1959 (9) TMI 65 - HC - Income Tax

Film advances deemed bad debts under Indian Income-tax Act; court upholds Tribunal decision.

The court upheld the Tribunal's decision that the advances made by the assessee to film suppliers constituted bad debts under section 10(2)(xi) of the ... - Issues Involved:1. Whether the Tribunal's decision that the loss of advances made by the assessee to film suppliers amounted to bad debts within the meaning of section 10(2)(xi) of the Indian Income-tax Act, 1922, is correct.2. Whether there is any material for the Tribunal's assumption of an oral variation of the agreement between the assessee and Excellent Pictures.Detailed Analysis:Issue 1: Tribunal's Decision on Bad DebtsThe primary issue is whether the advances made by the assessee to film producers, which became irrecoverable, qualify as bad debts under section 10(2)(xi) of the Indian Income-tax Act, 1922. The assessee, a distributor and exhibitor of films, claimed deductions for sums of Rs. 1,00,714 and Rs. 2,25,000 as bad debts for the assessment years 1948-49 and 1949-50, respectively. These sums were advanced to Excellent Pictures of Bombay and Shiraz Ali Hakim of Pakistan but could not be recovered.The Tribunal allowed these sums as deductions, finding them to be irrecoverable in the account year relevant to the assessment year 1948-49. The Commissioner of Income-tax contested this, arguing that these advances did not constitute debts within the meaning of section 10(2)(xi) because they would not have swelled the taxable profits of the assessee.The court examined the agreement between the assessee and Excellent Pictures, which stipulated that the assessee was to recover the advance of Rs. 2,50,000 along with a 20% distribution commission from the first realizations of the film's distribution. The film 'Ratnavali' was released but failed commercially, leading to a recovery of only Rs. 49,286. The remaining balance was written off as a bad debt.The court noted that for a debt to be considered valid, there must be an obligation to repay, which existed in this case. The assessee advanced money with the expectation of repayment from the film's earnings. The court distinguished this case from Curtis v. J. & G. Oldfield Limited, where the debt was not related to the company's trading activities. Here, the debts were part of the assessee's business operations and were legally enforceable.The court concluded that the debts were indeed bad debts as they had become irrecoverable, and the Tribunal's decision to allow them as deductions was supported by evidence. The court also emphasized that the determination of whether a debt is bad is a question of fact, which the Tribunal is best positioned to decide.Issue 2: Assumption of Oral VariationThe second issue concerns whether there was material evidence for the Tribunal's assumption of an oral variation in the agreement between the assessee and Excellent Pictures. The original agreement required the assessee to advance Rs. 2,50,000, but only Rs. 1,50,000 was advanced, and the film was still handed over for distribution.The Tribunal inferred that an oral variation had occurred, allowing the film to be released despite the shortfall in the advance. The Commissioner argued that this assumption lacked material evidence. However, the Tribunal pointed to correspondence between the parties indicating that Excellent Pictures had agreed to refund part of the advance if the film's earnings were insufficient.The court held that the question of whether an oral variation occurred was not explicitly raised before the Tribunal. It reiterated that questions not raised or considered by the Tribunal cannot be entertained by the High Court under section 66(1) of the Indian Income-tax Act. The court cited Mash Trading Co. v. Commissioner of Income-tax, where it was established that unraised questions before the Tribunal cannot be referred to the High Court.ConclusionThe court found no substantial question of law arising from the Tribunal's order. The debts were considered valid and bad debts within the meaning of section 10(2)(xi), and the Tribunal's assumption of an oral variation was based on reasonable inference from the facts. Consequently, the petition was dismissed with costs assessed at Rs. 150.Petition Dismissed.