TaxTMI 
TaxTMI 
1937 (2) TMI 3
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....is reference. The first question formulated by the Commissioner is:- "Has the assessee established justification for excluding the sum of Rs. 12,447 charged against Wazir Chand-Chaman Lal, from interest account (and crediting it to Suspense), out of ordinary course; by evidence so cogent that in issue of law it was impossible for the Assistant Commissioner to hold such justification not proved?" This question has arisen in the following circumstances. A cotton ginning and pressing factory belonging to the firm Wazir Chand-Chaman Lal was in 1930 mortgaged to the assessee for Rs. 1,50,000. Sometime later it transpired that the mortgagors were not in a position to discharge the mortgage debt. Consequently, the assessee entered into an agreement with the mortgagors by which it undertook to finance the working of the factory and to appropriate the profits to their loan account. In the year of accounting, the assessee made a profit of Rs. 90,000 and after appropriating this sum to the entire amount outstanding against the mortgagors, debited them with a sum of Rs. 68,365 which represented the balance due from them. This sum included an amount of Rs. 12,447 on account of inter....
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....to judicial determination is whether there was any evidence before those officers upon which they might find that the appellant's system of accounting required the inclusion in his accounts of this item. Now, the assessee justifies the exclusion of this item before us on the grounds, first, that it was a part of its regular system of accountancy to exclude such items inasmuch as it had similarly excluded an item in the preceding year without any protest on behalf of the Income Tax authorities, and second, that in spite of the mercantile system, this item was liable to exclusion, as it was not under the control in such a way as to be convertible into cash at any time that the assessee liked. In support of the first ground the assessee relies on its balance sheet for the year ending 30th September 1933. It is true that in that balance sheet, a sum of Rs. 18,000 odd was credited to the Suspense account and it was left unchallenged by the Income Tax authorities; but that solitary instance is not, in my opinion, enough to establish that the exclusion of that item was based on any system adopted by the assessee or that that system was regular. An assessee is, no doubt, at liberty ....
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....ssable income. In Jagmandar Das Vaish v. Commissioner of Income Tax Central and United Provinces, a Division Bench of the Allahabad High Court, mainly relying on the three judgments mentioned above held that an unrealized decree, although shown in the account books, was not taxable. These judgments, however, in my view are not applicable in the present case, as, in all of them, the assessee does not appear to have shown the interest accrued as interest received while in the present case it is not denied that any sum entered in the interest account although not actually received in cash or realized is all the same received under the system of account adopted by the assessee. The only ground for exclusion relied upon by the assessee is that there was no hope of its recovery and apart from the fact that that is a different matter, there was not a shred of evidence before the Assistant Commissioner to substantiate that plea. On behalf of the Commissioner reliance has been placed on Commissioner of Income Tax, Madras v. Subramaniam Chettiar, V.S.A.R. Firm v. Commissioner of Income Tax, J. Kesava Rao v. Commissioner of Income Tax, and Feroz Shah v. Commissioner of Income Tax. In....
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....ould have warranted the exclusion of the item in dispute from its total income. Question Nos. 2 and 3 relate to one and the same matter and may be set out together. They have been formulated as follows:- Question 2: "The assessee having been the sole financing partner in a business which had been discontinued, leaving sums due to the partnership from third parties in respect of their liabilities on contracts made on their behalf was it impossible in law to find that the deficit in the account of the assessee with the partnership was not established by the assessee-claimant to lie in revenue charge?" Question 3: "The assessee having claimed as his deficit in the above account, the amount of sums due to the partnership which reached limitation in and before the year of account; and having failed to produce evidence to the Assistant Commissioner (who had material for ascribing their badness to an earlier year), either that the amounts reached de facto irrecoverability in the year of account, or that there had been any regular practice of prima facie ascription of badness to the limitation year; query, was it impossible in law for the Assistant Commissioner to find....
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.... did not constitute partnership in the eye of law, the assessee has relied on Commissioner of Income Tax v. Mahomed Kassim Rowthar. There several persons had executed an agreement in favour of the assessee by which each of the executants was to have a certain share in the profits of the business when ascertained. No provision was made for their liability in case of loss and the complete control of the business was retained by the assessee who had contributed the whole capital. Not only was the assessee to have the control of the business but even persons holding powerof-attorney from him were to exercise the same power. Further the executants had agreed to be bound by his orders and the orders of his attorneys, and had also agreed that if they contravened the provisions of the agreement, they could be dismissed. The assessee as proprietor had also the power of altering their shares. It was in these circumstances that the learned Judges of the Madras High Court held that there was no 'valid and genuine' partnership. That judgment is obviously of no relevancy in the present case, as the facts on which it proceeds are entirely different from the facts before us. The mere ci....
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....further that the losses were capital losses and not revenue losses. It is indisputable that where a person carries on two different trades, he is entitled to set off for purposes of income tax the loss incurred by him in respect of one against the profit made by him in the other. This principle was recognized by their Lordship of the Privy Council in Arunachalam Chettiar v. Commr. of Income Tax, Madras and has been followed in several courts in India, (see among others, Commr. of Income Tax, Madras v. Arunachalam Chettiar) but for this principle to apply the condition precedent is that both businesses should be alive during the current year. A dead business's loss cannot be set off against a living business's gains. I would, therefore, answer question No. 2 in the negative. In view of my finding on Question No. 2 as was conceded by the assessee in the course of arguments, Question No. 3 does not arise. I now come to Question No. 4. It reads as follows:-- The Assistant Commissioner having reason to believe that debts in business account totalling Rs. 14,775 reached de facto irrecoverability in a prior account, and the assessee having declined to give any evide....
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....usiness loss to the creditor, it is necessary that the company should have ceased to be a going concern. Animadverting on these remarks, their Lordships re- marked: "Their Lordships know of no principle or authority upon which these views of the learned Chief Justice can be supported. Whether a debt is wholly or partly and to what extent bad or irrecoverable is in every case (and whether the debtor is a human being or a Joint Stock Company or other entity) a question of fact to be decided by the appropriate tribunal upon a consideration of the relevant facts of that case. There is no justification for the suggestion that a practice should prevail in the Commissioner's office under which a debt due from a limited Company which is still a going concern is incapable of being treated as a bad debt". In view of such clear pronouncements of their Lordships of the Privy Council, I consider that the only thing open to us in this matter is to determine whether the finding arrived at by the appropriate tribunal is vitiated on any ground or, in other words, is perverse or unwarranted by the material on the record. If once it is found that the finding is based on relevant and a....