CHIMANLAL CHUNILAL AND CO Vs. COMMISSIONER OF INCOME TAX BOMBAY

JUDGEMENT

(1.) THE questions arising on this reference under section 66 (1) of the Indian Income-tax Act, 1922, relate to the assessee's assessments for the assessments years 1958-59 and 1959-60 for which the relevant previous years are the Samvat years 2013 and 2014 respectively. The original assessment of the assessee for the assessment year 1958-59 was made on June 30, 1959, on a total computed income of Rs. 59,413. In the said computation a sum of Rs. 53,008, which was claimed as a bad debt in the account of one Gopaldas Champshi, was allowed by the Income-tax Officer. This amount of Rs. 53,008 included a sum or Rs. 19,453 which represented the valan profits made by the assessee in certain speculative transactions in the Samvat year 2011 and were due to it from the said Gopaldas Champhsi and were, therefor, debited to his account. They were, however, not realised and ultimately in the relevant accounting year they were written off and claimed as bad debt along with the other dues from the said debtor. Since the assessee's claim that the debt due from Gopaldas Champshi had income irrecoverable and, therefore, a bad debt was accepted by the Income-tax Officer, he allowed the entire amount of Rs. 53,008 as a bad debt without applying his mind to the question as to whether the amount of Rs. 19,453, which represented a part of the bad debt relating to the speculative transactions, would not be allowable in view of the provisions of the first proviso to section 24 (1) of the Act. In the course of the assessment for the assessment year 1955-56, when the Income-tax Officer had to examine a similar bad debt claim, he realised that he had erroneously allowed an amount of Rs. 19,453 a bad debt in the earlier assessment year. He, therefore, reopened the assessment under section 34 (1) (b) and disallowed the sum of Rs. 19,453 in the computation of the total income for that year and allowed it to be carried forward as a part of the speculative loss for the subsequent years.

(2.) THE assessee appealed against the order to the Appellate Assistant Commissioner and failing in that appeal took a further appeal to the Income-tax Appellate Tribunal. In both the appeals the assessee contended, firstly, that the assessment was wrongly reopened under section 34 (1) (b), and secondly, that the disallowance of Rs. 19,453 was erroneous. Both the contentions were negatived by the Appellate Assistant Commissioner as well as by the Tribunal. On an application by the assessee for a reference under section 66 (1), two question have been framed and forwarded to us by the Tribunal, which are as follows :

(3.) IN the assessment for the assessment year 1959-60, the assessee claimed an amount of Rs. 43,541. 44 as a bad debt in the account of one Madhavji Vithaldas. This amount represented the balance due to the assessee from the said Madhavji Vithaldas, in respect of certain speculative transactions entered into by the assessee with him in the Samvat year 2011. The dues having become irrecoverable, the assessee had written them off in the relevant accounting year and claimed them as a bad debt in the assessment. The Income-tax Officer allowed only a sum of Rs. 3,044 out of the said amount, to be adjusted against the speculative profits, which amounted to that figure during the accounting year and directed that the rest of the amount of Rs. 40,497 be carried forward as loss in speculation in accordance with the provisions of section 24 (1), first proviso. The order passed by the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. In the second appeal before the Tribunal, the Tribunal agree with the view that had been taken by the Income-tax Officer as well as the Appellate Assistant Commissioner. It, however, allowed a further set-off to the extent of Rs. 5,177, since that much amount had been recovered by the assessee out of a debt which had been treated as a bad debt previously and had, therefore, constituted a profit for the year of account in speculative transactions. The Tribunal accordingly disallowed the assessee's claim in respect of the bad debt only to the extent of Rs. 35,320. The question of law which it has referred to us as arising out of its order, is whether, on the facts of the case the sum of Rs. 35,320, being a debt in relation to speculative transactions, falls within the scope of section 24 (1), first proviso. It will thus be seen that there is a common question of law referred to in respect of both the assessments. In respect of the assessment for the assessment year 1959-60, there is an additional question relating to the validity of the action under section 34 (1) (b ).