TaxTMI 
TaxTMI 
1940 (11) TMI 27
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....ly, 1933. Its immovable property had been divided equally between the two brothers by a registered partition deed, dated 10th July, 1933, which made no mention of the business or the movable property. By a deed of partnership of the same date, however, the two brothers stipulated as follows regarding the family's moneylending business : (a) that they were responsible in equal shares for the profits and losses of business done in the names of Deoki Nandan and Sons and Lal Chand Kharaiti Ram, and that whatever business was being done or was to be done in these two names was to be regarded as joint for the two parties ; (b) that loans which had been advanced to persons in those two names through various documents and which they were entitled to recover were to be regarded as joint ; (c) that whatever property was held in personal names either by purchase or mortgage and whatever advances had been made or were to be made in personal names were to be the property of the party in whose name the....
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.... and ' B '. The assessee then applied under Section 66 (2) for a reference to the High Court. This application was rejected by my predecessor in his order dated 17th August, 1938, a copy of which is appended as Exhibit ' C '. Opinion of the Commissioner.-The question formulated by the Hon'ble Court should, in my opinion, be looked at from the point of view of accountancy principles and trading practice. In the eye of the law, the disrupted Hindu family and the firm succeeding it are two distinct entities, and this was emphasised by their Lordships of the Allahabad High Court in the case of Jugal Kishore Mukat Lal ((1938) 6 ITR 494, at p. 501). The fact that the members of the same family happen to be partners in the new firm is, I submit, irrelevant for the present purpose and the only reasonable way of looking at the matter is this : If a third party were taking over the business on the date of disruption, how would he have valued the particular loan in a balance sheet prepared on that date ? Would he have taken it at its book value when he knew that the debtor became insolvent eight years before that date and that there was, therefore, no reasonable prospec....
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....were paid, but on the 11th June, 1936 a final dividend was declared to be Rs. 151-12-6. The total amount paid during the insolvency proceedings amounted to Rs. 5,210-12-6. The total debt was Rs. 18,000 and the assessee in this case claimed that he was entitled to write off the difference, namely, Rs. 12,789-3-6, in the accounting period of 1936-37. The learned Income-tax Officer and the learned Assistant Commissioner on appeal rejected this contention on various grounds, which do not concern us. The learned Income-tax Commissioner, however, rejected the revision petition before him on the ground that the debt of Rs. 18,000 had become bad to a certain extent in 1933, the year when the Hindu joint family dissolved. The extent of the badness of the debt, according to him, was to be measured by the amount received up till 1936 during the course of insolvency proceedings. Therefore, according to the learned Commissioner, the assessee was not entitled to write off the sum of Rs. 12,789-3-6 as a bad debt in that year at all, nor was he entitled to write off any other sum because the measure of the badness of the debt could only be indicated by the payments made by the Official Receiver....
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....h asset would every year have to be valued and re-valued, for the market value of any debt-assuming that there is such an ascertainable market value-would vary from year to year and indeed may vary from day to day. But, be that as it may, this case can be decided on the short point that there is really no material on which the learned Income-tax Commissioner could base his dicision as to the real or market value of the debt in 1933 when the Hindu family disrupted and the new firm took over the debts which stood in the joint names of the members of the Hindu joint family. It is not possible to argue that merely because the debtor had become insolvent, therefore the debt was irrecoverable or to what extent it was so irrecoverable. This would be a matter which would turn on a variety of circumstances which would include the amount of property at the disposal of the insolvent, the skill with which the sale was conducted, which in the case of official auctions might be presumed, and on circumstances which nobody could entirely foresee in the future, such as the presence of bidders and the amount of property which could be attached and sold in insolvency proceedings, which again might be....