1946 (4) TMI 28 - HC - Income Tax

Application seeking bad debt deduction dismissed under Section 66(2) Indian Income Tax Act

R.B. Seth Ganga Sagar Versus Income Tax, Appellate Tribunal

The court dismissed the application under Section 66(2) of the Indian Income Tax Act, which sought directions for the Income Tax Appellate Tribunal to ... - Issues:Application under Section 66(2) of the Indian Income Tax Act for direction to Income Tax Appellate Tribunal to state the case and refer questions of law arising from its order. Determination of bad debt deduction for the assessment year 1941-42. Interpretation of Section 10, sub-section (2), clause (xi) of the Indian Income Tax Act. Legal principles governing the treatment of bad debts for income tax purposes.Analysis:The judgment pertains to an application under Section 66(2) of the Indian Income Tax Act, seeking directions for the Income Tax Appellate Tribunal to refer questions of law arising from its order regarding the deduction of a bad debt for the assessment year 1941-42. The case involved the original applicant, engaged in money-lending and other businesses, claiming a deduction of a debt from his receipts as a bad debt under Section 10(2)(xi) of the Income Tax Act. The Income Tax Officer disallowed the claim, stating that the debt had become bad prior to the relevant accounting year. This decision was upheld by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal, based on the assessee's loss of hope of recovery before the accounting year began.The judgment addresses the contention that the determination of when a debt becomes bad should be based on the time it was written off by the assessee, and that the debt must be legally irrecoverable before being considered bad. Referring to the case law, the judgment emphasizes that the timing and status of a bad debt are factual inquiries, dependent on the state of mind of the assessee. The Tribunal's findings on these matters are considered final unless there is a legal error in reaching them. The judgment clarifies that the age of a debt and the circumstances surrounding it are crucial in determining its bad debt status.Furthermore, the judgment rejects the argument that the law was altered by the introduction of clause (xi) to Section 10(2), stating that the Income Tax Officer's assessment of the debt's irrecoverable nature remains significant, regardless of the type of assessee. It underscores that the legislative amendment merely codified existing legal principles. The judgment concludes that the application lacks merit and dismisses it with costs, affirming the Tribunal's findings on the bad debt deduction. The counsel for the department is awarded a fee, and the application is formally dismissed.