RALLIS INDIA LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The following question of law has been referred to us for our opinion under Section 256(1) of the Income-tax Act, 1961 :

(2.) We have heard the learned advocates for the parties and the assessee and their rival contentions.

(3.) Mr. P. P. Khaitan, the learned advocate appearing for the assessee, submitted that in the light of the legal provisions contained under Section 36(l)(vii) of the Income-tax Act, 1961, the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee has to be deducted. The amount in question is Rs. 32,57,894 relating to the assessment year 1985-86. The assessee's case before the Tribunal was that the assessee had supplied certain materials to Tata Mills Limited which was taken over by the Central Government because of promulgation of an Ordinance called the Textile Undertakings (Taking Over of Management) Ordinance, 1983 on October 18, 1983. The assessee's case was that because of the taking over of the aforesaid mills by the Central Government, the amount of any bad debt or part thereof which was written off as irrecoverable in the accounts of the assessee was to be deducted in respect of the aforesaid assessment year. The Assessing Officer's finding was against the assessee. But the Commissioner of Income-tax (Appeals) set aside that finding and held that the amount in question was really a bad debt. The Tribunal reversed the aforesaid finding of the Commissioner of Income-tax (Appeals) and decided against the assessee. To find an answer to the aforesaid question, we have to look to the preamble and various relevant provisions of the 1983 Ordinance and also consider the import of the circular dated January 13, 1971, issued by the Central Board of Direct Taxes under Section 119 of the Income-tax Act, 1961. It will be only after we consider the provisions of the Ordinance and the applicability of the circular in its true perspective that we shall strive to find an answer to the aforesaid question as to whether the amount in question could be considered to be a bad debt or not.