COMMISSIONER OF INCOME TAX Vs. SOMASUNDARAM MILLS LIMITED

JUDGEMENT

(1.) THE question that has been referred to us under section 66 of the Indian Income-tax Act is : "Whether the sum of Rs. 65,802, being part of the amount due from the Alwaye Textiles Ltd., as per decree of court and not realised is properly a trade debt allowable as a bad debt in the computation of the income for the assessment year 1952-53 ?"

(2.) TABLE.......................

(3.) BEFORE dealing with the rival contentions set out above, we shall examine the soundness of the view-point of the Tribunal. The formula devised by the Tribunal to resolve problems under section 10 (2) (xi) is attractively simple. It is this : if the assessee had a debt to recover and this is merged into a decree of court, and that decree becomes futile, wholly or partly, a bad debt arises in whole or in part, as the case may be, provided that the debt was due to the assessee in his capacity as a trader or businessman; the origin and nature of the debt and its character whether capital or revenue need not be investigated or ascertained. This view of the Tribunal is clearly untenable, and in fairness to the learned counsel for the assessee, we must observe that we did not understand him to support it. This view is in the teeth of the section. If the assessee, who is not a banker or money-lender, and whose stock-in-trade is not money, lends money taken out of the business, for a purpose not connected with the business, surely such a debt cannot be claimed to be within the section if bad and irrecoverable only on the ground that a decree has been obtained by the assessee. This certainly is an extreme illustration, but we are giving it to emphasise the fallacy underlying the Tribunals view.