DEVI FILMS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) MESSRS. Devi Films (Pte.) Ltd., referred to as the assessee in this judgment, is the applicant in these two petitions filed under section 66(2) of the Indian Income-tax Act. It is carrying on business as financier of production of motion pictures and as dealer in cinematographic machines and spare parts. Before setting out the question of law sought to be referred, the facts giving rise to these petitions will have to be stated. They are as follows :

(2.) THE assessee entered into an agreement on 6th July, 1955, with a certain Dinshaw K. Tehrani who had ventured upon the production of a cinema film called Raja Rani. Under this agreement the assessee agreed to lend Tehrani a sum of Rs. 3,80,000. THE money was lent as per the terms of the agreement, but Tehrani could not complete the production due to lack of funds. THE assessee entered into a further agreement with Tehrani on 31st January, 1956, and agreed to provide him with further funds to the extent of Rs. 1,50,000. In all, the assessee advanced to Tehrani the sum of Rs. 5,57,022-10-1 in pursuance of the two agreements aforesaid. THE picture, after release, proved to be a flop and the expectations of the assessee to make profit out of the financing agreements failed. THE assessee was, however, able to realise by collections from exhibitions and by sale of distribution rights, in all a sum of Rs. 4,91,071-12-3. THEre remained a balance of Rs. 65,950-13-10 due and payable by Tehrani to the assessee. It appears that this Tehrani was not a person of large means. He had a house in the city of Madras, purchased in the name of this wife. He held 100 shares in Newtone Studious Ltd., of the face value of Rs. 10,000. Notwithstanding the indebtedness of Tehrani to the assessee and possibly to several others, his resourcefulness and enthusiasm to produce pictures did not come to an end. THE assessee entered into an arrangement with Tehrani on 1st April, 1957, by which Tehrani pledged his shares in Newtone Studios as security for a sum of Rs. 10,000, on condition of the assessee waiving the balance of Rs. 55,950-13-10. As stated already, Tehranis total liability to the assessee on that date was Rs. 65,950-13-10.

(3.) THE only short question which arises for consideration is whether the assessees claim to write off this sum of Rs. 55,950-13-10 on 12th April, 1957, is well founded. If the debt due by Tehrani to the assessee had become a bad and doubtful debt, the assessees claim would be permissible. If, however, there was evidence before the Tribunal to establish that the debtor was not financially so bad as to create any misgivings in the mind of the assessee regarding the recoverability of the debt, then the assessee must fail.