1993 (10) TMI 31

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....that bad debts of Rs. 42,754 and 17,944 were shown by the assessee which were not allowed by the Income-tax Officer on the ground that the assessee-company is the successor to the firm, Messrs. Amber Corporation, and the said bad debts related to the firm, Messrs. Amber Corporation. Relying on the decision in T. N. Shah (P.) Ltd. v. Addl. CIT [1979] 120 ITR 354 (All), the Tribunal allowed the deduction. The Income-tax Officer found that the debts of a purchaser in business cannot be allowed as a deduction in the hands of the successor in business and the contention of the assessee that due to change of ownership of the business the identification of the business is not broken or interrupted and the successor is entitled to write off the tra....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... year. The emphasis is not on the assessee being the original creditor but the taking into account of the debt in computing the income of the same business. If, in a given ease, the income of a business is computed by taking into account a certain debt, it does not appear reasonable that, in the absence of any statutory prohibition, allowance on account of the debt having become bad should be denied only because the assessee's identity has changed, though the identity of the business continues." The provisions of section 36(2)(i)(a) are as under: "No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....count, it seems difficult to accept that the same right should not be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner. Unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of the law should be given its proper play. It is true that clause (i) of sub-section, (2) of section 36 declares that a deduction can be allowed only if the debt, or part thereof, has been taken into account in computing the income of ....