of the bank. On March 5, 1945 Javeri was appointed a Director of the Bank. On April 21, 1947 by order of the High Court of Bombay the Bank was ordered to be compulsorily wound up and an Official Liquidator was appointed to liquidate the business of the Bank. On August 23, 1949 the liquidator submitted a return for the assessment year 1948-49 disclosing for the previous year ending June 30, 1947 business loss computed at Rs. 9,71,664, after debiting against the gross profits in the profit and loss account an amount exceeding Rs. 12,00,000 as debts which became irrecoverable. On February 26, 1953 the liquidator informed the Income-tax Officer that in the course of investigations it was found that the bad debts of the Bank including the amounts embezzled by the Secretary amounted to Rs. 48,50,952.

(2.) It is common ground that entries adjusting the books of amount and writing off the amounts claimed to be irrecoverable were not posted in the books of account either before he return was filed, or even till the proceeding reached the Tribunal. The departmental authorities and the Tribunal rejected the claim for allowance of bad debts on the ground that the bad debts were not written off in the books of account of the Bank as required by S. 10(2) (xi) of the Income tax Act. The claim for allowance of Rs. 10,15,000 and Rs. 98892 being the loss resulting from embezzlements by the Secretary was rejected by the departmental authorities on the grounds, that the embezzlements did not relate to the business of the Bank and could not be treated as loss suffered by the Bank in the course of the business, and in any event the loss was not suffered in the year of account because it was not ascertained in that year. The Income-tax Appellate Tribunal agreed with the departmental authorities for the second of the two reasons.

(3.) The Tribunal referred under S. 66(1) of the Act, two questions which were later modified by the High Court to read as follows: