MOHANDASS MOOLCHAND Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) The Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, has referred the following question of law arising out of its order dated May 30, 1985, in respect of the assessment year 1980-81 under Section 256(1) of the Income-tax Act, 1961 :

(2.) The brief facts of the case are that the assessee is assessed as an individual and derives income from commission. During the course of the assessment proceedings in respect of the period ending Diwali, 1979, the Income-tax Officer found that a sum of Rs. 52,758 has been claimed as a bad debt. The assessee has filed the list. The statement of the proprietor, Shri Mohandass, was recorded and he stated that he is the sole-selling agent of Messrs. Atma Ram and Sons, Jodhpur, and has earned income by way of commission for a sum of Rs. 50,990. There was an employee by the name of Kishan Chand with Atma Ram and Sons, who used to collect the amount from the debtors of Atma Ram and Sons. A sum of Rs. 55,634 was collected by him and not paid to the firm, Messrs. Atma Ram and Sons, which was considered as an embezzlement by Shri Kishan Chand. A sum of Rs. 10,000 was recovered from him on October 20, 1979, and the balance amount of Rs. 45,634 was not recovered and, therefore, was claimed as a bad debt. The assessee, on being required to produce Kishan Chand, neither produced him nor furnished his address nor was any suit filed and even an F. I. R. for alleged embezzlement was not filed. The Income-tax Officer found that Kishan Chand was not a debtor and hence the amount cannot be allowed as a bad debt.

(3.) In appeal, before the Appellate Assistant Commissioner, it was contended that the assessee had to make payment of this amount to Atma Ram and Sons in accordance with the terms and conditions of the agreement, and, as such, the amount is an allowable deduction. According to the submission of the assessee before the Appellate Assistant Commissioner, the assessee was entitled to fix the percentage of commission on the sales by Atma Ram and Sons. If any debt turned into a bad debt, the assessee was responsible for it. The Appellate Assistant Commissioner found that Kishan Chand was an employee of the principal and, in the normal course of business, he was authorised to collect the amounts from the persons to whom goods were supplied and deposited the sum with the principal. Accordingly, it was held that the claim of the appellant has to be allowed as it arises in the normal course of business.