1983 (1) TMI 11

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....id by that company. The assessee, accordingly, wrote-off the amount in the books of the yarn and cloth trade. The write-off amounted to Rs. 90,771. An allowance was claimed in respect of this amount as a bad debt in the assessment year. 1973-74. But this claim was negatived not only by the Departmental authorities, but also by the Tribunal. The Tribunal held that this was not an allowable bad debt because it was not a debt which had been incurred in the course of, or for the purpose of, or incidental to, the assessee's cloth and yarn business. The assessee has challenged the determination of the Tribunal on the following question of law: " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in ....

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....business. But where an assessee carries on a non-banking or a non-moneylending business, as in this case, according to Mr. Srinivasan, the statute does not require that the debt should have been incurred in the course of the carrying on of the business. As we remarked earlier, this is an astounding proposition to advance, both as a matter of principle and as a matter of statutory construction. This proposition is against the time-honoured principle of write-off of bad debts. It also goes counter to the decisions of out courts while interpreting s. 36(2)(i)(a) as well as a similar provision in s. 10(2)(xi) of the Indian I.T. Act, 1922. Mr. Srinivasan's thesis, however, was that s. 36(2)(i)(a) makes a clear departure from the statute law a....

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....the first place, the I.T. Act, 1961, in which this provision occurs, is an amending and consolidating Act. If a departure from the earlier state of the statute is pleaded, there must be words expressing an intention to bring about a clean break with the past. We should not construe a section by reference to a single word, or merely because it is differently worded, when the provision as a whole does not convey a different statutory result. Even under s. 10(2)(xi) of the Indian I.T. Act, 1922, the words " in the course of business " were employed with particular reference to banking and money-lending business alone. Nevertheless, a long line of decisions of High Courts and the Supreme Court has held that the requirement of the debt having to....

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....heet as a trading debt in the trade that, is in question and that it is bad. It does not really mean any bad debt which, when it was a good debt, would not have come in to swell the profits." The first limb of s. 36(2)(i)(a) of the present Act only incorporates Rowlatt J.'s principle; that limb enacts very clearly that no deduction shall be allowed for a bad debt, unless such debt has been taken into account in computing the income of the assessee for the previous year or for an earlier previous year. It is implicit in this express condition that the debt should have arisen in the course of carrying on his business. In the second limb of s. 36(2)(i)(a), this condition is not repeated, for the simple reason that the second limb deals with....

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..... K.C.P. Ltd. [1974] Tax LR 12. A few passages from that judgment were relied upon by Mr. Srinivasan. In that case, the assessee which was not carrying on a money-lending business advanced some amount to a subsidiary company and when the subsidiary failed to repay the amount, it was written off by the assessee-company in its accounts. This write-off was disallowed by the assessing officer as well as by the Tribunal in appeal. Criticising the Tribunal's decision, the learned judges of the Andhra Pradesh High Court observed as follows (p. 14): " The Tribunal in paragraph 13 of its order thought that in order to apply section 36(2), there must exist three conditions : (1) that the debt or loss should be in respect of a business carried on b....

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.... of the assessee of that previous year or of an earlier previous year." Proceeding, the learned judges observed (p. 13): "In the view which we have taken, it is not necessary for us to consider whether although not expressly mentioned in the first situation referred to in sub-clause (a), the debt must have been advanced in the course of the company's business. In other words, it is unnecessary to decide as to whether in order to apply the first part of sub-clause (a), the debt must have been advanced in the course of business of the company as it was never doubted that the amounts advanced in the present case constituted debt within the meaning of section 36(2). " With great respect, we must express our dissent from this view of th....