1971 (8) TMI 35 - SC - Income Tax

Supreme Court affirms tax deduction for bad debt under Income-tax Act

Commissioner of Income-Tax, Bihar And Orissa Versus Pandit Lakshmi Kant Jha And Others

The Supreme Court upheld the decisions of the Tribunal and High Court, ruling that a sum of Rs. 10,55,025 was allowable as a bad debt under section ... Assessee succeeded the money-lending business of the father - Whether the sum of Rs. 10,55,025 due from Kunwar Ganesh Singh was allowable as a bad debt under section 10(2)(xi) - Tribunal had decided on the basis of evidence available that the amount was allowable as bad debt - finding of fact - cannot be disturbed by the High Court or the Supreme Court Issues:1. Allowability of a sum as a bad debt under section 10(2)(xi) of the Income-tax Act.Analysis:The case involved the question of whether a sum of Rs. 10,55,025 due from an individual was allowable as a bad debt under section 10(2)(xi) of the Income-tax Act. The Tribunal and the High Court had both ruled against the department on this issue. The facts of the case dated back to the assessment year 1957-58, where the assessee succeeded to an impartible estate and a money-lending business from his father. The debtor, Kunwar Ganesh Singh, failed to fulfill the agreement with the assessee's father, leading to legal actions and eventual realization of only a portion of the debt. The assessee claimed the remaining amount as a bad debt in his money-lending business. The Income-tax Officer disallowed a portion of the claim, stating it was interest on the original advance and not connected to the irrecoverable loan. The Appellate Assistant Commissioner upheld this decision, but the Tribunal allowed the claim of Rs. 10,55,025 as a bad debt, disagreeing with the disallowance of Rs. 6,09,571 as interest.The Tribunal found that the entire transaction between the assessee's father and the debtor had been converted into a loan, and the relationship changed to that of creditor and debtor. The Tribunal agreed that the sum of Rs. 32,00,000 represented money-lending advances made by the father, which the assessee inherited. It was held that the assessee continued the money-lending business and was entitled to claim Rs. 10,55,025 as a bad debt. The High Court acknowledged that the findings by the Tribunal were based on evidence and materials on record, emphasizing that they were findings of fact. Despite certifying the case for appeal to the Supreme Court, the High Court noted that there was no merit in the appeal, as the findings were factual and well-supported. The Supreme Court dismissed the appeal, upholding the decisions of the Tribunal and the High Court, emphasizing that the findings were based on evidence and could not be interfered with. The appeal was dismissed with costs.