COMMISSIONER OF INCOME-TAX Vs. HARJASMAL MEHRA

JUDGEMENT

(1.) THIS is a reference under Section 66 (2) of the Indian Income-tax Act, 1922. The assessee, Harjasmal Mehra (Harjasrai Mehra), is assessed as an individual In the assessment year 1954-55, his sources of income were from property as well as his share of profits from certain firms oi which be was a partner, one of them being M/s. Hakam Chand Raj Kumar, Amritsar. The main business of this firm was money-lending. Its partners were Harjasmal (assessee), M/s. Yograj Dev Raj and Smt. Indira Vati. A Surat firm known as M/s. Harjas Rai and Co. were debtors of Messrs. Hukam Cband Raj Kumar, the Amritsar firm. Their debt liability to this firm was to the tune of Rs. 1,50,705. The firm was dissolved on 20th March, 1954. The assets and liabilities of the Amritsar firm were taken over by the assessee, Harjasrai Mehra, on Chet Bedi, 2010. In an award, as a result of arbitration proceedings, the liability of the Surat firm was liquidated on payment of Rs. 40,000. In the assessment year 1954-55, relating to the financial year 1953-54, the assessee claimed a sum of Rs. 1,10,705 as bad debt, in view of the award, whereby am payment of Rs. 40,000, the debt lability of the Surat firm amounting to Rs. 1,50,703 had come to an end. The Income-tax Officer rejected this claim on three grounds: 1. This is a debt of the dissolved firm of M/s. Hukam Chand Raj Kumar and is, therefore, a capital loss. The assessee was in the know of this loss when he took over the firm.

(2.) THE assessee has not done any business in the name of M/s. Hukam Chand Raj Kumar and is not a trade debt at all. It cannot, therefore, be considered here.

(3.) THE assessee has surrendered the amount himself for considerations best known to him. It is a case of voluntary surrender and not of bad debt. 2. Against the order of the Income-tax Officer an appeal was taken to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer in the following terms : "i find that the main source of the appellant during the relevant previous year was his share in various firms, one of them being M/s. Hukam Chand Raj Kumar. During the relevant previous year the appellant's share income in this firm was taken at Rs. 4,226. Some time towards the close of the previous year the business of this firm was wound up. The firm of M/s. Hukam Chand Harjas Rai also had at one time decided to take over the assets and liabilities of M/s. Harjas Rai and Co. , Surat. The Surat business owed a sum of Rs. 1,50,704 to the firm which later on was taken over by the appellant. The appellant recovered a sum of Rs. 40,000 only and the balance of Rs. 1,10,704 was claimed as a business loss. The loss in question is definitely not a business loss. It is a capital loss. The amount claimed as a loss did not accrue or arise to the appellant during the course of his day to day business activities. It is not all kinds of losses that are to be considered for set-off. The Income-tax Officer rightly disallowed the claim of the appellant. " 3. Against this decision the assessee took up the matter to the Income-tax Appellate Tribunal, Delhi Bench. The Appellate Tribunal came to the conclusion that a remand report was called for. The reasons for this remand are to be found in the following order of the Tribunal: " It was contended before us that the firm, M/s. Hukam Chand Raj Kumar, was carrying on money-lending business and the debt due from M/s. Harjas Rai and Co. , Surat, was a debt pertaining to the money-lending business of that firm. It was the assessee's case before us that, since the assessee took over the firm as a going concern, the debt of the money-lending business in the hands of the firm, M/s. Hukam Chand Raj Kumar, became a debt of the money-lending business in the hands of the assessee and the assessee was entitled to write it off as a bad debt as and when the debt became bad and doubtful. The authorities below have not given adequate consideration to the contention of the assessee that the firm, M/s. Hukam Chand Raj Kumar, was, in fact, carrying on money-lending business. The departmental representative contended before us that in the absence of any such finding it cannot be held that the debt due from M/s. Harjas Rai and Co. , Surat, was a debt of the money-lending business and if it were not a debt of the money-lending business, then the assessee could not claim it as a bad debt. It appears that the respective contentions ought to be examined more closely by the Appellate Assistant Commissioner. This the Appellate Assistant Commissioner will now do. The Appellate Assistant Commissioner will examine the books of the firm, M/s. Hukam Chand Raj Kumar, and ascertain whether the debt due from the debtor pertained to the money-lending business. The Appellate Assistant Commissioner will permit the assessee to lead whatever evidence he likes in support of his contentions. The Appellate Assistant Commissioner after recording the evidence in this case should submit the remand report within three months from the date of receipt of this order. "