KANTILAL CHIMANLAL SHAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is the heir and legal representative of one Chimanlal Lallubhai Shah. One Jivanlal and dealings with this Chimanlal and he became the debtor of Chimanlal. THE transactions between Jivanlal and Chimanlal continued up to S. Y. 1994 and thereafter there were no further transactions. In S. Y. 1995 and 1996 the debit balance was carried forward and interest was added to it. In S. Y. 1993 Chimanlal obtained a transfer of mortgage from one Doongershi Goculdas to whom Jivanlal and mortgaged his property and he maintained in his books of account an account in respect of this mortgage. In S. Y. 1996 the mortgaged property was sold and a balance of Rs. 2,952 was found in favour of the mortgagor. A sum of Rs. 25 being tax paid in respect of this property was debited to this account and the balance of Rs. 2,927 was transferred to the debtor's account in S. Y. 1997. As a result of this transfer there was a final debit balance of Rs. 14,898. Chimanlal wrote off this amount as a bad debt and claimed it as a bad debt for S. Y. 1997, and the taxing authorities have held that this amount became a bad debt not in the S. Y. 1997 but in S. Y. 1996 and that view has been accepted by the Tribunal, and it is in respect of this decision that the assessee has now come on this reference before us.

(2.) THE main contention urged by Mr. Palkhivala on behalf of the assessee is that both in S. Y. 1995 and in S. Y. 1996 Chimanlal not only debited Jivanlal with interest, but actually paid tax on this interest. It may be mentioned that Chimanlal maintained his accounts on the mercantile system and therefore Chimanlal made entries in respect of interest due from Jivanlal in S. Y. 1995 and S. Y. 1996, and although interest was not actually received on the accrual basis he paid tax. This contention is put forward on the basis of two decisions of the Patna High Court viz., Hanutram Bhuramal v. Commissioner of Income-tax, Bihar, Bansidar Podda v. Commissioner of Income-tax, Bihar. Now, on identical facts the Patna High Court has taken the view that accounts of a continuing business must be treated by the Income-tax department in a consistent manner, and as the debt had been treated by the authorities as a good debt in that case in 1931-32 it was not open to them to hold that it must have become bad before 1932-33. In that case also the debt had been carried forward as an asset bearing interest and the assessee had paid tax on that interest and from that fact the Patna High Court drew the conclusion that the taxing department were precluded from taking up an inconsistent attitude, the inconsistency lying in this that they accepted the debt as good for the purpose of recovering tax on the interest and then subsequently treating that very asset which bore interest as a bad debt. This judgment follows the principle laid down in the earlier judgment in Bansidar Podda v. Commissioner of Income-tax. With very great respect to the Patna High Court, we find it difficult to accept this decision as correct. When one analyses this decision, it is based on the principle of estoppel, and what the Patna High Court in effect has laid down is that the taxing department having in one assessment held that a debt was good, it could not in another assessment contend that the debt was bad. Now, it is well-settled that the doctrine of estoppel does not apply in cases of successive assessments. An assessment is complete in itself and the taxing department is not bound by any contention it took up in one assessment when the question arises with regard to a different assessment, and even assuming that the representation made by the department was that the debt was good when it assessed the assessee to tax on that debt in respect of interest, even so it would be open to the department to take up a contrary and inconsistent attitude in a different assessment. But again, with respect, what we do not understand is how the Patna High Court took the view that the department had taken up an inconsistent attitude. When the assessee paid tax on interest on the debt no question arose and no question could possibly arise as to whether the debt was a bad debt or not. It was only when in the subsequent assessment the assessee claimed the debt to be a bad debt and wanted to deduct it from his income that the department was called upon on consider that question, apply its mind and decide that question. THErefore it would not be correct to say that when the assessee paid tax on interest the department had come to any conclusion as to the nature of the debt. THEre is a further difficulty in our way of accepting this decision to be correct. THE learned Judges say that it is incumbent upon the Income-tax department to consider the accounts of a continuing business in a consistent manner. We do not understand how the department treats the accounts of the assessee in an inconsistent manner because in one assessment year it receives tax on interest on a debt due to the assessee and in a subsequent year when the assessee claims that debt to a bad debt it says that the debt did not become bad in that year but on previous year. This has nothing whatever to do with the accounts of he assessee. THE accounts are perfectly proper. THE question that the department is called upon to decide is a question of fact independently of the accounts, and the question of fact is whether in a particular year a debt which the assessee claims to have become a bad debt became a an debt, and that is to be decided not with reference to the books of account of the assessee but with reference to fact established aliunde the books of account.

(3.) AND in laying down this principle we were following a very early decision of the Privy Council in Sir S. M. Chitnavis v. Commissioner of Income-tax, C. P. & Berar, where the Privy Council laid down that whether a debt and when it became bad but by the appropriate Tribunal upon a consideration of all relevant and admissible evidence.