1970 (2) TMI 36 - HC - Income Tax

Debt not deductible as bad debt or business loss under Indian Income-tax Act

Commissioner of Income-Tax, Bombay City I Versus Solomon Moses.

Commissioner of Income-Tax, Bombay City I Versus Solomon Moses. - [1971] 81 ITR 30 Issues:Whether the amount of Rs. 12,841 is a proper deduction as bad debt or loss incidental to the business of the assessee.Analysis:The case involved a question of law under section 66(1) of the Indian Income-tax Act, 1922, regarding the deduction of Rs. 12,841 as a bad debt or business loss. The respondent, a commission agent, claimed that two non-resident principals failed to pay him the amounts due, which he wrote off as bad debts. The Income-tax Officer initially rejected the claim, but the Income-tax Appellate Tribunal allowed it, considering the loss incidental to the respondent's business. The respondent argued that the non-resident status of the parties was incorrect, and therefore, the amount constituted a business loss. However, the Supreme Court precedent in a similar case highlighted that a loss must be in the business of the assessee to be deductible, not a liability of another business. The Court held that the debt did not arise as an incident to the trade and was not allowable as a bad debt under section 10(2)(xi) of the Act.The Court emphasized that the facts of the present case mirrored those in the Supreme Court precedent, where the loss was not in the assessee's business but due to the business of another person, making it impermissible for deduction under section 10(1) of the Act. The respondent's argument regarding the incorrect tax treatment of the parties was deemed irrelevant to the deduction claim. Ultimately, following the Supreme Court decision, the Court ruled against allowing the deduction of Rs. 12,841 as a bad debt or business loss, as it did not meet the criteria outlined in the Income-tax Act. Consequently, the costs were not awarded to either party in this case.