Bad debt findings require relevant and admissible evidence; unsupported factual conclusions can raise a referable question of law.

A finding that a debt became bad in a particular year must rest on relevant and admissible evidence; otherwise, a question of law arises for High Court consideration. Here, the mortgaged property had been sold, but the mortgagor was still contesting personal liability and the appeal remained pending until 1931, so those facts were not conclusive that the debt had become bad in 1929. The refusal to state a case was therefore unjustified, and a reference was required on whether the income-tax finding was supported by legally admissible evidence.

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Issues: Whether the assessee's claim that the sum of Rs. 26,721 had become a bad debt in 1929 was supported by relevant and admissible evidence so as to justify refusal of a reference under Section 66 of the Indian Income Tax Act, 1922.

Analysis: The account year record showed that the mortgaged property had been sold, but the mortgagor was still contesting personal liability before the High Court and his appeal had not been disposed of until November 1931. Those circumstances were not by themselves conclusive that the debt had become bad in 1929. The question whether a debt is bad and when it became bad is ordinarily one of fact, but the factual conclusion reached by the income-tax authorities must rest on relevant and admissible evidence. If the conclusion is unsupported by such evidence, a question of law arises for consideration by the High Court.

Conclusion: The refusal to state the case was unjustified; the Commissioner was required to refer the question whether there was relevant and admissible evidence to support the finding that the sum became a bad debt in 1929.

Final Conclusion: The assessee succeeded in obtaining a reference on the lawfulness of the finding regarding bad debt, and the matter was directed to be stated for the High Court's consideration.

Ratio Decidendi: A finding of fact by the income-tax authorities can give rise to a referable question of law where it is not supported by relevant and admissible evidence.

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