TaxTMI 
TaxTMI 
1944 (4) TMI 8
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....uction under Section 10(2)(xi) of the Income- tax Act." This question was stated to have arisen out of the assessment on the Multan Electric Supply Co., Ltd., Multan, for the year 1940-41. The material facts are that the assessee in this case, the Multan Electric Supply Company, is a limited company promoted by the late Rai Bahadur Prabh Dayal who was the first chairman of the company in 1922. This gentleman was the karta of a joint Hindu family known as Messrs. Sukhdev Bux Mul Chand which carried on banking business; and this trading family was appointed as one of the bankers of the assessee company. Rai Bahadur Prabh Dayal died on the 15th May 1934. Prior to his death the joint Hindu family held 2,292 shares in the assessee company ....
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....e company to the account of the Hindu trading family towards the settlement of the debt. The assessee company gave effect to this award and reversed the entries in their books showing thereafter this sum of Rs. 50,107-8 as an amount standing to the credit of the family. In connection with the assessment for the year 1940-41 a sum of Rs. 81,841 was claimed as deductible on account of being a bad debt from the family. This claim was rejected by the Income-tax Officer but allowed by the Appellate Assistant Commissioner on appeal. In connection with this appeal counsel for the assessee had argued that an additional ground of appeal should be considered, viz., that the appellant company was entitled to claim a further sum of Rs. 50,107-8 w....
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....etween the question whether this sum was a capital receipt or a bad debt, persisted in the application made by the Commissioner of Income-tax for a reference to this Court in which the question of law said to arise was formulated in the manner stated in the beginning of this judgment. It appears to us that, with all respect to the learned members of the referring Income-tax Tribunal, the real point in issue has been obscured by the form of the question. We are not here concerned with the question whether Rs. 50,107-8 is a bad debt legitimately deductible under Section 10(2)(xi) of the Income- tax Act but whether this sum is a capital receipt or a revenue receipt. It must be remembered that this sum represents the value of certain shares ....
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.... cannot be permitted qua the Income-tax department to change what was an asset into a revenue receipt. For this purpose Mr. Bajaj refers us to the English case of Morley v. Tattersall [1939] 7 I.T.R. 316, where it was laid down that "the quality and nature of the receipt is fixed once and for all and cannot be changed by the subsequent conduct of the assessee." The Income-tax Tribunal in its appellate judgment of the 24th October 1942 followed this decision implying thereby that the sum of Rs. 50,108 was in fact a receipt, but nevertheless went on, for reasons which are not easily intelligible, to include it in the entire claim as a bad debt deductible under Section 10(2)(xi) of the Indian Income-tax Act. If the intention was to hold thi....