NARANG INDUSTRIES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question of law has been referred to this Court by the Tribunal under S. 66(1) of the Indian IT Act, 1922 :

(2.) NARANG Industries Limited (hereafter referred to as the assessee - company) is a public limited company owning a distillery. The assessee -company mainly derives its income from running a distillery. In 1947, one Shri Prem Singh approached the assessee - company with a scheme for manufacture of bricks. An arrangement was arrived at between the assessee -company and said Shri Prem Singh to start a brick kiln and the terms of the arrangement were confirmed by the assessee -company by letter dt. 17th Feb., 1947. Under that letter the assessee -company, inter alia, agreed to "take up the business on the following terms and conditions" :

(3.) IN pursuance of the agreement, the assessee -company advanced Rs. 21,000 to Shri Prem Singh but the business could not be actually started due to the partition of the country. The assessee - company filed a suit for recovery and rendition of accounts and a decree was passed in its favour for Rs. 5,595. Shri Prem Singh preferred an appeal which was compromised. Under the compromise the assessee -company was paid Rs. 5,000 and two claims of Rs. 3,063 and Rs. 2,950. Nothing, however, could be recovered on these claims and Rs. 15,700 remained due to the assessee -company. The said amount of Rs. 15,700 was written off in the accounting year relevant to the asst. year 1956 -57 with which we are concerned.